The Cryptos News | Daily Bitcoin News
  • Home
  • News
  • Market Cap
  • Top Cryptos
    • Bitcoin (BTC)
    • Ethereum (ETH)
    • Binance Coin (BNB)
    • Cardano (ADA)
    • Solana (SOL)
    • Tether (USDT)
    • XRP (XRP)
    • Polkadot (DOT)
    • Dogecoin (DOGE)
    • USD Coin (USDC)
  • Prices
  • Wallet
  • Crash
  • Investment
  • Exchange
  • Mining
  • Trading
  • Home
  • News
  • Market Cap
  • Top Cryptos
    • Bitcoin (BTC)
    • Ethereum (ETH)
    • Binance Coin (BNB)
    • Cardano (ADA)
    • Solana (SOL)
    • Tether (USDT)
    • XRP (XRP)
    • Polkadot (DOT)
    • Dogecoin (DOGE)
    • USD Coin (USDC)
  • Prices
  • Wallet
  • Crash
  • Investment
  • Exchange
  • Mining
  • Trading
The Cryptos News | Daily Bitcoin News
No Result
View All Result
Home Mining

Op-ed: The toughest challenges for cryptocurrency lie ahead, not in the rear-view mirror

Op-ed: The toughest challenges for cryptocurrency lie ahead, not in the rear-view mirror
Share on FacebookShare on Twitter


More than a third of millennials and half of Generation Z would be happy to receive 50% of their salary in cryptocurrencies, revealed a study.

Srdjanpav | E+ | Getty Images

With more than $1 trillion in cryptocurrency value wiped out since the 2021 high-water mark, many investors may be tempted to enter the cryptocurrency orbit at a potentially attractive, lower price point.

After all, previous dramatic drawdowns in cryptocurrency valuations have been followed by explosive growth — and all this volatility could be justified as the expectedly bumpy price discovery process of an important brand-new asset class.

However, the most profound risks to cryptocurrency investing may lie ahead, rather than in the rear-view mirror. Investors contemplating a long-term allocation to cryptocurrencies should remain wary for five primary reasons.

1. Bitcoin’s risk-adjusted return has been ‘unremarkable’

After a dazzling first decade, bitcoin has become a somewhat troubled teenager. In its heady early days, bitcoin had near-zero correlation with broad equities and commodities, providing the potential for true portfolio diversification.

However, as cryptocurrency investing has become more mainstream, and especially since 2020, bitcoin’s correlation with U.S. equities and bonds has spiked sharply and remained consistently positive.

That might be fine if bitcoin offered spectacular risk-adjusted returns as compensation. Unfortunately, recent empirical evidence shows otherwise: since 2018, bitcoin’s risk-adjusted return has been quite unremarkable compared to equities and bonds.

2. Crypto ‘safe haven’ properties remain unproven

Despite all the hype as digital gold, cryptocurrencies have failed to demonstrate either “safe haven” or inflation-fighting properties when faced with actual market volatility or the first real bout of serious inflation in developed markets.

Between 2010 and 2022, bitcoin recorded 27 episodes of drawdowns of 25% or more. By comparison, equities and commodities recorded just one each. Even in the pandemic-related market selloff of March 2020, bitcoin suffered significantly deeper drawdowns than conventional asset classes like equities or bonds.

More from Personal Finance:
This former financial advisor pivoted to teach advisors about crypto
80% of socially responsible ESG investors also own cryptocurrency
Some experts say a recession is coming. Here’s how to prepare your portfolio

Similarly, while the fixed supply of bitcoin — hardcoded into its blockchain — might imply a resistance to monetary debasement, in the recent episodes of elevated global inflation, bitcoin has provided limited inflation protection with prices tumbling even as inflation spikes in the U.S., U.K. and Europe.

3. Cryptocurrencies conflict with ESG goals

Cryptocurrencies remain deeply problematic from an environmental, social and governance, or ESG, perspective. That’s true even if the transition from proof-of-work to proof-of-stake that blockchain-based software platform ethereum is spearheading reduces the massive energy consumption underpinning crypto mining and validation.

Environmentally, bitcoin — which represents more than 40% of current cryptocurrency market cap — will continue to use a validation process where a single transaction requires enough energy to power the average American home for two months.

