Is the allure of cryptocurrency fading?


Cryptocurrencies continue to expand as emerging currency. — Dan Kitwood/Getty Images/TNS

Bitcoin dropped to a three-month low recently and its movement has closely mirrored financial markets in its decline.

Bitcoin bulls often describe it as an asset that is uncorrelated to traditional financial markets, CNBC reported, however experts have noticed growing parallels in the price movements of bitcoin and stocks.

It also comes as Dogecoin co-founder Jackson Palmer wrote a lengthy Twitter essay about cryptocurrency preying on the most vulnerable.

"These days even the most modest critique of cryptocurrency will draw smears from the powerful figures in control of the industry," he wrote, "and the ire of retail investors who they've sold the false promise of one day being a fellow billionaire."

We asked the following question of a panel of San Diego economists and finance and business executives:

Q: Is the allure of cryptocurrency fading?

Ray Major, SANDAG

NO: The allure of crypto remains, but recent market fluctuations reinforce the reality that crypto is highly speculative. Much of its value is based on a general "gambling mentality" rather than sound investment principles. Many people invest in crypto like lottery tickets, hoping for a big payout without understanding or caring about what is driving the price. Crypto is here to stay. Some of the allure will fade as it matures, but for now, stay tuned for a wild ride.

Lynn Reaser, Point Loma Nazarene University

YES: As the Federal Reserve begins to tighten monetary policy, riskier assets will look much less appealing. Cryptocurrencies clearly fall in that category. Their volatility diminishes their use as a stable store of value or medium of exchange. Their secrecy continues to foster illegal activity. Environmental concerns have also risen over their intensive electricity use. Central banks have pushed back and are likely to move to stablecoins, backed by national currencies, or their own digital currencies.

Reginald Jones, Jacobs Center for Neighborhood Innovation

NO: Cryptocurrencies continue to expand as emerging currency. There are now thousands of cryptos in the asset class. Though still far from being used as mainstream sources of payment, last year saw more US businesses accepting cryptocurrency like bitcoin. A trend likely to increase. Prediction is more countries will follow in accepting the currency as legal tender. All this is not to say cryptocurrency will escape the topsy-turvy — perhaps even topping — market position we have seen.

Kelly Cunningham, San Diego Institute for Economic Research

NO: The government printing money at an astonishing pace in response to lockdowns and associated economic disruption causes significant inflation, which makes virtual currencies even more appealing. Cryptocurrencies are designed to create financial sovereignty for everyone and have as much future as the Internet itself. Cryptocurrencies could displace central banks, conventional banking, and challenge national money monopolies. Virtual currencies provide their own accounting units and payment systems, which allow peer-to-peer transactions without central clearinghouses and without central banking.

Phil Blair, Manpower

YES: I compare it to the public perception of a Ponzi scheme. Too good to be true. And with trusted financial advisers not pushing the crypto products, and usually stating buy at your own risk, the product will never become mainstream. It feels like such a desperate move for people with limited resources to take hard-earned dollars and roll the dice on whether the product, for unknown reasons, will soar or crash on a daily basis.

Gary London, London Moeder Advisors

YES: As an investable commodity it smells like tulips. While it will have a permanent place in world currency, its appeal as an investment vehicle with limitless upside is bound to fade. The early investors have often won big. Its promise is in its basic premise of decoupling money from banks or government, making it a very fungible world currency.

James Hamilton, University of California, San Diego

YES: There is a market value for cryptocurrency. But as an asset class it's something the vast majority of investors should avoid. Bitcoin's value is far too unstable for it or other cryptos to replace traditional currency as a logical way to store wealth or pay for transactions. Far too many people were jumping on the bandwagon in the mistaken belief that anything that's been going up in value will continue to do so.

Austin Neudecker, Weave Growth

NO: Cryptocurrency represents a shift in the way value is created and transferred. Fundamentally, cryptocurrency is built on an underlying protocol called blockchain, which enables people to transfer digital ownership of anything without the need for a middleman. Regardless of the success or failure of any specific digital currency, their existence is not a fad. This technology is going to change how transactions, even business models, function.

Chris Van Gorder, Scripps Health

YES: Cryptocurrency has garnered unwelcome attention from regulators and taxing authorities as they recognise that a small, but growing number of transactions are being used for illegal purposes, such as money laundering, tax evasion, fraud and outright theft. According to Chainalysis, illicit transactions totaled US$14bil (RM58bil) in 2021, up 79% from US$7.8bil (RM32.65bil) the previous year. The threat of greater government scrutiny and potential fraud may have diminished the appeal of transacting and investing in cryptocurrencies.

Norm Miller, University of San Diego

NO: With the likes of Matt Damon pushing Crypto on every channel with lines like "Fortune Favours the Brave" and Crytpo.com now sponsoring sporting arenas, it is nowhere ready to fade, even though no one knows how to estimate underlying value. Crypto "investors" say the supply is limited, but it is easy to start new cryptos and hope they catch on like Dogecoin or Polkadot (not a joke). Coinbase claims 68 million verified users and 6,000 different crypto currencies, with new ones starting weekly.

Jamie Moraga, IntelliSolutions

NO: Cryptocurrency is a risky endeavour due to its volatility. Investors who care strictly about the price may be disheartened as prices are down from the highs of 2021, but they still have increased year over year. Other metrics including developer activity, startup funding, and active users, indicate continued strong interest. Non-fungible tokens (NFTs) are an emerging crypto technology that is increasing in popularity where unique digital assets (art, music, images, videos) not easily replicated are sold to fans via blockchain services. Cryptocurrency is evolving, not fading.

David Ely, San Diego State University

NO: Prices and trading activity of cryptocurrencies, like other speculative assets, react to changes in interest rates, forecasts of future economic conditions, and uncertainty. Investor sentiment toward cryptocurrencies will fluctuate over time leading to changes in the volume of inflows into these markets. However, aggregate investor interest remains strong. Derivatives now offer additional ways to gain exposure to cryptocurrencies. Cryptocurrency regulations adopted in the future may have the greatest impact on the pace of expansion. – The San Diego Union-Tribune/Tribune News Service

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