People often claim that cryptocurrency is in decline due to its volatility, the challenges of exchanging it for other digital assets, its decentralized and unregulated nature, and the susceptibility to cyber hacking. Let's delve into these factors in more detail.
Volatility
The unpredictable price fluctuations make it challenging to anticipate gains or losses. Continuous spikes and significant dips can be difficult to navigate over the long term, impacting potential returns. One can observe the notable highs and lows of cryptocurrencies like TerraUSD or XRP in 2023 alone, reflecting the bumpy journey their prices have taken.
While volatility may not be the demise of crypto itself, it could discourage even risk-tolerant investors, especially as crypto prices often operate independently of broader markets, unlike other asset classes.
Exchanging Assets
Cryptocurrencies were developed independently, leading to difficulties in exchanging one for another, despite the advancements in platforms like Binance, Coinbase, and ICONOMI. Although some platforms allow token and coin exchanges, it remains more challenging than selling stocks or exchanging traditional currency, introducing higher liquidity risks compared to assets like US Securities.
Unregulated
The decentralized nature of crypto means it operates without regulation, increasing the risk associated with this asset class. The absence of oversight, as seen in events like the FTX collapse, exposes it to potential exploitation. In contrast, traditional markets such as stocks and bonds thrive under significant regulations, providing a safer environment for wealth growth and instilling confidence in retail and institutional investors.
Cyber Hack
The rise of cyber hacking targeting crypto exchanges and assets adds another layer of risk. Despite the challenges of hacking crypto, the intelligence and motivation of cybercriminals pose a threat. For instance, the August 2021 attack on Poly Network resulted in the theft of over $610 million. The decentralized nature of crypto presents challenges in addressing such incidents compared to traditional investments, where regulatory bodies offer recourse.
Why Crypto Can't Die
While skepticism about crypto's risks may deter some investors, it's essential to recognize that crypto, operating on a public ledger and blockchain technology, cannot be shut down. However, governments, particularly powerful ones like the US and China, may seek to regulate it, potentially diminishing its unique advantages.
Conclusion
Crypto is far from dead; however, it remains a controversial investment class for various reasons. Filtering out the noise and focusing on fundamentals can help assess its suitability based on individual circumstances. No entity can or should shut down cryptocurrencies, but it might not be the right investment class for everyone. Seeking financial advice is prudent, and exploring our comparison table can be a useful starting point for research on different exchanges and their workings.