In today’s technological era, where we can see so many advancements, currency alone has played a vital role in going digital. When we talk about digital currency, crypto or cryptocurrency comes to mind. Crypto is any form of money that is virtual or exists digitally while using cryptography to secure transactions. Crypto doesn’t work like regular banking transactions, which verifies or authenticates every movement of your money. Instead, it works under an unregulated system with no proper mechanism to monitor for recording transactions and give new units. The transactions are then placed in digital wallets for storage. The question is: Why Does the Real World Market Define Crypto as the Wild Wild West?
The reason crypto secured such a name is that it uses an encryption model to authenticate transactions. However, the lack of accounting guidance and regulatory measures on cryptocurrencies has led the real-world market to view and define crypto as the wild wild west.
Why is Crypto Called the Wild Wild West?
Evidently, crypto has been around for a while now. While it has thrived for the longest time without checks and balances, it is known to shake the investment market like the global financial crisis witnessed in earlier years.
Everyone has been talking about crypto for so many years. This has increased the interest of even the most basic investors in the crypto gamble to take their chances, thus, resulting in a shift toward digital finance.
The downfall of crypto began due to this rapid increase in investments and increased volatility in the risks and returns of crypto, especially in this uncertain market. This digital currency’s growth occurred aggressively. Resulting in a crash where investors moved toward the sidelines to protect what little they were left with.
Due to its uncertain and volatile nature led investors to lose a large sum of money briefly, and with no regulatory authority monitoring all this with no accounting guidance in place, crypto is known to be the wild wild west.
So to gain a better understanding of why this wild west of digital finance faced a drastic downfall. Let’s look at some of the reasons that played a role in the destruction of cryptocurrency.
Inflation
Cryptos were known as protected and steady from inflation. However, due to the continuous rising inflation, cryptos could not maintain their steadiness, resulting in the currency’s fall. The instability is something that the investors did not see coming, and that’s when they lost a considerable sum of money.
Pandemic Era
During the pandemic era, when people were locked in and unable to spend money on experiences like travel, concerts, dining, etc. They chose to invest their income in these digital currencies, known as crypto.
During this era, crypto played a positive impact. However, as soon as the world began to move towards normalcy and the spending choices changed from investments to regular lifestyle expenses. Crypto had to compete against the unavailable money.
Volatility
These digital currencies have been known to be one of the best investments in their time. However, just like the tech stocks, they have proven to be high-risk – high-return assets that aren’t considered the safest investments, especially in such unstable times of the economy.
Ukraine War
As these assets are risky, the Ukraine war has become one of the core reasons most investors shy away from putting their money in such a currency during these times. People are far more comfortable investing their money in traditional and proven assets rather than volatile ones.
As crypto has been considered the wild wild west and the future of digital finance. The reasons mentioned above have made it intolerable and convinced many people to regulate it.
What Will Happen If Crypto Is Regulated?
If regulated, cryptocurrency can make the investment market much more secure and safer. Although it will still be risky, with proper regulations and protections, investors will feel comfortable putting their money out there.
Risk Profiling
Many people are blindly putting their money in crypto because they have heard so much on the internet about it or from their friends and family who invested.
They need more information about crypto itself. So it is essential to inform them about the risk profiling of each type of crypto investment to make an informed decision.
Disclosures
Transparency is crucial when it comes to anything that requires you to use your hard-earned money. The same is the case with cryptocurrency, where proper disclosures are necessary to let people know what, when, how, and why people should place investments in crypto.
This will give them an idea of what they are doing with their own will after adequately understanding the product rather than just blind faith in anything trending.
Stability
Once the crypto world is regulated, investors, especially the institutional ones, will feel more comfortable investing their money in crypto. Resulting in individual investors putting their money back into such investments.
This will bring back confidence and help bring in the stability of the investment asset when it comes to their prices.
Clarity
When high-net-worth individuals and institutional investors put their money into these investments. They want clarity and transparency about where their money is. With the help of regulations in place. It will be evident what class of assets are available for investments and whether the investment made is safe.
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Wrapping Up
In the last 13 years, Bitcoin alone was able to mint hundreds of thousands of millionaires, and a trillion-dollar industry has awoken to serve cryptocurrencies that proponents claim to be the finance’s future.
Simultaneously, much money has been lost to fraud and scams. While all this was happening, crypto grew too quickly for regulators to keep pace. Even though crypto has enjoyed its time over the past few years as the wild wild west. There have been rumors that regulations are en route to monitor these investments properly.
The lack of oversight of crypto has gained a lot of attention from investors. As legislators and regulators are honing in on the industry, things are expected to change. Still, it fell back severely; thus, with a few regulations in place, it will bounce back in no time. A framework in place might be a game changer everyone is waiting for.
And despite polarized uncertainty regarding how to do the job efficiently. It’s somewhat evident that the wild west days of crypto are slowly ending. Whether regulating crypto will be a blessing for investors regarding security or another challenge they must face is still unknown.
