Can unregulated cryptocurrencies trigger another economic crisis?
With the price of bitcoin continuing to go out of bounds, there is a high possibility that the world of crypto can trigger the next economic crisis without any regulation. Blockchain technology has a lot of potentials, and people are continuously utilizing it to create new products and services. Especially in the financial sector, cryptocurrency (a product of blockchain technology) has created the opportunity to make payments instantly from anywhere in the world without the help of third parties or central banks.
But there are also innumerable problems that have been faced by investors, and without proper regulation, the market is going to plummet. Without the regulations, the substantial growth that the market of cryptocurrency has seen is quite remarkable.
As a currency
For crypto coins to work as a proper currency, three different elements are required. Firstly, it should work as a medium of exchange and using it people can buy and sell things. Cryptocurrency is based upon the peer to peer technology where different types of transactions can be conducted instantly from anywhere in the world.
Secondly, bitcoin or other cryptocurrencies must have a particular store value. But due to price volatility, digital currencies do not go along with this requirement. Also, according to a report from Goldman Sachs, in the year 2017, bitcoin was six times more unstable than gold.
The third and last criteria are that it should possess a unit of account. That means a real-world item’s cost can be represented by the currency. In this case, people are still unwilling to take bitcoin as a means of payment due to its volatility. Although some companies have accepted these coins earlier, nevertheless, they are being off and on when it comes to accepting bitcoin as a medium of payment for their product or services.
As a commodity
Bitcoin, if accepted as a form of commodity, does not hold any intrinsic value. The surge in prices is pure because of speculations and public interest. According to some people, it can also be considered a bubble. A bubble occurs when a commodity’s intrinsic value far exceeds its original one. Another big hack at a crypto exchange or implementation of a strict regulation worldwide can trigger such a situation.
Currently, bitcoin or other such cryptocurrencies are not implemented as a mainstream payment option; therefore, cryptocurrencies don’t possess much threat yet. But with the increasing popularity among the general audience, it is only a matter of time that cryptocurrencies will get accepted worldwide. Once it converts to the mainstream, the risk will become much higher.