After Bitcoin’s meteoric rise in 2017, the world has become fascinated with cryptocurrencies. The virtual currencies were designed to be an alternative medium for payments, employing new ledger mechanisms to record transactions and monitor the flow of funds.
However, the largely unregulated cryptocurrency market has also come under fire. Scams aren’t uncommon, and some question whether they help support illegal activities simply based on how they are designed, even if it is an unintentional side effect.
Cryptocurrencies are shaking up the global market. If you aren’t familiar with how they are used, here’s what you need to know.
The Appeal of Cryptocurrencies
While initially considered a novelty by many governments, cryptocurrencies have significant potential when it comes to international dealings. The funds are easy to use and can provide alternatives to individuals or companies operating in countries where the local currency is unstable.
Additionally, cryptocurrencies are primarily unregulated, providing people with the ability to circumvent strict controls regarding taxation and the flow of money, both internally and across borders.
The technical mechanisms are also appealing to some. Blockchain ledgers provide some benefits for the recording and tracking of transactions, being mostly transparent and unalterable.
Government Responses and Perspectives
As cryptocurrencies gained traction, many governments began examining the digital currency market in an effort to develop proper controls, particularly when it comes to preventing issues like tax evasion. However, few limitations on the use of cryptocurrencies are currently in place, and it may take time to resolve any potential problems, as some may not yet be especially apparent.
Issues of High Volatility
One of the biggest concerns regarding cryptocurrencies is their volatile nature. At one point in 2017, Bitcoins were valued at over $19,000 each. However, the market has since experienced significant declines, even falling below the $8,000 mark.
While the high experienced by Bitcoin has led some to invest in it and other altcoins as a means of diversifying their portfolios, the future of most cryptocurrencies is incredibly uncertain. Some financial experts fear that a crash is inevitable while others claim that a recovery is on the horizon.
A boom or crash can impact global markets in a variety of ways, though the low total market capitalization should prevent a drop from having the same level of impact as those in other areas, such as when mortgage-backed securities led to a global financial crisis.
The size of the market likely means that there is little systemic risk today, though that may change depending on how much traction cryptocurrencies gain and how investors react. Additionally, new legislation will impact the effect virtual currencies have on larger markets, but the precise impact of regulations won’t be fully known until they are in place.
Ultimately, cryptocurrencies are a fledgling part of the global market, so the full effect of their presence may not be known for some time.
If you are interested in learning more, the professionals at The Armada Group can help. Contact us to speak with one of our knowledgeable staff members today and see how our expertise can benefit you.