Analysis

Crypto Market Faces Tough Challenges in 2021

The lack of education, significant rise in speculative trading and uncertain regulatory environment are the biggest concerns.

The cryptocurrency market experienced significant growth in 2020 due to a jump in institutional adoption. Major financial firms around the world started diversifying their investment portfolios with the accumulation of crypto assets. Bitcoin, the world’s largest cryptocurrency jumped more than 300% in 2020 and breached the $20,000 level. Ethereum and other digital assets also posted strong gains.

This year, the overall crypto market cap jumped above $1 trillion for the first time. More than a 100% jump in Ethereum and a boom in DeFi tokens accelerated the growth in the crypto market cap. Many analysts believe that the recent rise in the value of crypto assets is mainly driven by institutional adoption. Additionally, retail demand is on the rise.

Despite all the bullish indicators, there are still some challenges the crypto market might face this year. Firstly, a significant surge in anonymous crypto transactions. Finance Magnates reported about unidentified crypto transactions by Bitcoin and Ethereum whales. Crypto whales move large amounts of digital assets from exchanges to unknown wallets in an effort to create a supply shortage. The recent jump in Bitcoin and Ethereum is a perfect example of the scenario as the BTC and ETH supply at exchange wallets reached the lowest level in years.

Speculative Trading

Secondly, a surge in speculative crypto trading. Finance Magnates asked Marc P. Bernegger, Bitcoin-pioneer, and Founder of CryptoFund.News about his views on speculative trading issues: “Most speculative traders in the digital asset space are still missing the big picture and long-term impact of Bitcoin. Instead of looking for short term and speculative oriented gains, it would make sense to look into the origins of Bitcoin (among others by reading the whitepaper of its founder(s) Satoshi Nakomoto) to understand the vision and ambition behind digital assets.”

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Uncertain Regulatory Environment

2021 will be a massive year for global crypto regulations. The US Treasury Department proposed a crypto wallet KYC rule in December last year to ensure that the US-based digital exchanges verify the identity of crypto wallet owners if the transaction exceeds $3,000. The Treasury Department will finalize the rule within the next few months, and that will be an important indication about how the US is planning to treat the crypto market. Global authorities are in support of central bank digital currencies (CBDCs) but not so much for private cryptocurrencies. According to a government-backed bill in the Indian Parliament, the country is planning to ban private cryptocurrencies in the country. The uncertain regulatory environment will harm the future growth of the crypto market.

The “Crypto market will be facing several barriers coming from regulators, as well as the threat of Governments to citizens who buy crypto and do not properly declare will be investigated and fined accordingly. On the other hand, I do not see any problem with the adoption of cryptos from the new generation,” Joaquim Matinero Tor, Blockchain Associate at Roca Junyent told Finance Magnates.

Lack of Education

Education plays an important role in the financial markets and more so in crypto as most people around the world consider digital currencies as complex assets.

“Education is one of the main barriers the crypto asset market is facing. The crypto-asset market is still in its infancy stage, and there is no better time to get involved in the cryptocurrency asset space. Education around cryptocurrency assets is key as it will instil confidence in investors, you should always know the complete A-Z of what you are investing in. It will help you sleep at night. Simple,” Johnny McCamley, Founder at CryptoClear said in a statement.

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