What Happened to Crypto and Where Do We Go From Here?

We’ve all been pondering—what’s the deal with crypto? After its initial surge in popularity in 2011, the crypto world has seemingly been in a state of hibernation. However, recent developments hint at a future where these digital currencies, despite their enigmatic nature, could continue to reshape the concept of money as we know it.

Over the past few years, external factors such as AI-powered finance and government regulations have played a significant role in shaping the digital money landscape. These factors have not only propelled cryptocurrency into the mainstream but also lifted the veil of uncertainty that once shrouded it.

In this blog, we look at the latest developments in the cryptocurrency landscape and what this could mean for the future of digital money.

Cryptocurrency Basics

Crypto, short for cryptocurrency, is digital money that exists on peer-to-peer networks on the internet. Some common cryptocurrencies include Bitcoin, Ethereum, Dogecoin and Solana.

You can trade cryptocurrency with others or create or mine it yourself. Crypto miners use special computers to solve complex puzzles and, when successful, get rewarded with newly created coins. Blockchain technology, like a digital balance sheet or ledger, regularly tracks, verifies, and publicly publishes all crypto transactions that have taken place in a particular network. This crypto explainer describes it best – a digital piggy bank that keeps track of who owns what and can potentially be seen by everyone who has a stake in said piggy bank.

Cryptocurrencies are decentralized, which means they are not owned or regulated by any one government, country, or financial institution. Unlike most currencies in circulation today, they are not pegged to the price of gold, silver, or fiat currencies such as the US Dollar. People can buy and transfer cryptocurrency without going through a go-between, like a bank, or navigating a complicated verification process. Transactions can be completed almost instantly and with meager processing fees.

The Current Crypto Landscape

The crypto world has faced significant obstacles and immense change in recent years. One such event was the 2021 ‘crypto crash,’ when the cryptocurrency market value dropped from $2.9 trillion to less than $900 billion. This event, often seen as a test of the market’s resilience, sparked many discussions about the future of crypto. The question on everyone’s mind is: Is this just one of those fleeting financial industry trends, or is crypto here to stay?

Although currently used mainly as an investment vehicle, many individuals use cryptocurrency to buy goods and services. Some companies such as PayPal, Microsoft, Adidas, and DoorDash have also started embracing cryptocurrency through direct online payments or gift cards.

As an asset class, cryptocurrencies are considered very volatile since their value can change dramatically from one day to the next. There is also widespread uncertainty around which currencies will continue to be successful and which will eventually be accepted as mediums for exchange. In today’s economic climate, cryptocurrencies are not featured in most investment strategies as most investors avoid such risky assets.

There are mixed opinions about cryptocurrencies. While some people applaud their decentralized nature’s democratizing effect, others are convinced it’s only further encouraging criminals, terrorists, and rogue nations. Even governments and countries worldwide differ in their acceptance and regulation of cryptocurrencies.

Despite the mixed messages, recent events paint a promising picture for cryptocurrency. Earlier this year, Bitcoin’s market cap reached $2 trillion — a milestone — for the first time in two years. The approval of 11 spot bitcoin ETFs and the anticipation of April’s bitcoin halving event which has been priced in by the market, hence ensuring that prices stay stable with not much volatility. Exciting opportunities are emerging in the fusion of crypto and AI, and discussions around crypto regulation are making steady progress worldwide.

Let’s further examine what these recent significant milestones mean for the future of cryptocurrency.

The Crypto Road Ahead

There is still work to be done before we can safely say that crypto is the future of money. However, some key developments from 2024 alone signal that cryptocurrency is becoming more widely accepted as a legitimate financial instrument.

Spot Bitcoin ETFs and The Demand for Bitcoin

In January 2024, the Securities and Exchange Commission (SEC) approved 11 spot bitcoin ETFs, exchange-traded funds that track bitcoin’s spot or current price. The fund is backed by Bitcoin, which makes it much easier for investors to diversify their investment strategies with cryptocurrency. This will see an increased demand for bitcoin, and according to a 2024 Crypto Trend Report, the approval is likely to drive up the price of bitcoin by 123% in the next year.

Since ETFs buy and sell bitcoin based on demand, over time, they could help stabilize its price and minimize the existing concerns around volatility. Spot bitcoin ETFs also legitimize bitcoin as an industry-approved investment option, suggesting that even regulatory bodies such as the SEC accept that bitcoin is here to stay.

The Mutually Beneficial Union Between AI and Crypto

Every day, we witness the potential of merging AI and crypto to unlock new possibilities. Despite their apparent differences, these two technologies, when combined, can pave the way for more equitable technological progress. This exciting prospect is one of the many reasons why the future of digital money is so intriguing.

Combining crypto and AI features can enhance AI capabilities and address the concerns that most of us have when we think about how AI works and how it could be used in the future. For example, cryptographic proofs such as zero-knowledge proof, which adds an extra layer of privacy to digital transactions, can help address data privacy and security issues associated with machine learning. This has practical applications in AI-powered finance where maintaining user data privacy is vital.

Many organizations leverage AI for financial analysis to provide accurate insights and market predictions. Using AI to analyze the real-time data collected by blockchain technology will help investors make more informed decisions, potentially minimizing the risk and volatility of digital currencies.

Global Regulation Signaling Acceptance

Significant strides are being made to regulate cryptocurrency on a global scale. Whether they are in progress or have already been implemented, these efforts are a testament to the growing recognition and acceptance of digital money. A PwC report highlighted that, in 2023, more than 40 countries were actively involved in progressing cryptocurrency regulation and legislation.

One such regulation related to the use of cryptocurrency to fund illegal activity is the Anti-Money Laundering Regulation (AMLR) passed by the European Union’s Economic and Monetary Affairs Committee and the Civil Liberties, Justice, and Home Affairs Committee to restrict large and anonymous cash payments. Anonymous cash payments, which cryptocurrency would be categorized under, are limited to $3240.

These regulations and several governments implementing their cryptocurrencies known as central bank digital currency (CBDC) bring to mind the adage, “If you can’t beat ’em, join ’em.” Since the acceptance and adoption of cryptocurrencies are rising, governments and regulatory bodies are taking measures to keep up. Moving forward, however, many experts say regulators need to come to an agreement that diminishes the risks associated with cryptocurrency but still leaves room for innovation.

Final Thoughts

Much like Mars, humans are still trying to familiarize themselves with the cryptocurrency landscape. After experiencing a post-pandemic slump, crypto is returning. With developments driven by AI in financial analysis and regulatory bodies worldwide, cryptocurrency is well on its way to reshaping the future of money. If leveraged correctly, these forces could work together to ensure that finance and technology progress more equitably and fairly.

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This material has been prepared for informational purposes only. Escalon and its affiliates are not providing tax, legal, or accounting advice in this article. If you would like to engage with Escalon, please get in touch with us here.