Cryptocurrencies have become a disruptive force in the fast-paced world of finance and technology, with the potential to change the structure of the global economy. The subject of these digital assets’ future trajectory becomes more important as they continue to attract interest, speculation, and investment. And, that’s why there is always this question that pops up – ‘what is the future of cryptocurrency?’
The interaction of innovation, regulation, and societal adoption will be crucial in determining the direction that cryptocurrencies take going forward. This investigation digs into major trends and events that are expected to shape how cryptocurrencies are used in the future, from decentralized finance and public acceptability to technical breakthroughs and environmental concerns. The emergence of cryptocurrencies promises to be an exciting adventure with broad consequences, even though the future is far from definite. Let’s take a closer look at the future of cryptocurrency.
Shaping Crypto Evolution
The future of cryptocurrency holds a range of possibilities that could significantly impact various aspects of the global economy and technological landscape. While the exact trajectory is uncertain, several key trends and developments are likely to shape the evolution of cryptocurrencies in the coming years.
1. Mainstream Adoption
Cryptocurrencies are gradually gaining acceptance among traditional financial institutions, corporations, and individuals. Increased regulatory clarity, improved infrastructure, and growing awareness could lead to widespread adoption.
2. Central Bank Digital Currencies (CBDCs)
Many countries are exploring the creation of their own digital currencies, known as CBDCs. These government-backed digital currencies could reshape the financial system, offering greater efficiency and control over monetary policy.
3. Decentralized Finance (DeFi)
DeFi platforms and applications are disrupting traditional financial intermediaries by offering decentralized lending, borrowing, trading, and yield farming. This trend could lead to a more inclusive and accessible global financial ecosystem.
4. Non-Fungible Tokens (NFTs)
NFTs are unique digital assets representing ownership of art, collectibles, and more. Their potential extends to various industries, including art, gaming, real estate, and intellectual property rights.
5. Scalability and Interoperability
Blockchain networks are working on improving scalability and interoperability to handle a higher number of transactions and communicate effectively with one another, which could address current limitations.
6. Enhanced Privacy and Security
Cryptocurrencies are evolving to provide stronger privacy features to protect user identities and transaction details while maintaining compliance with regulations.
7. Integration with Traditional Finance
Cryptocurrencies are increasingly being integrated into traditional financial services, including payment systems, remittances, and investment products.
8. Global Regulatory Landscape
As cryptocurrencies become more prominent, governments and international bodies are crafting regulatory frameworks to address issues such as taxation, investor protection, and combating illicit activities.
9. Technological Advancements
Ongoing advancements in blockchain technology, smart contracts, and cryptographic techniques could lead to innovative use cases and novel applications beyond the current scope.
Cryptocurrency’s Evolution as the Currency of Tomorrow
Cryptocurrency has the potential to be the future of money due to several compelling reasons:
- Decentralization: Cryptocurrencies operate on decentralized blockchain technology, eliminating the need for intermediaries like banks or payment processors. This peer-to-peer nature reduces costs, enhances security, and empowers individuals to have greater control over their financial transactions.
- Global Accessibility: Cryptocurrencies are borderless and can be accessed by anyone with an internet connection. This inclusivity is especially beneficial for individuals who lack access to traditional banking services or live in regions with underdeveloped financial infrastructure.
- Financial Inclusion: The unbanked and underbanked can receive financial services via cryptocurrencies, allowing them to take part in the global economy and have access to resources like savings, loans, and investments.
- Fast and Low-Cost Transactions: Cryptocurrency transactions are often quicker and cheaper compared to traditional cross-border transactions, which can involve multiple intermediaries and take days to settle. This efficiency is particularly advantageous for international remittances and e-commerce.
- Security and Transparency: Blockchain technology ensures the security and immutability of transactions. Every transaction is recorded on a transparent and tamper-proof ledger, reducing the risk of fraud and enhancing trust among users.
- Smart Contracts: Using cryptocurrencies, you may create self-executing contracts that, when certain criteria are satisfied, automatically enforce contracts. Several industries, including law, supply chain management, and real estate, can use this capability.
