The rise of technology in the 21st century revolutionized many traditional industries. The digitized world is becoming more and more drastically different from what it was a few decades ago. Billions are now online, using social media, search engines and other internet platforms on a daily basis.
The financial industry is the one heavily affected by recent technological development. Digital financial services are slowly forcing physical branches into closure around the world. They are smarter, smoother, faster as well as safer, and that is why an increasing number of people switch to digital services. There is even a term defining the relationship between the financial field and technology – fintech. Yes, it simply is a combination of words financial and technology, uniting a growing number of platforms offering such services online.
The year 2009 became an important mark in history as a date when the now widely-recognized and globally spread cryptocurrency – bitcoin was introduced. It is a virtual currency that became wildly popular in the early 2010s, soon hitting a massive value tag. The innovation, something the world had never seen before sparked lots of interest from the general public. Countless articles and opinion pieces were written, discussing what the future of bitcoin is. After all, can it compete with more traditional financial instruments?
Besides bitcoin, many other cryptocurrencies started to appear on the market. One of such is ethereum, known as one of the most successful ones. Many others fail to gain momentum on the market as they lack investments. The market price for bitcoin has been swinging for its entire existence. It is known to have an enormous market capitalization for a cryptocurrency, However, it still remains rather fragile to external factors. Its price accelerated in 2017, soon exceeding $10,000 and almost reaching $20,000 in December of the same year. However, the uprise did not last for long and in 2018, bitcoin price plummeted to roughly $3,400.
Despite the unstable market price, bitcoin is still paving the way forward thanks to modern technology. Forex trading has become very popular in recent years. It allows anyone to purchase and sell currencies online in an attempt to make a profit. Unsurprisingly, the Bitcoin Forex brokers list is quickly expanding as such platforms are yet the most accessible way to trade with cryptocurrencies.
Such a swinging price sparked a lot of questions about the reliability and stability of bitcoin. More generally, it started a broad debate about how realistic the broader adoption of cryptocurrencies is.
The future of bitcoin: is it a sink or swim situation?
Fast-changing price is one of the biggest downfalls of bitcoin, as well as the vast majority of other virtual currencies. However, there most certainly is more to it. The overall worth of bitcoins worldwide now stands at around $156 billion. However, no one knows when this number will soar or decrease drastically.
Bitcoin has for long now been actively trying to compete with the traditional financial instruments. Initially many were confident that virtual currencies would shape the nearest future. However, they turned out to be more fragile than anyone expected.
Despite its massive capitalization, the bitcoin market is still much smaller than sovereign traditional currencies. They account for tens of trillions of dollars globally, dominating major markets. Thus, the influence and size are not the areas bitcoin should focus on. In the best-case scenario, it will take decades for bitcoin to become competitive in this niche.
However, bitcoin has many other benefits that could potentially help it establish itself as a more reliable financial instrument. The main advantage virtual currencies come with is their simplicity and safety. Bitcoin operations do not need a visit to a physical branch or any documentation for transactions, no matter what the amount is. In simpler terms, bitcoin offers minimized bureaucracy and further efficiency.
Importantly, since every cryptocurrency, including bitcoin, is based on the blockchain technology, they offer more safety than traditional currencies. Such a method guarantees that the data is visible and available on every end of the ‘chain’. This means that the risk of fraud during transactions is almost absent on every side of the operation. Transparency is one of the main assets of bitcoin and that is what attracts many from the financial industry.
One other field, where bitcoin is attempting to compete with traditional finance is safe-havens. Those are the areas investors turn to when there is a major global economic turmoil, potentially threatening their capital. Traditional safe-haven assets are cash, defensive stocks as well as gold and other precious metals. They have been used for decades during economic downfalls, however, many investors are now choosing to invest in bitcoin during such times. The most recent of such events happened in February when markets shocked by the possibility of the global spread of the new coronavirus COVID-19 saw the soaring bitcoin price. For the first time in a while, it even exceeded the $10,000 mark. This was a clear sign that bitcoin is already establishing itself as a global safe-haven asset.
What are the obstacles on the path for bitcoin?
First off, although bitcoin is attracting more and more attention around the world, it still remains a small-sized niche. This, naturally, is in comparison to the traditional financial industry, which still dominates the sector.
However, besides its size, there is a larger problem for its future. Despite the global hysteria around bitcoin, not as many people hold extensive knowledge about it. This becomes particularly noticeable when the community members discuss the general adaption of bitcoin. Unfortunately, there is still no easily-accessible platform for the general public and the language of virtual currencies remains unclear for many.
Lastly, cryptocurrencies are still not acknowledged by many companies and nations. Some legislations do not even have a mention of virtual currencies, creating an unstable environment for the industry. Furthermore, the use of it is also rather limited, as not many services have implemented crypto payments.
For bitcoin to stand tall with traditional means of finance, it needs a mass-adoption, rather than a big boost in value. The worth of it will always be restricted if the accessibility does not grow along with it. However, if needed legislative changes happen in more corners of the world, bitcoin can become a serious competitor to sovereign currencies.