The future of the cryptocurrency industry may be hinging on the verge following a series of catastrophic events that have shaken up the market over the course of the summer.
Earlier this year, the Securities and Exchange Commission (SEC) filed over a dozen lawsuits against the global crypto and digital assets exchange Binance, including the founder and chief executive of the exchange, Changpeng Zhao.
The barrage of charges forms part of SEC Chair Gary Gensler’s larger plan to take a hard and long crackdown on the regulation of the decentralized area, which has for more than several years been operating in the shadows.
Yet, this isn’t the only event that has pushed the industry toward the tipping point. The collapse and bankruptcy filing of global crypto exchange FTX in November 2022 only further led lawmakers and regulators to fast-track their crackdown on the industry’s operations in recent months.
While this is all playing out in the forefront, in the background however, many are wondering whether cryptocurrencies are being used for what they were initially promoted to do; becoming a decentralized digital currency that can be used to conduct transactions such as paying for goods and services.
Now, new research suggests that cryptocurrencies are seeing fewer real-world applications, and are instead being held in cryptic digital wallets, where they’re gathering dust, and being used as a hedge against inflation.
Dwindling use of real-world payments
Back in 2008, the creator of Bitcoin (BTC) “Satoshi Nakamoto” claimed that the decentralized coin would become a peer-to-peer currency that would allow holders and traders to use it as a form of currency to conduct transactions, without needing prior authorization from existing financial institutions.
At first, the concept seemed outlandish, however, the idea of having a completely decentralized currency that sees little to no regulatory intervention caught wind under some investors, and perhaps those actors operating in the shadows.
The Bitcoin price history is somewhat all over the charts. Since its inception, BTC prices have moved across the board, ranging from $0.9 in 2010, $68.50 in 2012, and $900 in 2016, surpassing the $10,000 threshold in 2019, and breaking the ceiling at its peak of $69,000 in November 2021.
Since then, crypto prices have dropped significantly, with the overall market value falling from $3 trillion in 2021, to less than $1 trillion at the end of last year, before seeing slight improvements throughout much of this year.
However, getting back to the point at hand, while crypto, and perhaps more so, BTC and Ethereum (ETH), the two largest cryptocurrencies by market share, new data from several sources suggest that users aren’t putting their crypto into actual use.
In 2022, the U.S. Federal Reserve released data that only helps confirm the dwindling use of cryptocurrencies.
According to their data, the percentage of consumers that held or used cryptocurrencies declined by 2% between 2021 and 2022, with only one in ten consumers owning digital assets.
Furthermore, the share of those buying, or investing in cryptocurrencies has also been on the decline. In 2021, roughly 11% of users held crypto, that figure declined to 8% in 2022.
The same data revealed that the number of financial transactions remained somewhat unchanged throughout 2021. A mere 3% of those surveyed said that they use cryptocurrencies for financial transactions in the 12 months leading up to the survey.
Those that are using it to make purchases, such as paying for goods and services remain low at 2%, while only 2% use it as a way to send money to friends and relatives.
Elsewhere, similar data suggests that crypto usage has been on the decline in recent years, perhaps led by the soaring prices and highly volatile conditions it has been trading under in more recent years.
In the United Kingdom, government research found that more than half, or around 52% of British cryptocurrency holders simply had the asset as a sort of “fun investment” instead of using it to make day-to-day transactions.
What’s more, according to the same data published by the HM Revenue and Customs branch of government, nearly 8% of those surveyed in the UK said that they are using crypto solely for gambling.
What’s the issue?
Well, as many crypto enthusiasts would know, and perhaps those that have had some exposure to digital assets, crypto is an extremely risky investment, but more so, it’s one of the most volatile investment vehicles available on the market.
On average, crypto prices tend to zig-zag across the market much faster, and more rapidly compared to fiat currencies such as the U.S. dollar, British Pound, Japanese Yen, Canadian dollar, or the Euro.
Another factor, that is often more visible than one might think, is that although some merchants and businesses have started accepting crypto as a form of payment, prices for goods and services are hardly expressed in the form of crypto.
A lack of actual expression of crypto pricing in stores, restaurants, or with online stores has only meant that instead of doing the math while shopping, crypto users tend to rather rely on fiat currencies to complete their transactions.
The inconsistent price swings that crypto undergoes each day, and even more, every hour means that in the event that prices are displayed in crypto, these would need to be updated regularly. This sounds more like actual effort, than anything else.
Instead of having to put their digital coins to use in the real world, users are holding onto their cryptos as a possible hedge against inflation.
In an article by Business Insider published in 2022, researchers from Gemini found that nearly 40% of U.S. crypto owners view digital assets, including the likes of BTC and ETH as a possible hedge against inflation.
The same Gemini data found that a whopping 85% of U.S. crypto owners are buying and holding their cryptocurrencies for long-term investment potential or as a possible “store of value.”
The widespread accessibility of cryptocurrencies has meant that the crypto-gambling industry has experienced increasing growth in recent years. Experts have predicted that by the end of 2023, crypto gambling will reach a market value of $93 billion, a massive jump from the $25.4 billion and $59.7 billion recorded in 2011 and 2020, respectively.
What’s it worth then?
Well, for what it’s worth, crypto continues to hold investors enthusiastically devoted. While there has been little to suggest that users are making use of their cryptocurrencies to pay for their groceries or rent.
Before we can ask, ‘But what about the countries that adopted BTC as a legal tender?’ These experiments haven’t been welcomed with open arms by everyone. In El Salvador and the Central African Republic, governments have tried to introduce financial reforms, however, there’s been little known about the success thereof in recent months.
Perhaps cryptocurrencies will remain a speculative investment for investors willing to risk a lot of their portfolios. Perhaps it will stay a digital currency, hidden in the shadows of the market, and traded in a sort of gray area. It now appears that lawmakers and regulators are fast approaching this gray zone from all sides.
Perhaps crypto’s final judgment lies under the scrutiny of what we can classify it. By the looks of it, crypto seems to be nothing but an investment option, a digital token used for gambling, and less a real-world solution for a world claiming to be on the cusp of digitalization.