The Future of Cryptocurrencies
Not all countries have adequate regulatory and supervisory frameworks, so investors must be fully aware of the aspects of legal protection as well as the profits and losses of the cryptocurrencies they buy.
Ever since cryptocurrencies, also known as digital currencies, first appeared in 2009, controversy has surrounded their existence and continues to resonate to this day.
There are many cryptocurrencies today, including Bitcoin, Ethereum, Dogecoin, and Ripple. Cryptocurrency growth has been extraordinary, like a shooting arrow. When it was first traded in 2010, Bitcoin was still valued at 8 US cents, but by 2021, its value had shot up to above $68,000.
The market capitalization of Bitcoin in December 2021 was estimated to have crossed the $3 trillion mark, or around Rp 42 quadrillion at an exchange rate of Rp 14,000 per US dollar. This growth figure is very fantastic for an asset that has just turned 10 years old, compared to other types of assets.
Even though cryptocurrencies have fluctuated drastically in their value over the past year, this has not reduced investors' continued interest in seeking and trading cryptocurrencies. The number of investors trading or buying cryptocurrencies for investment purposes has continued to grow. It is difficult for economic and financial observers to find an answer that really fits to justify this phenomenon that is acceptable to all parties.
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Some observers have said that those who seek cryptocurrencies no longer view the fundamental characteristics of cryptocurrencies as important. They are more concerned with the hype or sensation of cryptocurrencies and the excitement over the ease of transactions and continually soaring value as the main draws.
Nevertheless, some observers admit that cryptocurrencies were promising as a strong investment instrument. Cryptocurrencies, like digital gold, benefit from the speed of digital networks. For example, even though the price of Bitcoin is volatile, empirical evidence shows that its value will increase because of its limited availability.
Prospects of crypto money
What are the long-term prospects of cryptocurrencies? Various opinions from experts summarized in Nova (2021) show mixed views, from the view that cryptocurrencies will disrupt traditional financial markets to the view that crypto money will still have a role in speculation. However, it should also be underlined that digital assets like cryptocurrencies will continue to grow and develop rapidly in line with the digital economy.
The current condition indicates that supporting digital technology allows the birth of various new digital financial instruments. Triple A (2021) estimated that currently around 300 million people around the globe were using cryptocurrencies. Moreover, around 18,000 businesspeople accepted digital currencies as a means of payment. Meanwhile, according to data from Crypto.com (2021), around 106 million people use crypto money.
These figures prove that even though digital currencies are prohibited in several countries, regulators have been unable to stop the continuing growth in their popularity. Their discordant voices have even made investors more interested in buying and trading cryptocurrencies.
From this phenomenon, it is very possible that cryptocurrencies will have a bigger role in the future, namely as a means of payment for transactions in global trade. As a result, cryptocurrencies will no longer be considered a mere instrument for investments. Several large multinational corporations, such as Microsoft, Tesla, PayPal, Coca-Cola, and Starbucks, as well as international auction houses Sotheby's and Christie's, are accepting cryptocurrencies as a means of payment.
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The multinational corporations’ move to accept crypto money is, of course, based on optimistic beliefs and views about the future of cryptocurrencies. Most cryptocurrency investors are digital natives, namely members of Generation Y (millennials) or Generation Z who were born in the digital era.
Digital assets may not be very attractive to digital immigrants, namely people who were born at a time when digital technology did not exist yet. These people belong to the baby boomer group and earlier generations who prefer to invest in traditional asset instruments. The number of baby boomers is increasingly shrinking and the majority of this generation is not fully digitally literate. Meanwhile, the data shows that the millennial generation and Gen Z will dominate the world population.
These two generations now reach 55 percent of the world population, or 4.27 billion people out of the world’s total population of 7.7 billion. They will be the engine of change as well as the driving force for the future of the digital economy. The emergence of various types of digital assets is therefore certainly very compatible with the digital behavior of these two generations. The digital asset market is expected to continue to grow and develop rapidly in line with the increasing number of millennial and Gen Z investors.
Role of regulators
The growth of cryptocurrencies is expected to continue to rebound in the short and medium terms. The hype factor will still prevail and be difficult for anyone to stop, including regulators. As a trading commodity, cryptocurrencies have been accepted by various regulators and supervisors of futures exchanges in several countries.
Therefore, cryptocurrencies are being traded nonstop over 24 hours on commodity exchanges. Central bank governors and finance ministers in almost all countries are directly or indirectly opposed to accepting cryptocurrencies as formal means of payment. Regulators should not only ban cryptocurrencies as a means of payment, but also need to look at their potential impacts from a broader perspective.
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It is time for regulators to stop sitting idly by, merely watching and observing, because the public interest and the broader economy should be the priority.
Regulators should view the stability of the financial system as much more important if the booming cryptocurrency market crashes or falls suddenly. No one can predict what could happen and how much impact such an event would have on global or regional economies and monetary conditions.
From this perspective, regulators should seek breakthroughs in terms of integrating both regulation and supervision to maintain and defend the stability of financial systems. The global financial market has almost merged into an ecosystem that is no longer limited by geography. Therefore, there is now a common interest in looking at how to direct policy towards regulating and monitoring cryptocurrencies in an integrated manner.
Protection for investors
In the midst of the absence of a comprehensive and integrated cryptocurrency regulatory and monitoring framework, investors and users are still not fully protected. Understanding this is very important for anyone who wants to enter the crypto arena because there are no comprehensive rules that can guarantee investor interests.
Investors need thorough understanding to buy and trade cryptocurrencies. Do not let them be tempted simply because of the hype factor. The growing number of cryptocurrency investors and users must, of course, be matched by adequate regulatory and supervisory standards to protect their interests.
Don't just look at the soaring prices as the main basis for making a decision.
Because of the absence of adequate regulation and supervision, there are several things that investors must pay attention to. First, cryptocurrency trade and investment require qualifications as regards both digital and crypto literacy. The hype factor should not be the main reason for entering the crypto arena as an investor. Fundamental factors must be the main priority in the decision-making process.
Second, they must correctly understand the potential risks. So, don't just look at the soaring prices as the main basis for making a decision. Third, not all countries have adequate regulatory and supervisory frameworks, so investors must be fully aware of the aspects of legal protection as well as the profits and losses of the cryptocurrencies they buy.
Agus Sugiarto
Agus Sugiarto, Department head at the Financial Services Authority (OJK)
This article was translated by Hyginus Hardoyo.
