Cryptocurrency is soaring, but what does the future hold?

Karl 8th Dec 2023 One Comment

Reading Time: 7 minutes

It may be hard to believe but cryptocurrency has been around for over 14 years now. (Yes, we feel old too!)

If you can remember as far back as 2017, then you’ll know that this is when the concept of digital money – specifically Bitcoin – really captured the public’s imagination. Between October and December of that year, the value of one coin increased fivefold, jumping from $4,000 to a high of $19,500 in matter of weeks.

While Bitcoin has enjoyed various ups and down since then, the value of digital assets has soared in 2023.

Between 1 January and 8 December 2023 (the time of writing), Bitcoin has risen massive 160% , with one coin now worth more than $43,000 USD (approx £34,000). Meanwhile the value of Ether has almost doubled in 2023, with one coin worth $2,360 USD (£1,875) today, compared to $1,200 at the beginning of the year.

Of course, many investors remain extremely cautious about cryptocurrency. It’s arguably the most volatile asset out there, and there are still skeptics who believe the value of digital coins will eventually fall to zero.

Yet despite all this, crypto is unlikely to go away any time soon…

In this article, we’re going to explore what the future is likely to hold for cryptocurrency. Plus, we’ll take a look into whether crypto is likely to be a good investment going forward. Keep reading for all the details or click on a link below to jump straight to a specific section…

• • In brief: what is cryptocurrency?
  • Cryptocurrency: Which coins are popular right now?
  • What does the future hold for digital coins?
  • Is cryptocurrency a good investment?

In brief: What is cryptocurrency?

Cryptocurrencies are digital assets that can facilitate transactions through a computer network.

Importantly, unlike traditional fiat currency, cryptocurrencies are decentralised. This means there is no central authority or entity that has the power to control or manipulate supply.

This is why many view cryptocurrencies as a safe haven from the power that traditional central banks hold over fiat currency. For example, during the 2020 pandemic, we saw the ‘independent’ Bank of England create billions of pounds of new money to support the economy – whether we liked it or not.

Yet as we all know, nothing in life is free. And its partly thanks to this policy that we’re now seeing record-high inflation in the UK –  even if the Bank of England would prefer we all blamed the war in Ukraine!

Decentralisation, and a distrust of central banks, is one of the big reasons why many people are now big proponents of digital currencies, such as Bitcoin.

To mine or to buy?

Various cryptocurrencies, including Bitcoin, can be ‘mined’ into existence. This is a process where computing power is used to solve complex equations that even Einstein would struggle to comprehend.

However, due to the enormous computing power that is now needed to mine coins, and – in Bitcoin’s case – the fact that 92% of Bitcoin’s 21 million coins are already in circulation, buying cryptocurrency through an exchange is now the most popular way to obtain crypto.

Blockchain

Most, but not all cryptocurrencies, are secured via ‘blockchain’ networks. In layman’s terms, this means all transactions are verified by a vast amount of computing power.

For example, when a digital coin is spent or traded, multiple copies of this transaction will be stored on thousands of computers. These records must all match to ensure the transaction that has taken place is valid.

Note: The above is just a quick overview of what cryptocurrencies are, and how they work. For a more detailed look take a look at Jasmine’s What is Bitcoin (and other cryptocurrencies)? article.

Cryptocurrency: Which coins are popular right now?

If you want to add some crypto to your portfolio, loading up on Bitcoin is not your only option. There are several ‘alt coins’ out there. Let’s take a look at some of the most popular right now, and review their respective performances so far this year.

1. Bitcoin.

Created in 2009, Bitcoin is the first, and most well-known cryptocurrency. It’s so well-known in fact that the word ‘Bitcoin’ is often interchangeable with the term ‘cryptocurrency’.

So far this year, Bitcoin has risen a colossal 160%, giving holders (or ‘hodlers’) cause for much-needed celebration following a dire 2022.

2. Ether.

Ether is a digital coin that runs on the Ethereum platform. It’s the second-most popular cryptocurrency after Bitcoin in terms of market capitalisation. This year Ether has risen an impressive 97%.

3. Litecoin

One of the earliest alt coins, Litecoin is a peer-to-peer cryptocurrency and an open-source software project inspired by Bitcoin. So far in 2023 Litecoin has risen a modest 6%.

4. BNB

BNB is behind the Binance chain ecosystem. If you bought a BNB coin on 1 January 2023 the value of your investment would have fallen by 7%.

5. Cardano

Cardano is a blockchain platform that’s built on something called a ‘proof-of-stake’ protocol. This means that it can validate transactions without the high energy costs needed by some other digital coins. Cardano holders have enjoyed a 105% gain since the turn of the year.

As evidenced by the positive performance of all but one of the cryptocurrencies referenced above, the value of ‘almost’ all cryptocurrencies can rise and fall based on demand.

