The latest in cryptocurrency news, and their implications
August 26, 2021
Last week, the crypto community rejoiced the activation of London Hard Fork on Ethereum, the most important blockchain network today. It promises to end all that was not good with Ethereum – the long transaction time and high fees. This is a prelude to more significant changes promised by the end of this year as part of Ethereum 2.0. But while Ethereum continues to prove its prowess, cryptocurrencies have been through a roller coaster ride. Here's a round-up of all the important developments from the space. And what they mean for cryptocurrencies.
Crypto adoption goes up
On August 18, data platform Chainalysis released the 2021 Global Crypto Adoption Index. The report puts Vietnam at the top and India at 2nd place when it comes to crypto adoption. The US and China stand at 8th and 13th places. Pakistan and Ukraine are in 3rd and 4th place. Chainalysis used three metrics weighted against the country’s Purchasing Power Parity (PPP). The 3 metrics are:
On-chain cryptocurrency value received
On-chain retail value transferred
Peer-to-peer (P2P) exchange trade volume
It did not use the volume or value of transactions. Transactions would put developed countries on top as their ecosystems are more developed. The index ranked 154 countries for the highest levels of crypto adoption. Trouble-torn Afghanistan stood at 20th place. What the 2021 Crypto Adoption Index highlighted is the increasing rate of crypto adoption. Over the last year, it has grown by 881%. Especially, it has surged in developing and the poorest economies. This shows how crypto is bridging the gap between the banked and the unbanked. Developing economies such as India also have strong tech capabilities. Rising crypto adoption could also result in major breakthroughs. Speaking of breakthrough, El Salvador in June became the first country to adopt bitcoin as legal tender.
In April, US Senator Elizabeth Warren wrote a letter to Treasury Secretary Janet Yellen. Warren is a member of the Senate Banking Committee and an outspoken critic of Wall Street. In the letter, Warren demanded a “comprehensive and coordinated” legal framework to regulate cryptocurrencies. Warren said the underregulated crypto market poses 5 risks:
Risks to banks
Risks from decentralized finance
Cyberattacks and disruption of the financial system
Unique threats posed by stablecoins
Exposure to hedge funds that lack transparency
In response, SEC chief Gary Gensler said that he too believes that “investors using these platforms are not adequately protected”. Warren’s letter to Yellen was followed by Senate Banking Committee lawmakers kicking off a highly-publicized hearing called “Cryptocurrencies: What are they good for?” As a CNBC article put it, lawmakers discussed the features and potential applications of blockchain and cryptocurrency technology. But they appeared “largely convinced” about its benefits in the context of its risks. The US is not the only country where regulatory scrutiny of cryptocurrencies has gone up. Binance CEO Brian Brooks resigned as CEO three months into his job. The world’s largest cryptocurrency exchange is facing scrutiny from many countries. The list includes UK, EU, Japan, India, Canada, Singapore, South Africa, Thailand and even the Cayman Islands.
Crypto prices and reactions
Meanwhile, after reaching a record high of $65,000 in April, bitcoin had crashed to below $30,000 in a matter of days. Other important coins such as Ethereum and Dogecoin had also dropped significantly. Some put the blame for the crash on Elon Musk’s door. The slide started after Tesla reversed its announcement of accepting bitcoin for as payment for its cars. Musk said he continues to remain positive about the prospects of cryptocurrencies. Though he indicated that bitcoin will have to solve its power usage problem. Around the same time, the crypto world was rocked by the exit of Dogecoin co-founder Jackson Palmer. He posted a series of tweets in which he berated the current state of cryptocurrencies. He said the super-rich are using cryptocurrencies as a get-rich-quick funnel. Palmer termed crypto a "right-wing, hyper-capitalistic technology" built to amplify its proponents' wealth. It does this through tax avoidance, diminished regulatory oversight, and artificially enforced scarcity, he said. That did not stop cryptocurrencies from making a strong comeback. The total market cap of cryptocurrencies once again crossed $2 trillion mark this week. Bitcoin soared past $50,000. Ethereum, Cardano, XRP, and Dogecoin have also continued with the gaining streak.
2021 has been eventful for cryptocurrencies. A boom and then a crash lifted and zapped the enthusiasm of crypto investors. But there are two trends beyond and more important than the price action. The space has been facing increasing scrutiny and threats of regulatory action. And yet, the adoption of cryptocurrencies keeps going up. These two factors decide the eventual fate of cryptocurrencies.
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