Is cryptocurrency a boon or a bane for financial markets?

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 Is cryptocurrency a boon or a bane for financial markets?

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Summary

  • As cryptocurrencies are becoming more preferred by major corporations, the US government and the market might have a relook at its perspective towards digital currency.
  • Speculators fear that the digitally-oriented younger generation would show interest in digital currency, despite its volatility, rather than investing in other assets such as stocks, bonds, metals, and commodities, etc.
  • It is just a matter of time that the US government and the central bank start producing their own "Central Bank Digital Currency" (CBDC) to counter the growing demand for cryptocurrency.

Just this month, Bitcoin price skyrocketed after Tesla, Inc. announced it was investing US$1.5 billion in the cryptocurrency. The electric car maker became the biggest company to back the controversial virtual currency. Bank of New York Mellon Corp. said it would let clients hold, transfer, and issue cryptocurrency.

Mastercard Inc. also announced opening up its network to some digital assets. In 2017, Jamie Dimon, chairman and CEO of J.P. Morgan Chase, called Bitcoin was a fraud. In just four years, the Wall Street banking powerhouse launched its own digital currency.

Relook at the virtual money?


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Clearly, with significant institutions showing interest in this "New Gold", the US administration felt the need to look at it from a fresh perspective. Notably, even the marketplace is contemplating cryptocurrency on an entirely different level. Major companies, showing interest in the controversial digital money, not just validates its existence but also increases its acceptance ratio.

Recently, a top official at the Securities and Exchange Commission (SEC) spoke with the media, stating that it was time to form a regulatory authority for cryptos urgently. The official spoke on it while emphasising on the recent updates of big corporations embracing the alternative asset class.

The acceptance of cryptocurrency is growing. Now, crypto enthusiasts are advocating for regulators to bring transparency and rules in the world of digital assets. More and more people want to get their hands on cryptocurrency without having a fear of breaking any laws.

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Is Bitcoin the new gold?

The recent war between one of the cryptocurrencies Bitcoin showed that it could perform well against well-rooted assets such as gold. In a bitFlyer USA survey, Americans find bitcoin two times more attractive than the yellow metal. In the race of acceptance, Apple Inc has also jumped on the bandwagon. Users can make transactions via Apple Wallet, using BitPay Prepaid Mastercard. BitPay is a provider of bitcoin and cryptocurrency payment services.

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Will cryptocurrency threaten traditional assets?

As the world becomes more digitally equipped, cryptocurrencies will offer a great alternative to the actual currencies. More and more shareholders these days are interested in trading in cryptocurrencies or the companies linked to cryptocurrencies. Also, because the cryptocurrency is unregulated, it can go up in price amid economic and political crises. However, a real currency would inflate during challenging times.

So, the pull towards the digital asset is evident. There is another reason cryptocurrency seems to be threatening traditional market exchanges. Millennials and Gen Z are more tech-savvy than the previous generation investors. Therefore, speculators fear that the digitally-oriented younger generation would interest in digital currency, despite its volatility, rather than investing in other assets such as stocks, bonds, metals, and commodities, etc.

However, the recent "Reddit Rally" in GameStop Corp and other stocks could change that narrative. Though it shook the regulators and turned the entire market upside down, there is also a pinch of relief. The “Reddit Frenzy” showed a new generation of investors entering the market and also actively participating.

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Conclusion:

After big companies backing Bitcoin, cryptocurrency-related stocks made considerable gains in the US. The US-based Riot Blockchain Inc (NASDAQ:RIOT), Grayscale Bitcoin Trust (BTC) (OTCMKTS:GBTC), Marathon Patent Group Inc (BMV:MARA), were some of the beneficiaries of the cryptocurrency price hike.

MicroStrategy Incorporated (NASDAQ:MSTR), which recently acquired a large volume of Bitcoin, also saw its share price rise. Experts now believe that it is just a matter of time that the US government and the central bank start producing their own "Central Bank Digital Currency" (CBDC) to counter the growing demand for cryptocurrency. Time will tell if cryptocurrency’s unregulated status changes and it withstands the competition amid all the controversies.

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