We say ‘almost’ as it’s worth knowing that not every single cryptocurrency works like this…

‘Stablecoins” refer to digital coins that are pegged to fiat currency, such as the US dollar. While you may think it’s rather pointless investing in Stablecoins, these coins mostly exist to facilitate cross-border transactions without the need to worry about volatility in the short-term.

USD Coin, Tether, Binance USD, Dai and TrueUSD are all examples of Stablecoins.

What does the future hold for digital coins?

Given most cryptocurrencies have had a year to remember, you may be wondering what the future holds for cryptocurrency in general. Will the value of digital coins continue to rise, or will various external challenges halt the growth of digital money?

While we can’t tell you the precise answer to these questions, it’s worth bearing in mind the potential opportunities, and stumbling blocks that are likely to have a big impact on whether the crypto industry will survive, thrive, or even die over the coming years. Let’s take a look…

1. Regulation.

It’s no secret that most Government’s aren’t a fan of cryptocurrencies. After all, they’d prefer it if you stuck to fiat currency. That’s because they can control and manipulate it, based on their own interests!

Algeria, Bolivia, China, Indonesia, Ghana and North Macedonia have all introduced legislation that essentially bans the use of cryptocurrency in their respective territories.

And while most other countries haven’t gone this far, there are various other restrictions that have been dumped on crypto over the past few years. In the UK, for instance, ATMs issuing cryptocurrency are now illegal.

As crypto continues to gain popularity, and potentially brings us closer to a global currency, it’s very possible that other countries will introduce steps to ban, or at least hinder the progress of digital coins. In the age of the world wide web, however, it will remain to be seen whether such restrictions will be fit for purpose.

2. The adoption of cryptocurrency payments.

For a brief period in 2021, it was possible to buy a shiny new Tesla car solely in Bitcoin. Yet, despite this short-lived gimmick from Tesla’ eccentric founder, Elon Musk, there’s every chance companies will soon become serious in accepting cryptocurrencies as a form of payment.

In the US, where accepting crypto for payments is getting more common, big-name firms such as AT&T, AMC Cinemas, and even Microsoft have opened up to accepting cryptocurrency as payment in some form. But will more firms follow suit in future?

3. The adoption of cryptocurrency as legal tender.

While some countries are choosing to ban or limit crypto, some jurisdictions are taking a very different approach.  In El Salvador and the Central African Republic (CAR), for example, Bitcoin is now legal tender.

While no other countries have announced an intention to adopt cryptocurrency as legal tender, there’s every chance other nations – especially developing countries – may wish to follow the lead of El Salvador and CAR. Let’s not underestimate the fact that cryptocurrencies can help overcome trust issues with domestic fiat currencies, and may even help to counteract runaway inflation.

Who knows whether the era of hyperinflation would have existed in Zimbabwe back in 2008 had the country chosen to adopt cryptocurrency (if it had been invented)!

4. The possibility of a spot price crypto ETF.

Up until now, the opportunity to invest in ‘spot price’ cryptocurrencies via an exchange-traded fund (ETF) has been shunted by the various regulators around the world.

But there are now murmurings we will soon see one, after it was revealed the U.S. Securities and Exchange Commission is currently discussing ‘key technical details’ with spot crypto ETF applicants.

If it comes to fruition, then a crypto spot price ETF will mean investors will be able to gain exposure to bitcoin and potentially other cryptocurrencies, without having to go through the faff of having to purchase digital coins.

Is cryptocurrency a good investment?

Without a crystal ball, we honestly can’t tell you whether cryptocurrency is a good investment right now. Yes, all of the major coins have had a fantastic 2023, but let’s not forget that this performance has come after a very sluggish 2022 for the sector. Also, just because an asset class has risen in the past doesn’t mean this trend will continue. Investments that have recently risen are just as likely to fall as they are to continue rising.

If you do choose to invest in cryptocurrency, it’s really important you understand the possibility that the value of your coins will fall by a huge margin. Cryptocurrencies are volatile by their very nature and, to put it bluntly, holding crypto isn’t for the feint of heart.

If you want to invest in digital assets, it’s probably best to do so as part of a diversified portfolio.

Are you confused about buying cryptocurrency? Unlike traditional investing, buying digital coins requires a fair bit of know-how. If you’re looking to gain exposure to digital assets, then it’s worth getting your head around things like crypto wallets, blockchain, and the different crypto exchanges out there.  For more on this take a look at our beginners guide to investing in cryptocurrency.

Meanwhile, to learn more about investing, sign up for our fortnightly MoneyMagpie Investing Newsletter. It’s free and you can unsubscribe at any time.

Disclaimer

Disclaimer: Don’t invest unless you’re prepared to lose all the money you invest. This is a high-risk investment, and you should not expect to be protected if something goes wrong.

When it comes to any type of investing, be mindful that your capital is at risk. Remember, the value of any investment can both rise and fall. The companies listed above are not necessarily endorsed by Money Magpie. Always do your own research.

MoneyMagpie is not a licensed financial advisor. Information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence.

Cryptoassets are highly volatile and unregulated in the UK. No consumer protection. Tax on profits may apply.