It is hard to ignore the hype around cryptocurrency. It’s a contentious asset class and the source of many debates. Volatility and considerable drops in the value of cryptocurrencies over the past couple of years have seen many describe the situation as a "crypto winter." However, the crypto industry and cryptocurrencies are very much alive.
Why do people say crypto is dead?
People say cryptocurrency is dead because of its volatility, the difficulty of exchanging crypto for other digital assets, its decentralised and unregulated nature, and its potential for cyber hacking. Let’s explore these factors in more detail.
Volatility makes it difficult to predict any price rises and losses. If a price constantly goes up and then dips significantly, it can be difficult to ride out long-term volatility that can eventually result in gains.
You don't need a Bloomberg terminal to see the vast peaks and troughs that cryptocurrencies have been through recently. Just type TerraUSD, XRP, or any other cryptocurrency into Yahoo Finance, and you'll see the bumpy road its price has taken in 2023 alone.
While its volatility may not kill crypto itself, it could undoubtedly kill it as an option even for investors who don't mind risk and volatile assets, especially as crypto prices are often unattached from broader markets, unlike other asset classes.
Cryptocurrencies were developed independently from one another. As a result, it can be challenging to exchange one cryptocurrency for another, even with the rapid advancements of platforms run by crypto companies such as Binance, Coinbase, and ICONOMI.
That said, there are platforms where crypto holders can exchange their tokens and coins with other platform users. However, it is more challenging than selling stocks or exchanging traditional currency, so there is a much higher liquidity risk than with other assets such as US Securities.
If something is decentralised, it is unregulated. Having no regulation makes an asset class riskier to invest in, as market users may seek to exploit the lack of oversight - look at the FTX collapse.
That is not the case when investing in stocks and bonds - markets subject to considerable regulation. Such regulations make these markets a safer place to grow wealth while allowing retail and institutional investors to be confident they won't lose their money in a scam. While cryptocurrency is not a scam, the lack of regulation does pose uncertainty that traditional assets do not have.
Crypto exchanges and crypto assets are increasingly a target for cyber hacking. It is such a new technology relative to other asset classes that it attracts cybercriminals looking to exploit vulnerabilities. While cryptocurrency can be challenging to hack, cybercriminals are often highly intelligent and motivated.
For example, in August 2021, hackers stole over $610 million of crypto through an attack on Poly Network, a platform where cryptocurrency holders can exchange e-currencies. Perhaps most worryingly, there was little Poly Network could do, given that crypto is decentralised.
If something happens with a traditional investment, you may have grounds to go to the Financial Ombudsman Service or Financial Services Compensation Scheme. If your crypto wallet gets hacked, this won’t be the case.
Why can’t crypto die?
While people may not choose to invest in cryptocurrency because they view the crypto market and the future of cryptocurrencies as risky, crypto won't, and can't, 'die'. It may fall out of favour with investors and be a big "no" for you, but the cryptocurrency market is not one that a central bank like the Bank of England or the US Federal Reserve can shut down. No one can shut down crypto because it operates on a public ledger and utilises blockchain technology that cannot be stopped.
That said, governments - especially powerful governments like the US and China - will try to regulate it to a certain degree. And they can regulate it so much that many of its advantages are no longer unique to this asset class or other digital assets like NFTs.
The Chinese government, in particular, has implemented many policies and rules influencing how the population can buy, sell, and use cryptocurrency. In the US, the American Securities and Exchange Commission is endeavouring to bring crypto assets under the laws of other listed securities.
For some in the financial services industry, that is welcomed, though it is a significant disadvantage to other financial institutions. While that may make it a more attractive investment class for some as it could be deemed safer, cryptocurrency may lose some of its appeal to others.
Crypto isn’t dead
Crypto is not dead but will remain a contentious investment class for many reasons. Drown out all that noise, drill back to the fundamentals, and ascertain whether it is a good investment based on your circumstances.
No one can, would, or should ever shut cryptocurrencies down. But it may be a dead investment class for you. Alternatively, you may find it interesting to investigate as a potential asset class to add to your portfolio. Our comparison table near the top of the page is a good start for your research, as it will show you how different exchanges work. However, seeking financial advice for any investment is always prudent.