The cryptocurrency market has been volatile from the beginning but the last few months have been particularly a wild ride. While an upward trend can do wonders, a downswing can be disastrous as is the recent case of El Salvador. The country’s historic adoption of Bitcoin as its official currency – to become the first in the world – was marked by angry protest by citizens, followed by technological glitches and a dip in the cryptocurrency market globally. In no time, the price of the world’s most popular cryptocurrency plummeted from around $52,000 to below $45,000. This certainly merits a discussion on the high price volatility of the cryptocurrencies and the reasons for the clash. One also needs to understand where the crypto industry is headed next.
High volatility and lack of clarity
Experts attributed El Salvador’s 15% ‘flash crash’ to a lack of liquidity in crypto markets, which could give disproportionate power to large holders, and the fact that crypto markets are highly sentiment-driven and lack proper regulation. Automated trading programs that sell or buy at pre-set prices, could have also added to the pressure. All of these can be lessons for other economies planning to adopt crypto as their primary currency. Also the fact that there is a lack of regulatory clarity and ambiguity on the term ‘cryptocurrency’ has made it a very misunderstood innovation.
For example, merchants in El Salvador’s capital’s “Excuartel” market are furious because officials have not come to explain how it will function. The anxiety is felt throughout the Central American country of 6.4 million people, not just in San Salvador’s “Excuartel” market.
Reports suggest that market dealers and shoppers claimed that no authority has explained how bitcoin works, hence the majority of people say they will not use it at first.
President Nayib Bukele’s government has installed one of 200 banking machines at the “Excuartel” market. And although he stated that the country will not force the adoption of digital currency and that people can withdraw bitcoins or convert them to US dollars without incurring additional fees, around 300 demonstrators recently had a march against El Salvador’s Congress, demanding the repeal of the new bitcoin law.
Bitcoin, according to Bukele’s critics, is unsafe for two reasons. The value of cryptocurrency fluctuates every day. They’re also concerned that unscrupulous authorities could use it to move money unlawfully.
“(The) bitcoin law offers a lot of surprises,” said Steve Hanke, a Johns Hopkins University economist. The bitcoin scheme, according to Hanke, would be “inconceivable” if it did not follow the Financial Action Task Force’s rules (FATF), an intergovernmental group that works to stop corrupt officials from moving money illegally.
Speculators believe that as El Salvador has one of the lowest rates of inflation in Latin America since adopting the US dollar as its official currency in 2001, using a cryptocurrency could lead to more inflation because its value fluctuates frequently and in considerable quantities. Needless to say, a majority favors the dollar since they are familiar with it and understand it well.
The World Bank and the International Monetary Fund have expressed concern over bitcoin’s use due to environmental and transparency concerns as it started to gain acceptance world over.
Time to make peace with crypto’s volatile nature?
Not just Bitcoin, other cryptocurrencies such as Ethereum, Binance Coin and Cardano also fell between 13% and 18% and Dogecoin dropped 33% at one point. In fact, in India, many traders ended up buying the dip. As WazirX’s CEO and Co-founder Nischal Shetty told ET that its daily trading volume increased to $280 million from the usual $100-$150 million.
Unlike traditional stock markets, crypto markets lack circuit breakers, which are triggered when an index or a stock crosses a set threshold. Wild swings are thus a standard feature of cryptocurrency markets, they added.
Experts and traders said they were not surprised by the tumble. “Crypto markets, though growing, aren’t as liquid as traditional financial markets. If there is more liquidity, this [flash crash] is less likely to happen,” Shetty says in the report.
Avinash Shekhar, Co-CEO, ZebPay, too adds, “Bitcoin is the greatest invention of the century, perhaps bigger than the Internet itself. The rise of such a breakthrough technology will have roadblocks, but they will only make Bitcoin stronger.”
For India, blockchain and crypto adoption is believed to advance the concept of digital currency, and accelerate the digital payments ecosystem. The pandemic has magnified some of the value propositions of cryptocurrency and decentralized finance. In fact, a new report discovered that the number of people using cryptocurrencies globally has more than doubled since January, reaching 221 million last June.
As a first mover in the space, India could create more jobs and have the very real chance of becoming a front-runner among the global cryptocurrency elite. However, it all begins with a robust regulation framework. As Kumar Gaurav, Founder & CEO of Cashaa, and an expert in the crypto market, says that the country has much untapped potential when it comes to cryptocurrencies. With the right crypto regulations, India can become a crypto hub, and lead a digital revolution
India should take cues from developed countries such as the US, the UK, Japan, Australia, and the EU region, etc. which are regulating crypto in a way that they foster innovation and fight crime at the same time.
Crypto Ransom Payments soaring
Needless to say, crypto ransom payment is also soaring world over and its time for some reality check. In the last few years, ransomware attacks have taken hundreds of millions of dollars worth of cryptocurrencies to victims worldwide. In 2020 only, as the record year for crypto ransomware attacks, the total value of loss hit more than $400 million, showing a massive 337% increase in a year.
However, as the fastest-growing type of cybercrime, crypto ransomware attacks continued causing new losses this year. According to data presented by BlockArabia.com, victims transferred $81.6 million worth of cryptocurrencies to cybercriminals in five months of 2021, almost matching the total for the entire 2019.
According to the Chainalysis survey, the average known ransomware payment amounted to around $54,000 in the first quarter of 2021, showing a massive 170% jump YoY and a staggering 1,700% increase in the last two years.
Bitcoin and other cryptocurrencies made it possible to extort huge ransoms from large companies, organizations and even city governments while being practically impossible to trace.
Although cryptocurrency exchanges take place on “public ledgers,” allowing anybody to observe online, the parties in a transaction are anonymous and disguised with a random number. As a result, there is no way to connect a person with a crypto wallet, and many people don’t have just one, but dozens and hundreds of wallets and addresses.
Hackers can move the cryptocurrency from one anonymous account to another, which has made ransomware attacks much easier.
According to BlackFog data, between January and July 2021, there have been a total of 175 ransomware attacks worldwide, up from 104 in the same period a year ago. Statistics show half of them took place in the United States. The United Kingdom ranked as the second most-targeted country with 21 ransomware attacks in the seven months of this year. Canada and France followed, with nine and seven attacks, respectively.
The way forward
Currently, less than 1.3% population of the world hold Cryptocurrency, making it a very exciting time for entrepreneurs to start leveraging blockchain and crypto technology. According to research, the cryptocurrency market size is expected to grow from USD 1.6 billion in 2021 to USD 2.2 billion by 2026, at a CAGR of 7.1%.
“As we gradually move towards a more efficient digital world, we need to ensure that we adopt the finest technologies. Blockchain is the finest technology we have today. With the right regulations, secure and faster implementation of this technology can help us patch any gaps and ensure a sound infrastructure,” Gaurav concludes.