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Highlights
- Canada regulatory authority Ontario Securities Commission approved a Bitcoin ETF in February 2021
- Elizabeth Warren in the US has been a vocal critic of cryptocurrencies
- Altcoins like ADA have played a key role in the recent crypto rally
The cryptocurrency world lately reclaimed the two-trillion dollar market cap. The first time ever it topped this benchmark was in April 2021.
To put it in perspective, cryptos are as big as some of the most valuable companies including Apple and Microsoft. The question now is will cryptocurrencies build on the momentum and add a few more trillion dollars to their market cap? Will they dwarf tech giants?
Image source: Pixabay
What’s behind the rally?
One factor that led to the phenomenal growth of cryptos is the mainstreaming of the asset class. Until a few years ago, crypto assets existed only on the fringes. They were more a speculative investment instrument. Investors were eying quick returns in the form of capital gains.
A paradigm shift hit the space with the entry of institutional players. In February 2021, the Ontario Securities Commission, Canada’s financial regulatory authority, approved a bitcoin ETF that would go on to list on the Toronto Stock Exchange (TSX). In April, the regulatory body also approved three Ether ETFs.
Also read: First Bitcoin ETF (BTCC) Zooms In TSX Debut
In May 2021, the S&P Dow Jones further elevated the status of cryptocurrencies. It launched indices that would track the movement in prices of tied cryptos. In a statement, S&P Global confirmed that additional cryptocurrencies will be added to new indices after the initial launch of three.
Other similar events worked as a trigger for wider interest in cryptocurrencies. Multi-billionaires like Elon Musk and Jack Dorsey have also talked favorably about digital currencies. Musk, who has been an ardent supporter of the meme-currency Dogecoin, has lately confirmed that his electric car company Tesla will resume accepting payments in bitcoin.
Also read: Dogecoin mining: How to create Doge tokens?
Possible stumbling blocks?
While many institutional investors have added cryptocurrencies to their portfolios, governments across the world have been critical.
The Fed and the Bank of Canada are looking at launching their own central bank digital currency (CBDC) to prevent cryptocurrencies from becoming a regular form of money. Sen. Elizabeth Warren in the US has been a vocal critic of the “threat” posed by cryptocurrencies to the financial system and consumers.
Also read: Is Canada working on its own CBDC?
In July 2021, Warren even wrote a letter to the treasury secretary urging her to take urgent measures in order to ascertain the risks and take remedial actions by drafting a framework.
Cryptocurrencies remain out of the ambit of the regulatory framework, and hence their advance is being deemed as a threat to the conventional financial system.
What lies ahead?
It might be difficult to forecast how the crypto space will shape up in the near future. Within a few days after the market cap reached the $2 trillion mark in August, it again retreated. But the recent rally is more interesting than the earlier one. This time, altcoins like Ether and Binance coin aided the rally as much as the top crypto Bitcoin did.
Another altcoin, ADA, is trading at some of its highest prices. One more key development is El Salvador’s move to declare Bitcoin legal tender. The country seeks to make remittances from the US cheaper and quicker by using Bitcoin as a form of money.
Bottom line
If things go as planned, altcoins continue to add to the momentum, and more countries adopt cryptos as legal tender, it is likely that the combined market cap can add a few more trillion dollars in the medium term.
