To the moon
Exploring the paradoxical rise and uncertain future of crypto
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Exploring the paradoxical rise and uncertain future of crypto
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The last 18 months have transformed cryptocurrency. Its growth has been faster than ever, yet its future has never been so unclear.
Flush with time on their hands and few activities to spend money on, many consumers have forayed into crypto trading for the first time during the pandemic.
Everyday consumers, many not sure exactly what the blockchain is, followed the viral trail of Reddit threads, where talk of “stonks” and “diamond hands” pushed thousands to collectively inflate the price of certain assets “to the moon”. This led to a whole new category of “meme stocks”, breathing life back into defaulting companies like GameStop and AMC, and shaking the market to its core.
This all leads to one big trend. Cryptocurrency, once only understood among a relatively fringe community of anti-establishment investors, is now becoming a household name – and quickly. Analysts estimate that the global cryptocurrency market will more than triple by 2030, hitting a valuation of nearly $5 billion. Whether they want to buy into it or not, investors, businesses, and brands can’t ignore the rising tide of crypto for long.
But crypto can’t seem to escape paradoxes anywhere. Investors believe in regulation, yet are worried about many of the impacts that regulation will bring about. They’re eco-conscious, but crypto has a huge carbon footprint.
Digging into these nuances is key to understanding overall consumer sentiment – and predicting consumer behavior – around a very uncertain future of cryptocurrency.
The number of cryptocurrency investors has been steadily increasing around the world for a while, but recent growth has been explosive.
What’s more, the profile of investors has evolved. In the age of meme stocks and stimulus checks, it’s not such a niche hobby anymore. Rather, everyday consumers have seen this new asset class as a way to pad their portfolios with potentially more rewarding, albeit riskier, assets.
% of internet users who say they own cryptocurrency
Compared to 2018, older consumers have begun to back crypto at much faster rates. In the U.S., consumers over 35 years old make up nearly half (47%) of those who expect to invest in cryptocurrency in the next 6 months.
For a lot of these current and potential investors, crypto offers a new way to handle their finances, and many also find that the financial freedom of crypto has liberated them from the rigidity of traditional banking.
% who say the following are the biggest benefits/drawbacks of cryptocurrency
More recently, the upsides of cryptocurrency have begun to attract institutions, and traditional finance is rushing to cater to the increased demand, such as U.S. Bank’s recent creation of a bitcoin custody service, which allows hedge funds to take a stake into digital currency.
While a larger pool of investment means greater potential for everyday investors, more institutional involvement also threatens digital currencies’ ability to operate outside of traditional finance. Here begins the paradox.
The institutional money that has been pouring into cryptocurrency over the past few years has begun to change the power structure of the market. Thirteen years ago, cryptocurrency recruited users out of a desire to shake up the exclusive, institutionalized world of finance; to create a widely accessible way to move money and pay for goods and services, regardless of individual circumstances.
Unlike traditional banks, you didn’t even need to have an address to trade in crypto; all you needed was an internet connection. Cryptocurrency, in principle, relies on the collective actions of everyday users to self-regulate; they keep the ledger of transactions – the blockchain – secure and updated, and the process allows anyone with a computer the ability to mine coins.
Fast-forward to 2021, and the future of cryptocurrency is quite different. Crypto enthusiasts aren’t the ones mining bitcoin anymore, nor are they the only ones profiting from its success. Over time, the mining network has been ring-fenced by a few companies who can provide the huge amounts of computing power and electricity required to mine at scale, making it very difficult for independent users to get involved.
At the same time, the realization that massive corporate investments, like one by Tesla which caused the price of bitcoin to jump 20% in a single day, cast further doubt on how democratic the market truly is.
What started out as a fringe movement has, like so many other things, gone corporate as a result of its own success.
Alongside corporations entering into the market, crypto trading and mining has caught the eye of government overseers like never before.
Since the invention of bitcoin, governments have done relatively little compared to traditional investment categories to regulate or moderate the market. For the most part, cryptocurrency has been allowed to spread around the world as a uniquely decentralized financial asset.
Now, the laissez-faire attitude toward decentralized finance is waning. Perhaps surprisingly, investors are actually supportive of new regulations, though they have quite conflicting views about what these policies could mean and who should create them.
% who say they support/oppose government regulation of crypto
The details of what government oversight will look like, however, matter a great deal to investors.
On the one hand, many investors believe greater regulation could legitimize the fledgling marketplace – enabling more businesses to accept digital currencies, increasing their value and security from fraud, all while reducing volatility and criminal activity.
On the other hand, many also worry cryptocurrency regulation could effectively limit its peer-to-peer nature, which drew initial investors in. They also see drawbacks to crypto regulation as a potentially larger threat, not just to their wallets, but to the individual freedoms they currently experience in the decentralized and anonymous marketplace.
% who say the following are the biggest benefits/drawbacks of crypto regulation
The paradox here lies in the difficult balance between wanting regulation, and fearing the loss of the fundamental character of crypto that would result from that very regulation.
Regulation offers protection and stability; while crypto has thrived from volatility and anonymity. But currencies can’t operate without being regulated, especially not to the scale that crypto has reached.
Finding a middle ground between regulating a lawless commodity and allowing it to continue to build value will be a challenge for governments, coin exchanges, and investors alike.
For this reason, support for regulation is directed not toward governments, but toward payment companies and exchanges themselves. While many consumers are mistrustful of industries that are allowed to self-regulate, in this case they see it as a potential solution to the unique risks of crypto regulation.
% who say they trust the following institutions most to lead the regulation of crypto
While this does not reflect well on consumer views of their government, it does bode well for brands. Building trust and credibility in the crypto space is, in the eyes of consumers, easier if you’re not a government entity. Perhaps this reflects the anti-establishment ethos of crypto’s early culture.
Either way, it certainly presents opportunities for brands in technology and related fields to become a trusted partner, educator, and safety net – swooping in to fill the gap where governmental trust is lacking.
Crypto has always been volatile, both in price and in consumers’ perception. Despite the explosion in recent years, what the future of cryptocurrency holds is still unclear.
For the average investor, for government regulators, and for those attempting to make crypto greener, this is a time of paradoxes to navigate. If one thing is certain, it’s that the market in 5 years’ time could be just as unrecognizable to us now as the market was 5 years ago.
While the future of cryptocurrency will be shaped by regulators, it can also be influenced by brands, many of which are jumping into the market to fill the needs of the growing marketplace that governments have so far ignored. This can be through facilitating trades in a more comfortable, safe environment for “newbies,” or offering education and resources for curious intenders.
Peer-to-peer payment app Venmo is doing both of these things – offering its customers the opportunity to use a platform they’re already comfortable with to dip their toes into crypto, and providing easy-to-understand content to help educate intenders along the way. Established finance brands and fintech disruptors alike can be a bridge to the future of crypto.
Part of that future means leaning in to the changing profile of investors, and anticipating what the more “mainstream” audience might demand. Traditional payment companies that offer access and education will no doubt make the market more attractive for older investors, while the growing list of businesses accepting the digital currencies can make the market feel safer and more stable.
Whatever the future of cryptocurrency holds, there’s a lot of work to be done to balance the risks with the rewards, and there’s a lot of opportunity for the brands and individuals who take on the task.
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