Cryptocurrency and its future are a heavily debated and controversial topic. As a relatively nascent concept, it has been quite polarizing, even among the most influential and respected voices. The future is obviously uncertain, but this article looks to discuss the viewpoints of both camps.
Cryptocurrency maximalists argue that cryptocurrency will take over the traditional financial system and decentralized finance will be the new basis of the global financial system. They argue that cryptocurrency will be used for most transactions in the future, from transacting goods and services to facilitating investments in other transactions and becoming the native currency of the internet.
Some supporters believe that cryptocurrencies can be a whole new asset class to provide diversified returns from traditional assets. Some cryptocurrency bulls also believe that blockchain technology, cryptocurrency, and decentralized finance (DeFI) will continue to grow and disrupt finance as we know it. Lastly, another factor driving the case for cryptocurrency being the future is the use of smart contracts and a decentralized network of applications.
On the other hand, many contest that the future of cryptocurrency is not this bright or that it will take a long time for anything comes to fruition. For these cryptocurrency bears, one of their key arguments is whether there is a need for a decentralized ledger to take the role of legacy financial institutions.
Some bears cite the lack of a use case for many cryptocurrencies. Another commonly held belief is that cryptocurrencies are high risk and volatile. Lastly, they also argue that governments will want to regulate these markets to address the fraud and abuse in the system.
As cryptocurrencies are still in the early stages of their development, there is a lot of debate about the future of cryptocurrencies.
Many well-respected and influential people have given their opinion on both sides of the discussion and this article sums up the key points of both camps.
Regardless of what you believe, it is important to consider both sides of the argument to come to your own conclusion.
Is Cryptocurrency the Future?
Let’s look at the crypto bulls and discuss their arguments. The first is that cryptocurrencies are designed to facilitate the peer-to-peer transfer of valueover the internet between trustless parties. It allows users to disintermediate the legacy financial system of banks, credit card companies, and other forms of centralized digital payment processors.
It also allows for fewer transaction costs, easier access to the underbanked, and more confidentiality. For example, Bill Miller, the founder of Miller Value Partners, has been quoted as saying, “If inflation picks up, or even if it doesn’t, and more companies decide to diversify some small portion of their cash balances into Bitcoin instead of cash, then the current relative trickle into Bitcoin would become a torrent. Warren Buffett famously called Bitcoin rat poison. He may well be right. Bitcoin could be rat poison, and the rat could be cash.”
The second most common argument is that cryptocurrencies are creating an entirely new asset class that may provide diversified returns from traditional assets such as stocks and bonds. Additionally, in times of inflation, the promise of cryptocurrencies and digital assets providing a store of value is also very alluring.
Ray Dalio, the founder of Bridgewater Associates, has said, “To have invented a new type of money via a system that is programmed into a computer and that has worked for around 10 years and is rapidly gaining popularity as both a type of money and a storehold of wealth is an amazing accomplishment. There aren’t many alternative gold-like assets at this time of rising need for them.”
Another point that bulls bring up is that cryptocurrencies are just the beginning of an entire decentralized movement to change the landscape of finance. Bank of Japan Governor Kuroda believes, “Given that the development of financial services has been supported by ledgers as the basic infrastructure for information, the dramatic changes in how ledgers are kept may have the potential of significantly changing the structure of financial services.” Abigail Johnson, the CEO of Fidelity, has said she is “a believer” and a head of “a large financial-services company that has not given up on digital currencies.”
The last and perhaps most profound argument heard in support of the future of cryptocurrencies is the use of smart contracts and a decentralized network of applications. Smart contracts and a decentralized network of applications so far have been typically built off the Ethereum network.
Smart contracts are protocols that automatically execute a set of rules and are the basis and backbone for a lot of decentralized applications. The found of Ethereum, Vitalik Buterin, for example, envisioned the network as a virtual vending machine that allows for money to be programmable.
For the crypto bears, the first argument that they bring up is that cryptocurrencies should not be considered money. Christine Lagarde, the President of the European Central Bank and former head of the International Monetary Fund, said in January 2021, “For those who had assumed that it might turn into a currency: terribly sorry, but this is an asset and it’s a highly speculative asset which has conducted some funny business and some interesting and totally reprehensible money-laundering activity.”
Other bears believe that the volatility experienced by cryptocurrencies indicates a serious problem. Sharmin Rahmani, the Head of Investment Strategy Group at the venerable Wall Street firm, Goldman Sachs, has publicly stated, “Something with a long-term volatility of 80% can’t be considered a medium of exchange. Just because everybody piles into an idea and talks it up doesn’t mean it’s a store of value.”
Another famous crypto bear is Nicholas Taleb, an author who coined the term “Black Swan.” He not only compared some cryptocurrencies to “neo-pagan worship,” but also argued that “a currency is never supposed to be more volatile than what you buy and sell with it. You can’t price goods in BTC.”
One other commonly cited reason to be pessimistic about the future of crypto is the lack of a real use case, or value,of the tokens. Billionaire investor and the Sage of Omaha, Warren Buffett believes: “Cryptocurrencies basically have no value and they don’t produce anything…It doesn’t deliver, it can’t mail you a check, it can’t do anything, and what you hope is that somebody else comes along and pays you more money for it later on. But then that person’s got the problem. But in terms of value: zero.”
Lastly in the crypto bear camp is the lack of regulation in crypto markets. High-profile fraud and the collapse of cryptocurrencies, such as Mt. Gox and, more recently, the stablecoin TerraUSD, are increasing the scrutiny by government officials that may curtail the future of cryptocurrencies. Janet Yellen, Secretary of the U.S. Treasury, stated in 2022 that “Digital assets may present risks to the financial system and increased and coordinated regulatory attention is necessary.”
Regardless of which side you belong to, crypto bear or bull, one thing is for sure: the debate will continue to rage. But as a cautionary tale about underestimating cryptocurrencies, consider May 22, 2010.
For those in the Crypto community, that day is known as Pizza Day and happened in the early days of Bitcoin when it was still quite a small group of people who were interested in the cryptocurrency and an even smaller group actively mining blocks.
On that faithful day, Laszlo Hanyecz from Florida famously offered on a Bitcoin community page to pay 10,000 BTC for a couple of large pizzas to be delivered to him. Based on the price of bitcoin back in those early days, the U.S. dollar equivalent was around $41.
After about three days, someone finally took him up on his offer and sent two pizzas from a popular pizza chain in exchange for those 10,000 Bitcoins. At the most recent peak of Bitcoin at $68,000 each, Laszlo paid the jaw-dropping equivalent of $680 million for those two pizzas.
Thank you for reading CFI’s guide to the Future of Cryptocurrency. In order to help you become a world-class financial analyst and advance your career to your fullest potential, these additional resources will be very helpful: