Cryptocurrencies – Cash-In? or Cash-Out?

Considering the many factors that would typically make investors apprehensive, such as US-China hostilities, Brexit, and, of course, a global epidemic, Bitcoin and other cryptocurrencies experienced spectacular changes in 2021.

Prices plummeted by as much as 30% in May after the People’s Bank of China warned financial institutions not to use digital currencies for payments. The Chinese government has also cracked down on Bitcoin mining, the practice of using computers to unlock the currency.

The price of Bitcoin has gone above $45,000 per bitcoin and is now hovering around $45,000 at the time of writing. Ethereum, the second-largest cryptocurrency by market capitalization, has hit its highest levels since May and is sitting around $2,600 per ether token after outperforming Bitcoin over the previous year.

To predict the future of cryptocurrency, let’s look at the technical factors of the blockchain technology underneath Bitcoin, its utility in the world of finance relative to other major cryptocurrencies (using Ethereum and Cardano as an example), and what it means for Bitcoin and other cryptocurrencies in the long run.

Bitcoin vs. Other Crypto Currencies

As time goes by, more are growing convinced that Ethereum may be the future of cryptocurrency. According to a leaked Goldman Sachs prediction, there is a high chance that Ethereum could eventually surpass Bitcoin’s market capitalization. Calling it the “Amazon of information,” the company rated Ethereum as higher than Bitcoin as a store of value on the back of its application in DeFi and NFTs.

Green highlighted the higher level of real-use potential of Ethereum, as well as investor anticipation for the game-changing shift to ETH 2.0. The long-awaited Ethereum upgrade, which aims to make the blockchain more scalable, sustainable, and safer, started late last year and won’t be finished until well into 2022.

Ethereum is more helpful than Bitcoin and outperforms its more well-known competitor in terms of technology, which means that it will eventually surpass Bitcoin in terms of value, most likely within five years.

Another major crypto called Cardano was developed by one of Ethereum’s co-founders; thus, it has a lot in common with its crypto rival. One of Ethereum’s significant benefits is that it can be used as a platform for smart contracts. Cardano utilizes a PoS architecture, but Ethereum is actively moving from a PoW to a PoS network. As a result, it is more eco-friendly and quicker than its competitors.

Cardano, like Bitcoin, has a restriction on the number of tokens that can be generated, creating a feeling of scarcity that might help push its value up over time. 

All in all, cryptocurrencies like Ethereum and Cardano, with their technological and other advantages, could end up overtaking Bitcoin. 

Regulatory Pressures For Cryptocurrencies

Bitcoin is a decentralized network of 12,000 computing nodes spread throughout the globe, implying an absence of centralized authority. So, Bitcoin has no corporate offices, no corporate facility, and no corporation. Since only the technology, and not an owner, is in the foreground, authorities cannot properly regulate this network.

Authorities cannot summon Bitcoin because it lacks a summonable address. It’s all about technology. And it’s been running without a hitch for almost a decade. Nothing should be able to change this.

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As a result, it’s reasonable to expect that Bitcoin will continue to function smoothly for the foreseeable future. This applies to Bitcoin and Ethereum, the second most popular cryptocurrency and a slew of other decentralized protocols.

To shut down Bitcoin, you’d have to shut down the Internet, which is an impossible task. Sure, governments can try to restrict and ban crypto trading, but there is no way to prevent it apart from shutting down exchanges in their country. Even if they do that, individuals could still exchange the currency with each other.

Big Names Going In

Since the inception of Bitcoin in 2008, the cryptocurrency industry has grown to a market cap of $1.4 trillion, with over 4000 digital currencies. Much of this increase happened during what many call a “cryptocurrency boom,” and some call it a “bubble.”

Large financial institutions increasing recognition of cryptocurrency as a good investment has fueled the most recent surge in its value. Jamie Dimon, the CEO of JP Morgan, moved from labeling Bitcoin a “fraud” in 2017 to enable customers to access Bitcoin assets in March. To cap it off, El Salvador became the first country to make Bitcoin legal tender in June.

Despite this newfound acceptance from large financial institutions, the argument over whether cryptocurrencies should be considered a risky asset class or a viable alternative means of exchange continues. In any case, there are fundamental problems with today’s cryptocurrencies that must be addressed.

All cryptocurrencies use blockchain technology, which is essentially a database that runs on a network of computers rather than a single computer. Each transaction is recorded in a ledger that exists on every computer at the same time. To complete a bitcoin transaction, every computer in the chain must validate the whole list of previous transactions as well as the new one.

Bullish Argument for Bitcoin

Bitcoin is, primarily, a technological innovation. It has enabled humans to manage a money supply for the first time in history without requiring a third party to maintain or run it, such as a bank or government. This has major ramifications for global markets, which are now dominated by assets and funds handled by these organizations.

Furthermore, Bitcoin has gone from being worth little to $60,000 in just 12 years, and it is only the tip of the iceberg in terms of its future growth. A moderate long-term bullish prediction for Bitcoin would see it establish itself as a worldwide currency. Something that it is already quite close to achieving.

Bearish Argument for Bitcoin

While it is widely believed that the bear case for Bitcoin is unlikely, it’s still conceivable that it stays a niche asset or collapses. This, however, ignores both its history as a monetary asset and the reality that it has essentially established its own cyclical economy.

Bitcoin’s price has gone from a peak of $60,000 in April to a low of less than $30,000 as recently as July 2021. Bitcoin has lately risen back toward $49,000. Because of this volatility and lack of fundamental qualities, experts recommend that investors limit their crypto investments to less than 5% of their whole portfolio at first.

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Still, it is believed that most cryptocurrencies other than Bitcoin should be viewed as claims to future innovations that may or may not prove useful. Ethereum’s popularity has forced it to compete with all other cryptocurrencies, particularly from the standpoint of traders. Since its introduction in mid-2015, Ether has ranked second to Bitcoin in terms of market capitalization for most of its existence and is predicted to overtake it eventually. 

El Salvador Bitcoin Decision

Chivo Wallet, El Salvador’s Bitcoin wallet, has launched its debut commercial; the ad is the first of its kind from the government. The advertisement, which debuted on August 31, offers a brief introduction to Bitcoin, the Chivo wallet, and the cryptocurrency’s advantages. The wallet will be available starting September 7, 2021.

Last week, El Salvador’s President, Nayib Bukele, confirmed the wallet’s release date, clarifying that Bitcoin use will not be mandatory. Some people were relieved by this since they were concerned about Bitcoin’s future in the country. Will other countries follow suit? It remains to be seen.

What’s Next for Bitcoin?

Cryptocurrencies like Bitcoin, Ethereum, and others may appear to defy predictive modeling and forecasting since they are a new and intrinsically volatile asset class. However, a blockchain study of millions of worldwide crypto transactions and asset-holding habits shows trends, possible indications, and other information that investors may use to predict what will happen next.

Bitcoin and other cryptocurrencies will keep rising, but the upside potential of some of the currencies like Ethereum and Cardano is vast as opposed to Bitcoin. Their market cap may eventually increase exponentially and potentially overtake Bitcoin.

Bitcoin has a place in the future of crypto and will be the largest cryptocurrency for the foreseeable future. However, expect altcoins to increase by a magnitude much greater than that of Bitcoin, making them a more favorable investment in our opinion.

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