- Innovation and Technological Advancement: The development of cryptocurrencies has spurred innovation in various fields, including cryptography, distributed computing, and consensus algorithms. This innovation could lead to new solutions and applications beyond just financial transactions.
- Hedging Against Inflation and Economic Instability: Some cryptocurrencies, like Bitcoin, have a fixed supply, making them potentially attractive as a store of value in times of economic uncertainty or when traditional fiat currencies experience inflation.
- Reduced Dependency on Banks: Cryptocurrencies provide an alternative to traditional banking systems, reducing dependency on centralized financial institutions and giving individuals more control over their money.
- Democratization of Finance: Initial Coin Offerings (ICOs) and tokenization have opened up new avenues for fundraising and investment, allowing startups and projects to access capital directly from a global audience.
Noteworthy Cryptocurrency Forecasts to Keep an Eye On in 2023
Let’s also look at some forecasts for the future of cryptocurrency.
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Crypto Forecast Number 1: Influence of VIX Surges on Bitcoin’s Performance
In 2021, the stock market did well, but Arcane Research stated that Bitcoin’s performance was directly influenced by fear in the broader financial markets. Increases in the Cboe Volatility Index (VIX) corresponded with Bitcoin sell-offs. The VIX is often referred to as the “fear gauge” of Wall Street, as it measures the market’s expectations for price turbulence or volatility in the S&P 500 stock index. Traditionally, the VIX tends to rise during periods of risk aversion and market uncertainty, reflecting investors’ fear of potential declines in stock prices.
However, a notable change has occurred recently in the correlation between the VIX and Bitcoin’s price. Deribit, the crypto options exchange, has introduced its forward-looking Bitcoin Volatility Index (DVOL), which measures Bitcoin’s 30-day implied or expected volatility using options order book data. Unlike the VIX for equities, the DVOL has developed a positive correlation with Bitcoin’s price, meaning that as Bitcoin’s price rises, the DVOL tends to rise as well. This positive correlation between Bitcoin’s price and DVOL has been observed since early January 2023 and has remained significant, making call options tied to Bitcoin more appealing to traders and investors.
The positive correlation between DVOL and Bitcoin’s price implies that call options stand to benefit from both favorable directional movement (spot gains) and an uptick in implied volatility (volatility gains) during bullish market conditions. In simpler terms, during periods of rising Bitcoin prices, call options have the potential to experience faster price appreciation compared to put options, which are associated with bearish market sentiment.
It’s worth noting that in 2022, Bitcoin’s price declined after an 18-month bullish trend, leading to panic buying of put options. During that time, the DVOL acted more like a fear gauge, spiking during significant price sell-offs. However, the situation changed in 2023, with the DVOL now showing a positive correlation with Bitcoin’s price.
The positive correlation between Bitcoin’s price and DVOL has resulted in increased demand for call options as traders seek to capitalize on the potential for both spot gains and volatility gains. This has been particularly rewarding for call buyers, and it has contributed to a significant shift in the options market’s dynamics in relation to Bitcoin.
In summary, the traditional VIX for equities continues to be used as a fear gauge, rising during times of market uncertainty, while the DVOL for Bitcoin has developed a positive correlation with Bitcoin’s price, making call options more attractive during bullish market conditions.
According to Arcane Research, challenges in the market during 2022 could impact Bitcoin’s short-term price direction.
The Fear and Greed Index for cryptocurrencies measure market sentiment and helps traders understand if the market is fearful or greedy. This index considers factors like volatility, market momentum, volume, and social media sentiment. It gives insights into whether investors are feeling overly cautious (fear) or overly confident (greed).
For instance, if there’s a lot of fear, it might indicate a good time to buy, as people might be too cautious. On the other hand, if there’s a lot of greed, it might mean the market is overheating. This index doesn’t focus on long-term trends but reacts to current news events and short-term changes.
