In his monthly crypto tech column, Israeli serial entrepreneur Ariel Shapira covers emerging technologies in cryptocurrency, decentralized finance (DeFi), and blockchain, as well as their role in shaping the 21st century economy.
The crypto market, like any other, operates in cycles. Although digital assets are known, if not infamous, for being more volatile than many other types of assets, their price action still follows a familiar pattern of ups and downs. Some of this, like Bitcoin’s (BTC) four-year cycle, is largely due to the intrinsic rules of the algorithm – more specifically, halving miners’ rewards. Off-chain factors, such as US tax reporting rules, can also play a role.
However, while market logic dictates change, the logic itself remains largely unchanged. In other words, in the same way that a bull run eventually runs out and hits a plateau, the bears eventually lose their grip on the market as well, making way for another rally.
For now, of course, the market is still recovering from the Terra crash and many other pressures that have been lacking in the past few years. While attempts to bounce back may be shaky, and as much as every red currency has been compared to what it was just a few months ago, the global crypto landscape is swaying and running waiting for another bullish run. So, where could it come from?
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Just a few years ago, the idea that bitcoin could be legal tender in any given country seemed like a far-fetched illusion. However, after Bitcoin’s bold gambit in El Salvador, the Central African Republic (CAR) joined the fray in late April, granting Bitcoin and other cryptocurrencies legal tender status.
These two countries make an interesting comparison. It is now well known in the crypto space that remittances from abroad make up a large part of El Salvador’s budget, and this fact was seen as the economic rationale behind the experiment. While the operation is reported to be fragile, the country’s government is shopping for bitcoin, adopting the “buy dip” ploy.
With CAR, things couldn’t be more different. The economy of the war-ravaged country remained sick for some time. Moreover, only about 10% of the country’s population has access to the Internet, according to World Bank data. In other words, cryptocurrency use is likely to be restricted to a small portion of the population – and given the geopolitical and domestic context of the move, the prospects can indeed be murky.
However, more emerging economies may choose to follow suit, especially given that El Salvador is not the only country that relies heavily on budget cash transfers. Even the fact that there is a precedent for this is significant enough to keep the momentum going, and even if another country joins the club this year, the crypto markets will know it.
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While the cryptocurrency’s early rally came mainly from private retail investors and traders, institutional investors have also joined the fray in recent years. From major banks and hedge funds delving into the crypto space to fintech giants adding support for digital assets to their platforms, institutional adoption is no longer a distant dream – it is a reality.
Even baseball internal use cases, such as JPMorgan’s experience with a private blockchain intended for interbank use or a group of major ICT providers leveraging ClearX’s blockchain solution for on-demand data services, matter. It adds additional credibility to the technology that underpins the crypto ecosystem, increasing investor confidence in the long run.
Although very few enterprise-level blockchain projects will remain on private blockchain networks, the growing confidence of investors in the technology is likely to further normalize cryptocurrency in the public eye and attract more eyes to the public blockchain space. Moreover, such projects constitute a whole niche market for solutions that will help companies build their own chains. Another niche might be in connecting these private chains to the public space. Crypto is, after all, all about connection and inclusion, so these aspirations only make sense.
The first Bitcoin-traded fund (ETF) launched in the US in late 2021, and the amount of interest it has received from investors is another testament to the market appetite for exposure to cryptocurrencies. We have reached the point where some financial advisors are recommending that everyone, regardless of their age and risk preferences, have at least some exposure to cryptocurrencies.
Thanks to a change in sentiment like this, more and more asset managers will be looking into the crypto space, whether at the request of the client or their own inclination. Along the same lines, more and more ear