The last few months have seen the cryptocurrency market cap reach record highs, with the market value of all digital currencies exceeding $200 billion. The market has become so popular that digital currency pairs are now available for trade on major stock exchanges across the globe. The attention paid to cryptocurrencies may be attributed to a combination of factors; from the unprecedented returns experienced by early investors to the popularisation of initial coin offerings (ICOs) and the increasing demands for decentralized digital money.
Perhaps the most intriguing feature of cryptocurrencies is that they operate with no central authority or government regulation. In theory, this makes cryptocurrencies ideal for use in international or cross-border transactions — something that has been hampered by the inability of financial institutions to effectively provide a foothold in emerging markets.
The Growth Of Mainstream Adoption
Although cryptocurrencies can be used to make transactions online, their true value proposition is encapsulated in their original design — a digital representation of value that is freely movable and verifiable.
By removing the middleman, cryptocurrencies eliminate the need for trust, allowing parties to enter into transactions with complete confidence that their money will not be confiscated or their personal details compromised. Thanks to the efforts of third-party developers, cryptocurrencies have made it easier for individuals to conduct transactions without the need for expensive bank accounts or the oversight of a trusted financial institution. Thanks to these features, the number of investors using cryptocurrencies is expected to increase from 263 million users in January 2019 to 4.9 billion users by 2025.
Why Haven’t More Investors Joined The Party?
The craze surrounding cryptocurrencies has created a whole new world of investment opportunities, yet many professionals remain skeptical about blockchain and its associated currencies due to a lack of familiarity or experience. For example, the German financial watchdog, the Bundesamt für Finanzdienstleistungsauctions (Bafin), released a report earlier this year revealing that just 3.4% of investors have extensive experience in crypto space, compared to the 96.6% that have little to no knowledge or familiarity with digital currencies. Similarly, 69% of investors are seeking to make their first investment in cryptocurrency, according to a report released by the Australian Securities and Investments Commission (ASIC).
While it is undoubtedly a steep learning curve for new investors, the barriers to entry have decreased to an extent that more experienced professionals are increasingly attracted to the market. In the second quarter of this year, the number of institutional investors and high-net-worth individuals jumped by 27% and 40%, respectively. One of the major reasons behind this surge is due to the increased demand for crypto investment vehicles such as investment trusts, closed-end funds, and company shares.
“The growing interest in, and adoption of, digital currencies by institutional investors suggests that they see the potential for these currencies to replace fiat money in the future,” said Jeremy Gilbert, director at PKF International, a boutique finance firm specialising in institutional portfolio management. “The appeal to them is the combination of reduced counterparty risks and the elimination of transaction costs, which make a significant difference in the real world.”
The Rise Of The ICO
Perhaps one of the most significant evolutions in cryptocurrency is the increasing popularity of initial coin offerings. Unlike traditional venture capital models, where a fund is allocated to a company for the purposes of investment, ICOs offer participating investors a way to directly invest in the project or idea that appeals to them.
Thanks to the burgeoning token market, there are now dozens of ways for investors to get involved in the crypto economy without necessarily needing to purchase cryptocurrencies directly. With the JOBS (Jumpstart our Businesses) Act now in effect in the US, Canada, and many other countries, the regulations surrounding initial coin offerings have become less burdensome. Thanks to these changes, more and more startups are exploring the lucrative world of initial coin offerings, especially in the US, where ICOs now account for approximately 80% of the entire cryptocurrency market. As a result, the number of initial coin offerings registered with the US Securities and Exchange Commission (SEC) doubled in 2018 from 797 to 1,588.
The Future Of Cryptocurrency
The popularity of cryptocurrencies is undeniable, yet it is also clear that this market is still in its infancy. It is likely that the popularity of cryptocurrencies will subside as more investors learn to value, and make use of, the many advantages that this unique technology provides.
The increasing use of blockchain in daily transactions will further reduce the cost of transactions and eliminate the possibility of fraudulent activity. Thanks to the development of faster and more efficient blockchains, along with innovative solutions to combat fraud and promote trust, the future of cryptocurrency looks incredibly exciting.