Cryptocurrencies have downtrodden from their buzz position, and investors, particularly, are wary of investing in cryptocurrencies in large volumes. The recent volatility in the price of Bitcoins has made investors cautious, but the market is still growing.
The growth expectations are much more than the fears, but still, investors should know that the cryptocurrency market is vulnerable to several global events and scenarios. Here we are trying to comment on three situations that can cripple the whole cryptocurrency market in a short time.
Introduction of Global Regulatory Framework
Cryptocurrencies are largely unregulated owing to distributed ledgers and the promise of anonymity. This means there are no strong laws regulating the purchase and sale of cryptocurrency tokens.
Investors are free to buy and sell them and earn profits, making them a great investment opportunity at present. But recently, several countries, including India, China and South Korea, have cracked a whip on cryptocurrency traders.
Authorities are concerned about tax evasion and money laundering via cryptocurrencies. Thus, there is a strong demand for regulating cryptocurrency trading. If such a scenario arises, the markets will surely tumble. China had already banned cryptocurrencies in 2017, and many countries are following the lead.
In the US, too, one of the largest exchanges, Coinbase, agreed to give away information related to cryptocurrency traders on its platform to US IRS, which deems cryptocurrencies as assets. If the situation grows and a global regulatory framework is introduced, cryptocurrency markets will surely be hit by the same.
Termination of Trading Activities by Leading Crypto Exchanges
The global cryptocurrency market is run by several cryptocurrency exchanges that act as a facilitator in purchasing and selling cryptocurrency tokens. But what about the reliability of these exchanges? All the exchanges might not have long-term operations goals or suffer from a lack of funds to operate. This might cede a trading portal’s operations overnight and can cause huge losses to cryptocurrency investors and, in turn, the whole market.
This happened in the past when Mt. Gox, the leading cryptocurrency exchange, suspended trading activities after filing for bankruptcy. The result caused an 80% crash in the whole cryptocurrency market. This means an erosion of wealth without any plausible cause except for the cessation of trading activities.
No doubt that trading today is highly distributed, with no exchange having the potential to swipe the market value on its own. But still, this is a potential scenario that cannot be overlooked.
Hacking Attempts & Successful Cryptocurrency Heist at a Large Scale
This is not completely a notion but has happened multiple times in the past. Several cryptocurrency exchanges registered losses due to hacking attempts and successful hacks that led to the erosion of millions of dollars in minutes. Recently, Coincheck- one of the largest cryptocurrency exchanges in Asia, reported a heist of USD 530 million due to hacking. This is being termed the biggest success at hacking a cryptocurrency exchange.
This means that the scenario is not a work of fiction and has the potential to turn into reality in the future, too. With multiple hacking attempts, investors might lose interest in cryptocurrency markets and look for secure avenues. In such a scenario, the demand will dwindle, massively plummeting the markets.
To evade the possibility, exchanges must promise better security and improved firewalls to develop investors’ trust. Without trust, the market will surely not flourish in the long term.
Apart from these major scenarios, there might be cases of credit card fraud at cryptocurrency exchanges, fluctuation in demand and announcements of any major news that directly impacts the blockchain technology. There are several other scenarios, too. This tells the cryptocurrency market is not at all free from flaws and is a shaky boat sailing in turbulent waters. Without stability, this market will continue only to attract investors looking for short-term profits. No matter how many billionaires and millionaires cryptocurrencies have made in the past few years, without a sense of security, common investors will continue to stay away from the market shortly, too.
No doubt, cryptocurrencies have the potential to grow wealth in a short period of time, but at the same time, they can tumble the financial positions, too. So, before investing, one needs to consider all the scenarios that can happen in the near future and make a wise move rather than regretting later. As blockchain technology is still at its nascent stage, the future holds better prospects than the prospects that blockchain-powered cryptocurrencies promise at present.
By BigAi :