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The demise of digital assets? Is crypto dead?

Is crypto dead? Certainly not yet. Explore the debate surrounding cryptocurrency’s future. Gain insight as to whether crypto is doomed or destined to thrive.

Thomas Sweeney

December 23, 2024  ·  4 min read

The demise of digital assets? Is crypto dead?

Financial analysts often seem overly eager to declare the demise of digital assets. According to 99Bitcoins, news outlets have pronounced Bitcoin (BTC) dead at least 477 times since its inception. In 2013, publications like The Atlantic likened Bitcoin to unprofitable Segway units, while the late investor Charlie Munger famously dismissed it as “rat poison.” 

Despite all these dire predictions, the crypto market continues to demonstrate long-term growth. So, what gives? 

If “crypto is dead” – or even in decline – then why does the market continue to grow? For a balanced perspective, let’s explore the arguments for both the potential fall and the rise of cryptocurrencies.

Are cryptocurrencies dead? The current state of the crypto market

Cryptocurrencies have faced repeated predictions of their downfall, but these criticisms reached a crescendo in 2022 following a series of scandals and project failures. After peaking at a $2.9 trillion market capitalization in November 2021, the crypto market faced a steep decline triggered by the $50 billion collapse of the Terra blockchain.

Terra’s collapse had far-reaching effects. Despite significant Bitcoin reserves and widespread adoption, its downfall caused extensive losses for investors, decentralized protocols, and businesses reliant on its ecosystem, including its UST stablecoin and LUNA token. Throughout 2022, revelations of reckless practices at crypto firms like Celsius, Voyager, and FTX fueled a wave of high-profile bankruptcies, further shaking market confidence.

However, by late 2023 and early 2024, positive developments began to emerge. In early 2024, the U.S. government approved spot Bitcoin exchange-traded funds (ETFs), boosting accessibility and cementing BTC’s status as a legitimate asset class. Optimism surged further after the 2024 U.S. presidential election as investors anticipated more favorable digital asset policies. Hopes for the approval of the BITCOIN Act of 2024, which would establish a strategic national BTC reserve, added momentum.

The crypto market rebounded to over $3 trillion, with Bitcoin soaring past $100,000 in early December 2024 and altcoins following suit. For now, it’s evident that crypto is far from finished. 

Why do some think crypto is dead?

Even as Bitcoin soars past six figures, some financial analysts remain skeptical about the long-term viability of cryptocurrencies. These persistent critics, or "permabears," often highlight specific factors to justify their belief that crypto may be unsustainable.

Price volatility and speculative nature

Wild price swings define the cryptocurrency market. While part of this volatility stems from the market's relatively small size, much of it is driven by speculation, with investors chasing short-term profits. Critics argue that this instability, combined with speculative behavior, undermines crypto's suitability as a reliable investment. 

Crisis of confidence

High-profile project failures have tarnished the crypto industry's reputation, fueling FUD – fear, uncertainty, and doubt – among investors. For instance, the collapse of FTX, a centralized exchange (CEX) once supported by institutional investors and media alike, exposed systemic issues such as fraud and lack of financial oversight. Scandals like this continue to deter potential investors and raise doubts about crypto's legitimacy.

Lack of real-world use cases

While proponents champion crypto's potential to disrupt industries like finance and gaming, these applications remain largely experimental. Cryptocurrencies and decentralized protocols are still niche, with limited adoption in daily life. Trends like NFTs often fade with market sentiment, and they’ve yet to demonstrate sustained, transformative real-world impact.

Rise of CBDCs

Central Bank Digital Currencies (CBDCs) represent another challenge to traditional cryptocurrencies. Dozens of countries are researching or launching these digitized versions of fiat currencies, which operate on blockchains with the legal backing of governments. Critics argue that CBDCs could overshadow cryptocurrencies like Bitcoin by offering similar functionality with greater regulatory trust.

The evolution of crypto: Opportunities and challenges 

Cryptocurrency faces significant hurdles, from regulatory uncertainty to scalability limitations, on its path to global adoption. However, recent developments highlight why optimism remains strong and why crypto is going up in value and adoption.

Growing institutional adoption

Major financial players like BlackRock, Fidelity, and JPMorgan have entered the cryptocurrency space, offering investment products like Bitcoin ETFs and facilitating client access to digital assets. Corporations like Tesla and Square (now Block) have added Bitcoin to their balance sheets, and MicroStrategy continues to compile a huge Bitcoin reserve, signaling confidence in cryptocurrency's long-term value. This growing institutional participation enhances market liquidity, accessibility, and credibility.

Potential government adoption

While countries like China maintain stringent bans on crypto activities, others are embracing digital assets. El Salvador recognized Bitcoin as a legal tender in 2021, and the European Union introduced the Markets in Crypto-Assets (MiCA) policy to regulate the sector. In the United States, discussions about incorporating Bitcoin into a strategic reserve highlight increasing interest in government-level crypto integration.

Technological innovation

Blockchain technology continues to advance, offering new possibilities for decentralized systems and web3 applications. Layer2 solutions, such as Bitcoin’s Lightning Network, make transactions faster and more affordable. Protocols like Cosmos (ATOM) and Polkadot (DOT) foster interoperability among blockchains, while innovations in smart contracts, zero-knowledge proofs, and decentralized identity create promising use cases for blockchain technology.

UI/UX improvements

Usability challenges remain a barrier to mainstream adoption, but progress in user-friendly interfaces is addressing this issue. For instance, smart wallets on Ethereum leverage pre-programmed smart contract commands, simplifying account setup and reducing reliance on vulnerable seed phrases. As crypto tools become more intuitive, they open the door for broader adoption and mainstream integration.

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Disclaimer: This post is informational only and is not intended as tax advice. For tax advice, please consult a tax professional.

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