Socially, cryptocurrencies’ promise of financial inclusiveness also appears overblown, with crypto wealth as unequally distributed as conventional wealth, and with simple phone-based payment services such as M-Pesa in Kenya or Grameen Bank’s international remittance pilots in Bangladesh already providing a digital platform for underbanked households — without the need for a new currency or payment infrastructure.

Most troublingly for investors with ESG goals, however, are the governance issues with cryptocurrencies whose decentralized frameworks and anonymity make them especially attractive for illicit activity, money laundering and sanction evasion.

The increased trading between ruble and cryptocurrencies following sanctions on Russia after the Ukraine war suggest that the evasion of financial sanctions is not just a theoretical concern. Market manipulation is another area of governance concern, especially with celebrity crypto influencers who can send market prices soaring or tumbling with impunity.

4. Stablecoins ‘could well be made redundant’

Even putting aside the recent implosion of the Terra stablecoin, the surviving universe of stablecoins face a potentially existential risk: They could well be made redundant once central bank digital currencies, also called CBDCs, become commonplace. This is because a digital dollar, euro or sterling would provide all the functionality of stablecoins — but with almost no liquidity or credit risk.

In other words, even if stablecoins transformed from their current status as unregulated money market funds (with limited transparency into or auditing of reserves) into regulated digital tokens, they would afford no benefit over CBDCs. Importantly, these central bank digital currencies may not a distant prospect. China has already launched an electronic currency known as the digital yuan, or e-CNY.

The Fed released a long-awaited study on a digital dollar at the start of 2022, and the ECB will share its findings on the viability of a digital euro in 2023.

5. Patchwork regulation creates uncertainty

Finally, a lack of clear and uniform cryptocurrency regulation — both within and across countries — creates tremendous uncertainty for long-term investors. It is still unclear in the U.S., for example, when a cryptocurrency falls under the regulatory framework of a security subject to Securities and Exchange Commission regulations and when it is deemed to be an asset or commodity like bitcoin and ether have claimed.

Indeed, in some countries, cryptocurrencies are facing outright prohibition. China’s abrupt banning of all cryptocurrency trading and mining in 2021 is a prominent example, but by no means the only one. Regulators have also been concerned with the notable and repeated breakdowns in the infrastructure supporting cryptocurrency mining and trading — another area where there remains significant regulatory uncertainty.

Of course, momentum, retail speculation, and the “fear of missing out” may continue to drive up the short-term price of bitcoin, ether and other cryptocurrencies. But there are enough dark clouds on the cryptocurrency horizon that long-term investors may want to observe carefully from the sidelines to better understand fact vs. fiction and true value versus social media hype before deciding how, where and if to invest in the crypto ecosystem.

— By Taimur Hyat, chief operating officer of PGIM.



Read More:
Op-ed: The toughest challenges for cryptocurrency lie ahead, not in the rear-view mirror

Tags: Aheadbusiness newschallengesChinaCryptocurrencyCryptocurrency ExchangesInvestment strategylieMirrorOpedPersonal FinancerearviewtoughestUnited StatesWealth
Previous Post

Careebeen’s largest cryptocurrency trading platform, Moneta Digitec, will be launching its

Next Post

Africa Ready For Crypto Adoption, Says A Crypto Exchange CEO – Tekedia

Related Posts

Public weighs in on noise from bitcoin mining operation

Public weighs in on noise from bitcoin mining operation

by The Cryptos News
July 30, 2022
0

NIAGARA FALLS, N.Y. — Frank Peller couldn’t understand what was happening outside his home.“I thought it was a 747...

Chinese Fake Loan App Racket Used Crypto, Apple, Google Questioned On Crypto Apps Review,

Cryptojacking Cases Are Rising Globally, Why So And Should This Worry You?

by The Cryptos News
July 30, 2022
0

According to the internet security company Kaspersky, cryptojacking is an act of mining cryptocurrency by hacking into someone else’s...

Chainalysis Report Says $2.2 Million in Crypto Has Been Sent to Pro-Russian Groups in

Chainalysis Report Says $2.2 Million in Crypto Has Been Sent to Pro-Russian Groups in

by The Cryptos News
July 29, 2022
0

According to a report stemming from the blockchain intelligence company Chainalysis, the firm identified 54 pro-Russian groups that have...

Prices of Ethereum’s original coin ETH soar as miners migrate ahead of Merge

Prices of Ethereum’s original coin ETH soar as miners migrate ahead of Merge

by The Cryptos News
July 29, 2022
0

Over the past two weeks Ethereum’s popular ETH coin jumped by nearly half as confidence builds over its hotly-anticipated...