In essence, the Fear and Greed Index assists traders in making informed decisions by analyzing market conditions. It was created to help gauge crypto traders’ sentiments at a specific time and guide them in identifying their next steps. It’s crucial to note that this index relies on accurate data and thorough analysis to avoid making faulty decisions based on misleading information.
The Fear and Greed Index was originated in 2011 by CNN Money as a way to measure investors’ emotions and sentiments toward the market. It ranges from 0 to 100, with high values indicating confidence and low values indicating fear and uncertainty. It’s a tool to help traders navigate the ever-changing cryptocurrency market.
Crypto Forecast Number 2: USD Coin to Surpass Tether as Dominant Stablecoin
Tether has maintained its position as the largest stablecoin by cryptocurrency valuation. However, it could face competition from USD Coin (USDC), which is gaining momentum in the stablecoin market. USDC has recently surpassed Tether in terms of supply on the Ethereum blockchain, making it the largest stablecoin on that network. This shift in dominance is attributed to the growth of USDC’s supply, particularly driven by its adoption in the Decentralized Finance (DeFi) sector.
Stable coins like Tether and USD Coin are designed to have a value tied to a fiat currency, reducing volatility and providing a more stable option for transactions. While Tether remains the largest fiat token overall, USDC’s ascent on the Ethereum blockchain reflects its increasing popularity, especially in DeFi applications.
In the larger context of the stablecoin market, this shift underscores the dynamic nature of cryptocurrency markets and the competition among different stablecoins.
As of now, Tether’s dominance as the largest stablecoin is being challenged by the rising popularity of the USD Coin, particularly on the Ethereum blockchain. This development reflects the evolving landscape of stablecoins and their utilization in various sectors within the crypto ecosystem.
Crypto Forecast Number 3: Most Meme Tokens to Vanish
Last year witnessed incredible price surges in the cryptocurrency market, particularly within the realm of meme coins. Notably, a Dogecoin spinoff known as Shiba Inu saw an astonishing increase of 44,540,000 percent in its value.
Another coin named Squid, inspired by the popular television drama “Squid Game,” experienced a remarkable surge of more than 75,000 percent within a week, only to disappear shortly thereafter.
These instances highlight the highly volatile and speculative nature of the cryptocurrency market, where meme coins can experience meteoric rises and swift declines.
Shiba Inu’s remarkable climb and Squid’s rapid ascent followed by disappearance underscore the speculative and unpredictable dynamics of meme coins.
These coins often attract attention due to their association with trends, pop culture references, or celebrity endorsements. While they can yield substantial gains for some investors, they also carry significant risks due to their potential for sudden and dramatic price fluctuations.
Crypto Forecast Number 4: Ether’s Performance to Once Again Surpass Bitcoin’s
In 2021, Ethereum outperformed Bitcoin in terms of price appreciation, with Ethereum gaining 418 percent compared to Bitcoin’s 66 percent increase. This substantial growth in Ethereum’s value was attributed to various factors, one of which was the surge in sales volumes of Non-Fungible Tokens (NFTs), a type of digital asset that represents ownership or proof of authenticity of a unique item using blockchain technology. Many NFTs were and are still created and traded on the Ethereum blockchain.
As of 2022, the information on Ethereum outperforming Bitcoin in terms of price appreciation still holds true. In 2021, Ethereum experienced a substantial increase, gaining 418% compared to Bitcoin’s 66% in value. The surge in Ethereum’s value was attributed to various factors, including the increasing popularity of Non-Fungible Tokens (NFTs), which were being created and traded on the Ethereum blockchain. NFTs are a type of digital asset that represents ownership or proof of authenticity of a unique item using blockchain technology. Ethereum’s blockchain provided the infrastructure for many NFT projects, making it a significant contributor to Ethereum’s price appreciation.
In addition to NFTs, Ethereum’s value growth can be attributed to its position as a bedrock cryptocurrency for blockchain infrastructure, having the largest developed community of any crypto asset, and operating a decentralized network. Ethereum’s network has seen the development of numerous applications, with almost 3,000 applications built on the platform. This strong ecosystem and the growing use cases contributed to Ethereum’s popularity and price increase.
