How Will Crypto Finish Out 2022?

Doc is traveling so no video newsletter today; he’ll be back tomorrow!

What’s the future of cryptocurrency? With all eyes focused on the global economic climate and a tumultuous recent history for crypto, it’s anything but clear.

How Will Crypto Finish Out 2022?

Bitcoin’s value serves as a bellwether for public adoption and governmental sentiment toward the crypto industry in general. So how has it been performing?

When Will Countries Adopt Crypto More Widely?

Crypto is in an awkward position in the regulation-averse United States. It’s being accepted more widely by online retailers and even appears in retirement portfolios, but it’s not “backed” by the government the way conventional dollars and cents are.

Despite that, cryptocurrency prices do respond, just like stocks and commodities, to interest rate changes and other actions undertaken by the Federal Reserve.

Additionally, the U.S. Federal Reserve has made public no plans to implement a Central Bank Digital Currency, although it’s obvious talks are happening. It’s not clear what effect a centrally banked cryptocurrency would have on the competition — including Bitcoin and Ethereum — but having a public or quasi-public option could depress their value or even make them obsolete.

Other countries that permit transactions using existing cryptocurrencies include Denmark, France, Germany, Iceland, Japan, Mexico, Spain, and the United Kingdom. Some countries with implicit or absolute bans on doing so include Bahrain, Georgia, Vietnam, China, Egypt, Iraq, and Tunisia.

Will Nations Launch Their Own Cryptocurrencies?

When El Salvador recognized Bitcoin as legal tender, it was considered an experiment. Some reporting indicates that experiment has failed.

The Bahamas (“Sand Dollar”)

Nigeria (“eNaira”)

Eastern Caribbean Union (“DCash”)

Sweden (“e-krona”)

India (“digital rupee”)

Jamaica (name t.b.d.)

Ukraine (name t.b.d.)

Eurozone (name t.b.d)

Despite banning existing cryptocurrencies, China launched its own digital currency — “eCNY,” or the “digital yuan” — in April 2020. It exists in a separate category from Bitcoin and similar crypto platforms because, unlike those, the digital yuan has direct backing from China’s central bank.

What’s the Future of Cryptocurrency for Average Consumers?

Most of the people on planet earth are working-class consumers — not capitalists. If individuals don’t own capital with which to exchange value with others, they need a reliable vehicle — a proxy — with which to do so.

Bitcoin’s anything-but-stable performance may not be inspiring confidence that it can play that role as well as fiat currencies, given El Salvador’s experience and the list of countries pursuing central bank digital currencies (CBDC) instead of legally recognizing existing forms of crypto as money.

According to the International Monetary Fund, government-backed cryptocurrencies could provide “more resilience, more safety, greater availability, and lower costs” than the equivalent privately controlled digital currencies like Bitcoin.

The IMF emphasizes that “prudent design” is necessary, but that the potential is there to improve upon the currently “inherently volatile” nature of crypto in general.

It’s important to remember that inflation is currently a global phenomenon as well. Nations typically raise interest rates to combat inflation, which means, again, that the current unregulated approach to crypto may not fare any better amid spiraling inflation than a conventional fiat currency. A central bank digital currency may not have that weakness, but that’s far from proven at this time.

Digital Currency Is Here to Stay, in One Form or Another

If there’s one clear prediction to draw from this, it’s that digital currencies are here to stay, in one form or another, although perhaps not uniformly across the globe. Some countries have enacted limited or total bans while others are quickly working to deploy their own central bank digital currencies. For the foreseeable future, buying and selling goods and services across borders will still require a sophisticated currency-exchange system.