The crypto markets are still under enormous pressure. There are a number of issues that urgently need to be addressed in order for cryptocurrencies to become more “negotiable” for asset managers and thus more likely to tie up more capital in the asset class in the longer term.
No trading rules for laundry sales as shares in the United States
The US laundry sale rule states that if an investment is sold at a loss and then repurchased within 30 days, the initial loss is not deductible. This has not been the case with Bitcoin so far and is contributing to the increased volatility.
Unregulated trading venues
There are still over 500 unregulated crypto trading sites. The fatal thing is that in most cases they also offer trading with a leverage of up to 20. Another factor that contributes to the strong volatility. Government regulation can solve this problem. In addition, money laundering and other criminal use should be minimized as far as possible through state control.
Too many cryptocurrencies
There are currently thousands of cryptocurrencies in circulation. Many of these use Bitcoin as a security mechanism. Bitcoins must therefore be deposited as security, which must contribute to confidence in the respective cryptocurrency. A price drop in many smaller crypto projects is also affecting Bitcoin. (see Luna / Terra as a recent example)
Unreliable stack coins
So far, stack coins have been necessary for the crypto ecosystem. You will need them to exchange your euro for a stablecoin, which you can then exchange for bitcoin or another currency. Many stablecoin projects have come under great pressure in the past due to problems with so-called pegging, ie linking stablecoin to the “real” US dollar or another currency and its value. Central banks could remedy this by issuing their own Fed or ECB coins. Bitcoin could even take advantage of this, as the uncertainty factor for stack coins would then no longer exist.
No marketability via Spot ETFs
A spot ETF for private as well as professional investors would have the potential to tie up huge capital flows and redirect them to the crypto sector. Active and passive trading strategies can be easily implemented by anyone. Such a listing is likely to have a very positive impact on the price of Bitcoin.
Lack of security aspects
Crypto-marketplaces are not subject to any law on deposit protection or similar consumer protection requirements, such as classic banks. However, this would be an urgent need to strengthen the broad confidence in the asset class. Questions like what happens if my broker goes bankrupt or gets hacked are not yet clearly regulated. Here, too, regulation by the state should have positive effects.
So far, Bitcoin is still considered non-green, resource-wasting and dirty. However, the first improvements in bitcoin mining can already be seen. It can be assumed that with increasing use, Bitcoin mining will also become greener and thus more ESG compatible. This process will be necessary in the long run to keep the Bitcoin ecosystem safe and secure, renewable energy can make Bitcoin’s profile greener in the medium term. However, 60% of the Bitcoin ecosystem is already covered by green electricity, according to current estimates from F5 Crypto.
In summary, there are still some points that need to be improved to make Bitcoin even more attractive as a means of investment. In general, however, one can also say that government regulation is more likely to be a blessing than a headwind for Bitcoin. It remains to be seen how the digital currency will cope with the current bear market and whether it will be able to continue the fantastic rally of the past decade.