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The state of the crypto market in 2022

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The state of the crypto market in 2022

Cryptocurrencies have had a wild ride this year. In less than eight months, Bitcoin (BTC -1.22%) fell 70% from its all-time highs in November 2022. Ethereum (ETH -3.98%) took a 78% hit over the same period. The stock market also felt like a whirlwind at the same time, but the S&P500 (^GSPC -1.29%) the stock market index lost only 22% of its value.

Bitcoin Price Chart

bitcoin price given by Y-Charts

Markets turned around sharply in June. Bitcoin and the S&P 500 have seen double-digit percentage gains since the summer low, while Ethereum is up over 70%. This surge may seem large, but remember that Ethereum started its rebound from very low price levels. In total, Ethereum and Bitcoin are down more than 60% since last November’s highs.

A significant part of the fuel that acts on the market has come from the economy. Inflation is skyrocketing, not only in America but all over the world. Additionally, geopolitical tensions in Asia and Europe have added to the strain on supply chains and financial systems that were already under strain due to the coronavirus crisis.

However, the crypto industry has seen key developments in recent months. These events will likely look significant when crypto investors look to 2022 in the future.

United Nations Guidance

The United Nations Conference on Trade and Development (UNCTAD) sent mixed signals in a recent policy review.

First, the International Forum for Global Economic Development noted that cryptocurrencies bring both opportunities and risks to national economies. In particular, developing countries should approach digital currencies with caution. Cryptocurrencies provide immediate access to modern payment systems, but their volatile nature also exposes crypto holders to sudden price changes. An unexpected price drop could ruin your family’s finances if your savings are fully invested in Ethereum or Bitcoin. When you extend this problem to an entire nation’s economy, the stakes are even higher.

UNCTAD has also recognized the benefits of a borderless global payment system. Therefore, the globalization agency suggested that economic leaders come together and craft crypto trading laws and regulations in a spirit of cooperation. On the contrary, the risky quality of cryptocurrencies should inspire improvements to traditional fiat currencies and old-school banking systems.

β€œIt is argued that a national digital payment system that serves as a public good could address at least some of the reasons for crypto usage and limit the expansion of cryptocurrencies in developing countries,” the report says. report. “Given the risk of deepening the digital divide in developing countries, UNCTAD urges the authorities to maintain the issuance and distribution of cash.”

Several countries are considering crypto-based legal tender ideas

El Salvador uses Bitcoin as legal tender since 2021, alongside the US dollar. The Central African Republic followed suit four months ago, adding Bitcoin as a digital alternative to the CFA franc.

El Salvador is building a new city around the concept of Bitcoin mining, funding this project with its existing digital currency wallet. In the Central African Republic, the government launched a new blockchain network called Sango, partially backed by Bitcoin reserves. In a curious twist, you can now become a citizen of the Central African Republic by putting aside $60,000 in Sango-based collateral. Then, after five years, you will recover your Sango capital with this new passport.

However, these developing countries struggle with the practicality of relying on Bitcoin. Digital payment systems are not yet popular and not everyone has the technology to use fully digital systems. The world is watching El Salvador and the Central African Republic tackle their problems. So far, the results have not been great.

Central banks in Thailand and Australia are exploring central bank digital currency solutions. These large economies need to look at the risks and opportunities of digital currencies on a different scale than the much smaller economic systems mentioned above. The lessons learned from all of these early experiences will help the rest of the world build better rulebooks.

Other countries are moving forward in different ways

At the same time, more and more countries are putting in place regulatory frameworks for mining, owning, trading and sending cryptocurrencies. In some cases, their new regulations could lead to digital forms of legal tender, either directly like El Salvador or via official bitcoin-backed currencies like in the Central African Republic.

For example, the European micro-nation of Andorra approved cryptography legislation in early June that allows the government to issue its own digital token. The landlocked state isn’t about to replace the euro with a Bitcoin clone anytime soon, but these small steps could lead in that direction. Additionally, the Andorran government officially considers cryptocurrencies to be a form of currency and not an investment asset.

In South America, the government of Paraguay recently approved a large set of crypto regulations with a different purpose. The bills didn’t say much about treating Bitcoin-like cryptos as an official currency, but they paved the way for crypto mining companies settle in Paraguay. The country has abundant green energy, generated by the massive Usina and Itaipu hydroelectric dams. Using excess energy in bitcoin mining facilities could make economic sense. The country is currently exporting spare power to Brazil for pennies on the dollar, and a crypto-mining option might be more profitable.

Is it a good time to buy cryptocurrency?

In the summer of 2022, the world has moved ever so slightly closer to globally viable digital currency systems. This work is vital for reasons ranging from consumer protection to the deep interests of institutional investors, and it’s okay if it takes time. Getting it right is more important than getting it done quickly, after all. Meanwhile, Ethereum will perform its long-awaited “Merge” in September.

All in all, the reasons to take crypto investing seriously are piling up, and tokens are still cheap. Bitcoin and Ethereum look like solid buys right now – as long as you don’t mind facing a bumpy road in the coming months. It takes time to build a long-term stable regulatory system.

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