Next Post
Africa Ready For Crypto Adoption, Says A Crypto Exchange CEO – Tekedia

Africa Ready For Crypto Adoption, Says A Crypto Exchange CEO - Tekedia

Subscribe
Login
Notify of
guest
guest
0 Comments
Inline Feedbacks
View all comments

Trending News

Payperless Crypto Wallet announced working on NFT tokens support

Payperless Crypto Wallet announced working on NFT tokens support

June 25, 2022
June’s Red-Hot Inflation Report Rattled Bitcoin and Ethereum Prices. What That Means for

June’s Red-Hot Inflation Report Rattled Bitcoin and Ethereum Prices. What That Means for

July 14, 2022
Ripple’s Counsel Urges US Lawmakers to Urgently Pass ‘Sensible’ Crypto Legislation Amid

Ripple’s Counsel Urges US Lawmakers to Urgently Pass ‘Sensible’ Crypto Legislation Amid

July 30, 2022
ADVERTISEMENT

Investment

Buying Bitcoin on the Dip? 3 Things the Smartest Investors Know About Crypto | The Motley

Buying Bitcoin on the Dip? 3 Things the Smartest Investors Know About Crypto | The Motley

July 30, 2022
Study up and become a more informed crypto investor with this bundle

Study up and become a more informed crypto investor with this bundle

July 30, 2022
Crypto Exchange KuCoin Launches NFT ETFs By Benzinga

Crypto Exchange KuCoin Launches NFT ETFs By Benzinga

July 30, 2022
Is It Right Time To Invest In Crypto Market? Crypto Expert Shares Bullish Indicator

Is It Right Time To Invest In Crypto Market? Crypto Expert Shares Bullish Indicator

July 29, 2022
$ETH-Based Investment Products Leading Bounce-Back in July, Says CryptoCompare Research

$ETH-Based Investment Products Leading Bounce-Back in July, Says CryptoCompare Research

July 29, 2022

Prices

Latest Report Shows Cryptojacking Increased By 30% During The Crypto Slump

Latest Report Shows Cryptojacking Increased By 30% During The Crypto Slump

July 30, 2022
Tron price prediction as Unifi Protocol TVL explodes

Tron price prediction as Unifi Protocol TVL explodes

July 30, 2022
Bitcoin and Ethereum Prices Are As High As They’ve Been Since June Crypto Crash, But

Bitcoin and Ethereum Prices Are As High As They’ve Been Since June Crypto Crash, But

July 30, 2022

Crypto Flipsider News – Crypto Market Rally; Nirvana (NIRV) Exploited; Vasil Delayed;

July 29, 2022

Trading

CoinFLEX: Amid liquidity crisis, the cryptocurrency exchange had this to say

CoinFLEX: Amid liquidity crisis, the cryptocurrency exchange had this to say

July 30, 2022
SEC Chairman Publishes Video Outlining Plan to Regulate Crypto Trading Platforms –

SEC Chairman Publishes Video Outlining Plan to Regulate Crypto Trading Platforms –

July 30, 2022
Analysis | Why the Crypto World Flinches When the SEC Calls Coins Securities

Analysis | Why the Crypto World Flinches When the SEC Calls Coins Securities

July 29, 2022
FTX wins full approval to operate crypto exchange in Dubai

FTX wins full approval to operate crypto exchange in Dubai

July 29, 2022
Crypto exchange Zipmex files for bankruptcy protection in Singapore

Crypto exchange Zipmex files for bankruptcy protection in Singapore

July 29, 2022
  • About Us
  • Contact Us
  • Terms of Use
  • Privacy Policy
  • DMCA

© 2021 Thecryptosnews.com

No Result
View All Result
  • Home
  • News
  • Market Cap
  • Top Cryptos
    • Bitcoin (BTC)
    • Ethereum (ETH)
    • Binance Coin (BNB)
    • Cardano (ADA)
    • Solana (SOL)
    • Tether (USDT)
    • XRP (XRP)
    • Polkadot (DOT)
    • Dogecoin (DOGE)
    • USD Coin (USDC)
  • Prices
  • Wallet
  • Crash
  • Investment
  • Exchange
  • Mining
  • Trading

© 2021 Thecryptosnews.com

wpDiscuz