The bear market within cryptocurrency has lasted for a while. We take a look and why people aren’t investing in cryptocurrency and how it’s impacting the market.
Regulation
Regulation is currently a hot topic in the cryptosphere. Most regulation news comes from the Securities and Exchange Commission (SEC) in the US. In fact, the SEC has been clamping down so hard, popular exchange Bitmex banned US traders altogether to prevent the SEC from touching its business. Generally, cryptocurrency is an unregulated industry. This carries with it high levels of risk – a major reasons why people don’t feel comfortable enough to keep investing in cryptocurrency.
A notable incident involved Tone Vays, who had his Bitmex account closed following suspicions that suggested he was a US citizen.
Arguably, much of the heated regulation debate over recent years has been a product of the notorious Initial Coin Offering (ICO) phase.
ICOs are a special event in which companies promote their upcoming projects by offering a token presale.
However, they fell under scrutiny following several incidents of companies hiring celebrities to endorse and shill questionable projects.
One such incident involved Floyd Mayweather and DJ Khaled falling under charges from the SEC.
ICOs are just one aspect of the regulatory debate. The problem with regulation, at the moment, is partially due to jurisdiction.
For instance, as finance consultant Peter Smith recently told Coin Rivet, if coins are not being minted in a certain country, there is not much the authorities in those countries can do about it.
Scalability
Another reason why people aren’t investing in cryptocurrency is its lack of scalability.
In a highly digitised world, with payment processors such as PayPal having the ability to conduct countless transactions every second, the same is expected of cryptocurrency.
However, due to the nature of blockchain and crypto technology, this isn’t possible without scaling solutions.
Scaling solutions provide an answer to this ongoing issue, and it is the aim of these solutions to help promote mainstream adoption.
For example, the Lightning Network is a Layer 2 scaling solution for Bitcoin. Previously, Bitcoin has been plagued with slow transaction times and throughput (at least in comparison to Visa), but with the Lightning Network, this has changed.
In theory, Bitcoin could now process unlimited transactions providing the Lightning Network channel was well funded. The problem now lies in the adoption of these scaling solutions.
But, there are still factors that play into how well the Lightning Network can enhance transaction throughput and speed.
Unfortunately, while scaling solutions do currently provide an upgrade to current networks, they do have a long way to go before the issue is completely solved.
Like with any technology, scaling solutions need time to mature before the end product can be realised.
Interested in reading more about scaling solutions? Discover more about whether the issue of scalability has been solved here.
Volatility
Price volatility is arguably the biggest reason why people we think twice about investing in cryptocurrency. While crypto can net you a tidy amount of profit if you know how to invest and trade properly, it can also ruin you.
This is because prices are incredibly volatile and liable to change at any given moment.
This amount of volatility creates an uneasy tension in investors, since they cannot reliably swap their fiat (national currency) to crypto without risk.
The Bitcoin white paper outlined how it wanted to become a peer-to-peer, decentralised, alternative payment system.
But, if we cannot use crypto reliably, then it currently cannot serve as an alternate payment system.
This isn’t to say it cannot happen. You only need to look at Venezuela to see the merit and benefits cryptocurrency could bring.
Venezuela is currently suffering from hyperinflation, making its national currency worthless. Since then, many Venezuelans have started looking into cryptocurrency to ensure their money retains value.
While crypto markets are volatile, and do not appear to be close to mainstream adoption just yet because of this, cases like the one in Venezuela showcase how crypto is slowly being integrated across the world.
Interested in reading more about how Bitcoin could aid Venezuela? Discover how it might be able to help citizens during the economic crisis here.
Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.