There are big changes ahead in the financial world as markets begin to deal with the challenges of consistent inflation, economic depression, and the instability and uncertainty they cause. Could these challenges create an advantage for cryptocurrencies? Lets find out.
Crypto As A Commodity
In times of financial uncertainty, many investors will switch strategies and start turning to historically valuable commodities to protect their funds. During the credit crunch of 2008 the price of gold spiked significantly as people moved their wealth from stock and currency investments into precious metals. Silver also increased in value. When times get tough, the tough get going, and they go to the commodities markets.
You can keep up to date with the latest spot price for gold with TradingViews XAUUSD live chart and use it to get an indication of a change in the global financial marketplace. Their online community also engages in lots of discussions and information on trading that can you can use to get a clearer picture of the markets. Since 2008, cryptocurrencies have emerged as another refuge when markets crash or outlooks become dire.
With markets looking increasingly unsettled, and many major banks struggling to limit their exposure to the effects of global inflation, premium cryptocurrencies like Bitcoin and Ethereum could see spikes in value too as the demand for the coins grows while investors look for stable places to store their wealth.
The Crypto Crunch
Though the instability of many traditional financial institutions could be a boon for cryptocurrencies, it will also present some challenges. As these digital currencies have pushed for legitimacy with financial investors they have had to enmesh themselves with banks and financial service providers that are exposed to downturns in the global economy.
This will put pressure on crypto exchanges and businesses with a focus on cryptocurrency as they will struggle to interact with a US Dollar-based financial system and exchange digital currency for physical currency and vice versa. This is best outlined by the shutdown of Signature Bank in early 2023, as many crypto exchanges and companies used the bank for financial services. This affected the crypto markets initially, though they did recover when businesses found other banks and financial institutions to work with.
The Push For Regulation
Cryptocurrencys biggest asset is also its biggest liability. The majority of the crypto space is completely unregulated, which has led to scams and controversies that have dogged cryptocurrency since its inception. As digital currencies have increased their influence and become more legitimate, the effect that they can have on markets and non-crypto investments has created new calls for increased regulation.
This is a double-edged sword for crypto fans. On the one hand, they seek legitimacy in the financial industry. On the other hand, crypto fans enjoy the lack of regulation or governmental oversight. For the currency to truly mature and reach its potential, regulation is going to have to play a part. For crypto to boom in the face of banking's bust, investors will need to be able to rely on regulations to protect their wealth.
Crypto certainly seems like a good hedge against drops in value in the traditional financial markets and could provide a safe haven for investors in times of economic uncertainty. The space is aching for extra regulation, however, and without it cryptocurrencies will always come with an added risk.