Bitcoin, on the other hand, has been the pioneer of the cryptocurrency movement and is often referred to as “digital gold” due to its capped supply of 21 million bitcoins, which adds to its value reserve concept. Bitcoin’s value appreciation was also supported by institutional investors and large companies, with some of them buying Bitcoin to hold on to their balance sheets.
It’s important to note that cryptocurrency prices are highly volatile and can fluctuate significantly over time. By 2022, the price of Ethereum was significantly lower than its all-time high in late 2021, reaching around $1,835.07 USD. This shows the potential risks and rewards associated with investing in cryptocurrencies.
As the cryptocurrency market continues to evolve, the performance of different cryptocurrencies may change based on various factors such as technological developments, regulatory changes, market sentiment, and overall adoption.
One notable example of Ethereum’s NFT-related growth was the sale of a digital art piece as the world’s most expensive NFT for over 38,000 ETH (approximately 69.3 million U.S. dollars) in 2021. This event garnered significant attention and contributed to Ethereum’s price rally. Additionally, Ethereum’s technological developments, such as the ‘Berlin update’ that led to the Ethereum Merge and reduced transaction fees, also played a role in boosting its value.
Furthermore, Ethereum’s connection to the decentralized finance (DeFi) industry further fueled its growth. DeFi applications, powered by Ethereum’s blockchain, aim to remove intermediaries from financial transactions and have gained popularity in recent years. Ethereum’s future developments and price performance have become closely tied to the success of the DeFi industry.
Crypto Forecast Number 5: Bitcoin’s Performance Relative to the S&P 500’s Varies
The correlation between Bitcoin’s price movement and the stock market has been a topic of interest and analysis. Historically, Bitcoin was often considered a relatively independent asset, with its value being less influenced by the traditional stock market. However, over time, the relationship between Bitcoin and the stock market has shown periods of correlation, and this correlation has implications for its performance in various market conditions.
In 2021, despite the global threat posed by the coronavirus pandemic, both Bitcoin and the S&P 500, a benchmark stock index, demonstrated impressive gains. In 2022, both Bitcoin and the S&P 500 continued to demonstrate impressive gains despite the ongoing global threat posed by the coronavirus pandemic. Bitcoin’s price saw a substantial increase of 66%, while the S&P 500 climbed around 27%. The positive performance of these assets can be attributed to various factors, including increased adoption and growing interest from both retail and institutional investors.
One crucial factor contributing to the growth of Bitcoin was its increasing correlation with traditional assets like stocks.
Another important aspect that fueled Bitcoin’s growth in 2022 was the increase in adoption and accessibility. Payment applications like PayPal, with its vast user base of nearly 350 million users, announced plans to allow buying, selling, holding, and accepting Bitcoin and other cryptocurrencies as a form of payment.
This move expanded the accessibility of cryptocurrencies to a wider audience and brought the concept of decentralized finance to more people, enhancing interest in Bitcoin as a safe-haven asset amidst growing inflation concerns.
The positive performance of both Bitcoin and the S&P 500 in 2022 was influenced by various factors, including increased adoption, growing interest from institutional investors, stronger correlation with traditional assets like stocks, and concerns about inflation and financial stability. These factors collectively contributed to the growth of Bitcoin and its position as an asset of interest in the global financial landscape during that year.
Crypto Forecast Number 6: Cryptocurrency Draws Increasing Regulatory Scrutiny
Cryptocurrency regulation is expected to be a significant focus in 2023, with various aspects of the industry likely to come under scrutiny from regulators. Vijay Ayyar, the Vice President of Corporate Development and Global Expansion at the crypto exchange Luno, has predicted that 2023 will be a crucial year for regulatory developments in the crypto space.
Stablecoins, which are digital tokens tied to the value of assets like the U.S. dollar, are expected to be a notable focus of regulatory efforts. One prominent stablecoin, Tether, has faced controversy and questions regarding whether it holds sufficient reserves to back its value being tied to the dollar.
