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The Great Crypto Conundrum

Why are Australians taking the plunge, and what do we need to do to make it work?

As investors plunge headfirst into the deep end of cryptocurrency, Australia is facing a crypto conundrum with the sector continuing to be plagued by credibility and respectability issues. But whether you’re a fan or sceptic there’s nothing escaping the fact that crypto is here to stay.

The Commonwealth Government’s Senate Inquiry into the regulatory environment for cryptocurrency chaired by Senator Andrew Bragg, assessed the legitimacy of the crypto market and its potential for growth. Bragg concluded that crypto is predicted to generate as much as $68.4bn for the economy, and expected to create more than 200,000 jobs by 2030.

Significantly, the global market value of the crypto ecosystem is estimated to be AU$2.8 trillion.

The evidence is undeniable that crypto is growing around the world and at home. According to a range of sources, more than 3.5 million Australians are predicted to buy crypto in 2022. And with MasterCard hopping on board, and Commonwealth Bank piloting crypto services on CommSec, it’s little wonder that more and more Aussies are doing their due diligence on crypto.

So, what do you need to know before dipping your toes in crypto?

Growth

Since January 2009, Bitcoin’s price has exploded from $0 USD to $38,431 USD, at the time of writing. There are few stocks with this kind of return on investment. But Bitcoin isn’t alone, with second banana Ethereum, and new-kid-on-the-block Solana continuing to surge.

Ethereum (ETH) rose by more than 27,000% or USD$11 to USD$3,000 from April 2016 to March 2022, whilst ‘Ethereum killer’ Solana (SOL) grew 13,000% from USD$0.77 in 2020 to USD$101 in 2022.

Bitcoin growth

Chart from GoogleFinance.

Returns

For investors craving a sugar hit, crypto is for you, with even short-term crypto investments rewarding those who dare to take the plunge. If we compare crypto to other currencies, crypto returns surpass those of other currencies by more than 20 times.

The overwhelming weight of research shows that digital currencies are on the way up. And for passive investors with a set and forget strategy, the data suggests storing coins in a crypto wallet could still attract strong returns.

Risk

Dabbling in digital currencies is not for the fainthearted, with investors winning big and losing big due to the price volatilities in this game of high stakes. From January 2021 to January 2022, Bitcoin nearly doubled in value. Turning to February 2022, Bitcoin lost most of its previous gains.

But, with great risk comes great reward, especially for early adopters of crypto. Whilst fiat currencies are at the whim of central banks who can simply print more money in global crises like Ukraine, crypto is insulated from inflation due to the finite number of coins in circulation.

Control & Fees

Run by the people, and for the people, the decentralised nature of crypto means there is little red tape and hidden charges. Like any investment crypto carries a transaction fee for the mining, buying, selling and storing of coins. But, buying and selling crypto pales into comparison to banking.

Crypto operates on a peer-to-peer network, meaning there is no third-party participation in your transactions. Though some coin exchanges charge higher transaction fees than others, these are negligible when compared to banking.

It’s not too late

For those with FOMO, it’s still not too late to make some crypto gains. Crypto is here to stay, with the universe continuing to expand, and more and more people boarding the train. In the bigger picture shift to digital currencies, investing now means you’re still in the early adopter camp. Whether you get on board or not, the ship is sailing with or without you.

Digital pitfalls

So, you’ve heard all the positives about crypto, now for some of the negatives. Though confidence in the crypto market is growing, its pitfalls are evident. Whilst being in control of your coins is a good thing, it does place a lot of onus on the individual to keep their crypto secure from hackers, rug pulls and scammers.

A certain level of scepticism is required when navigating the crypto universe. If someone is offering you something for nothing, it may be too good to be true. Whilst the peer-to-peer network is difficult to hack, it’s not impossible with hackers exploiting inexperience to access your coins.

To stay one step ahead of the hackers, due diligence is critical. Though there are security measures across coin exchanges and coin wallets, those more risk averse need to weigh up the digital pitfalls before taking the plunge.

Crypto for the future

Winter is coming for hackers, rug pulls and scammers, with the Bragg Report delivering a series of recommendations designed to provide greater protection for consumers. A key recommendation form the Bragg Report was a market licensing regime for coin exchanges, which included capital adequacy, auditing and responsible person tests.

Presently, coin exchanges are subject to minimal regulation, despite managing billions of dollars in personal wealth. The new regime seeks to enhance consumer protection and operational integrity.

A second recommendation was a Decentralised Autonomous Organisation (DAO) company structure.

DAO put simply are businesses which acquire peer-to-peer community support on the blockchain network, and raise capital via crowdsourcing and smart contracts, without the dependence on bank loans.

Though some crypto investors see regulation as a crypto killer, it might also strengthen their investment portfolio. Introducing regulation could also instil broader confidence in crypto, paving the way for a diverse new market of investors.

Regardless of which camp you sit in, it’s undeniable that crypto is gaining traction.

Bitcoin, Ethereum and Solana are just the tip of the iceberg, with next generation coins powering a whole new metaverse of possibilities in Decentraland (MANA) and Sandbox (SAND). MANA and SAND have the potential to shift the dial on a range of sectors including property.

Despite the shifting sands of the Bragg Report, increased regulation in the mould of licensing and organisational structures could dissipate some of the credibility and respectability issues plaguing crypto, and in the process unlock a new universe of crypto investors.

Now the question is, will you take the plunge, or stay on shore?

About the author

Cannings Purple’s Associate Director, Isaac Stewart, is an experienced, innovative and passionate stakeholder engagement specialist with more than a decade in community engagement, government relations, investor relations and media management. Contact Isaac.

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