Cryptocurrency has become the talk of the town. What might be interesting is that Crypto is now worth more than US dollars in circulation. Acceptance of cryptocurrencies by investors may have been slow, but there has been growth. There is a lot of risk in investing in cryptocurrencies, but it has piqued the interest of everyone! One tweet by Elon Musk can sway the crypto market, and that is interesting, to say the least!
Cryptocurrencies On The Rise!
Cryptocurrency has gained almost 500 per cent with a rising interest in decentralized finance applications. Ether has become the second-biggest cryptocurrency after Bitcoin, climbing up the ladder to $4,372.35, which is a record high. The surge has doubled this year, sparking interest amongst investors who have been intrigued by this emerging technology.
The Bitcoin market has gone up with a massive increase from $700 billion three months ago to around $1.1 trillion. Ethereum was quick to jump from $180 billion to $360 billion in three months. Ashish Mehta, the co-founder of DigitX, told Financial Express Online that the Non-fungible token (NFT) marketplace had taken the world by storm, which has excited the Decentralized Finance protocols. This could play a huge role in driving the market cap of cryptocurrencies.
Decentralized Finance is decentralized finance projects which lend or borrow over a decentralized platform, exchanges, yield farming protocols, insurance. NFTs are artworks or memes which are collectibles offered over a smart contract-supported digital auction medium that has eliminated the “gatekeepers of art.”
Cryptocurrencies Value More Than US Dollars- Is It True?
According to The Wall Street Journal, cryptocurrencies have hit a valuation of $2 trillion, which is about the exact valuation of US dollars in circulation. Since then, it has hit as high as $2.25 trillion and exceeded the dollars in circulation. The increase makes it fascinating to know more about them. But with the growing popularity, it is also misleading.
One factor to keep in mind is that US dollars in circulation are not all US dollars. It does not only include physical cash and coins, which are in our pocket. Most of the money is not liquid; it exists in banks, investments, and intangible assets. Cryptocurrencies can be worth more than cash and coins but not everything out there.
JP Morgan has stated that the pace of evolution in the Ethereum market has remained rapid, and there is room for growth. They said that as Bitcoin futures are accepted among institutional investors, they would become more comfortable with cryptocurrencies paving the way for a rapid acceptance of Ethereum futures.
There have been investment banks such as Morgan Stanley and JP Morgan which have started offering their clients access to Bitcoin funds which is a significant step. Cryptocurrencies have paved their way and proved to be a driver for growth. Coinbase, a crypto exchange, recorded a historical event for the crypto ecosystem. This milestone can push cryptocurrencies in various sectors and push for digital assets’ proliferation.
Cryptocurrency Boom A Bubble?
According to Wall Street Journal, the crypto boom is part of a trend across numerous investment classes and categories such as real estate and green energy. Most of it has been fuelled by low interest rates from the Federal Reserve. In a stability report published in May 2021, the Fed has indicated that it might be part of the bubble territory that stated that valuations are generally ‘high’ and ‘vulnerable’ to significant declines. The further progress containing the virus disappoints, or the recovery is stalled, as per the report.
A majority of fund managers believe that Bitcoin is a bubble. The report suggests that an April 2021 Global Fund Manager Survey of 200 institutional, mutual, and hedge fund managers by Bank of America found out that 74 % of respondents believed Bitcoin to be a bubble. US regulators have warned investors over the risk of Bitcoin futures in mutual fund investments. The Securities and Exchange Commission stated that Bitcoin is a highly speculative market that lacked regulation.
One crucial aspect to keep in mind is to be prepared for the best and the worst when investing. According to the report by Futurism, it states that we follow Elon Musk’s take on this by not investing our life savings into Crypto. If we do, we could have a rough time if the bubble pops. This is the only bubble we should be beware of.