The broader cryptocurrency market has experienced significant volatility, and this has led to concerns among regulators about investor protection, financial stability, and potential illicit activities. Regulatory bodies are seeking to strike a balance between fostering innovation in the cryptocurrency space and ensuring consumer safety.
Efforts to regulate the crypto industry are not limited to a single jurisdiction. Regulatory agencies around the world are considering how best to oversee and manage the rapidly evolving digital asset landscape.
Crypto Forecast Number 7: Progressing Towards a Decentralized Finance (DeFi) Landscape
Emerging crypto developments in the form of decentralized finance (DeFi) and decentralized autonomous organizations (DAOs) are poised to be the highest growth areas within the cryptocurrency industry. Bryan Gross, the network steward at the crypto platform ICHI, believes that these innovations will drive significant growth in the crypto market.
Decentralized Finance (DeFi) aims to revolutionize traditional financial products by eliminating intermediaries. It provides a way for users to access financial services like lending, borrowing, trading, and earning interest directly on the blockchain, without the need for traditional banks or financial institutions.
Decentralized Autonomous Organizations (DAOs) represent a new paradigm in governance and community-driven decision-making. DAOs are organizations that are run by code and governed by a decentralized network of participants, allowing for more inclusive and democratic decision-making processes. DAOs are expected to become a key building block of the Web3 ecosystem, enabling communities to manage resources, make decisions, and coordinate activities in a decentralized manner.
The growth potential of DeFi and DAOs is further supported by the interest in specific cryptocurrencies. Carol Alexander, a professor of finance at Sussex University, has highlighted several cryptocurrencies with growth potential, including Ethereum, Solana, Polkadot, and Cardano. These platforms provide the infrastructure and technology for the development of decentralized applications (DApps), including DeFi protocols and DAOs.
Furthermore, the concept of Web3, which aims to create a more decentralized and user-centric internet, is closely aligned with the development of DeFi and DAOs. Web3 envisions a future where online platforms are not controlled by a few centralized entities but rather operate on decentralized networks, often utilizing blockchain technology and non-fungible tokens (NFTs).
Crypto Forecast Number 8: Bitcoin’s Adoption to Experience a Substantial Increase
Crypto projection: Ric Edelman, the founder of the Digital Assets Council of Financial Professionals, anticipates that over 500 million individuals globally will possess Bitcoin by the conclusion of 2023, as stated by The Ascent.
Correspondingly, BlockFi co-founder Flori Marquez, in agreement with CoinTelegraph, attributes this surge in adoption to regulatory transparency and an improved comprehension of the industry.
Crypto Forecast Number 9: Navigating Between the Prospect of a Crypto Downturn or an Exciting Climb
The predictions for cryptocurrency prices in 2023 are quite diverse. While there is speculation that prices could experience further decline, other analysts hold different perspectives. There is a potential for higher Bitcoin prices due to increased acceptance by businesses and growing demand from Bitcoin exchange-traded funds (ETFs). Some market analysts project Bitcoin to reach as high as $100,000 by the end of 2023.
These differing forecasts emphasize the uncertainty and variability in crypto predictions. The market’s future remains unclear, with numerous factors at play, making it challenging to accurately anticipate price movements.
Conclusion; Why Cryptocurrency Might Not Shape The Future?
Cryptocurrency’s potential is significant, but challenges hinder it from becoming the future of money. Lack of clear regulations, perception of illegality, retailer reluctance, security breaches, and trust issues are obstacles.
Additionally, understanding complexities, uncertain taxation, irreversibility of transactions, scalability concerns, and merchant adoption issues limit its progress. Building trust in digital currencies remains pivotal. To achieve widespread adoption, addressing these challenges is crucial. Approach the cryptocurrency market with caution, considering diversification to mitigate risks associated with its unpredictability.
Disclaimer: This material has been prepared for informational purposes only, and is not intended to provide tax, legal, or financial advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction.