Cryptocurrency Industry Business Trend Analysis
Introduction
A business trend is a relevant change in the fundamental business dynamics within the business industry. Understanding business trends is one of the primary keys to success in the business field and to stay up to date with the business field. Knowing and understanding business trends tends to facilitate business’s strategic decisions resulting in faster success. Now, why are trends so crucial in the business industry, and why does it matter? The answer to this question is always to be prepared and expect the unexpected. Will your business be prepared when a recession occurs? How could you stay up to date and react to challenges hitting your business? There are so many questions and answers on why business trends are significant and why they matter.
The purpose of this report is to analyze the business trend in the cryptocurrency market and determine how it affects business and the economy in general. In achieving such an objective, the report will involve conducting secondary research by analyzing existing literature concerning the topic. Specifically, the report will seek to identify current cryptocurrency market trends and their significance to business and the economy. The process involves reviewing the most recent but reliable news broadcast, trade journal articles, professional organization websites, and reputable company websites.
The Cryptocurrency Market
Having a global economy means having a global digital currency. Cryptocurrency allows anybody in this world with a cell phone or other internet-connected electronic devices such as a computer or tablet to access financial services. Cryptocurrency refers to a virtual form of payment secured by cryptography and facilitates the purchase and subsequent payment for goods or services. The market is highly decentralized, meaning the circulation of cryptocurrency is not controlled or regulated by the government or any central authority. Cryptocurrency is founded on computer networks and could be sold or bought in cryptocurrency exchanges (Sun et al., 2020). Once purchased, they can also be stored in digital wallets.
Most cryptocurrencies are based on a technology called a blockchain. Unlike the typical currency stored in bank vaults, safes, and pockets, cryptocurrency is virtual, and ownership only exists via a digital record called the blockchain. A blockchain represents a digital register that is shared and contains recorded data. About cryptocurrency ownership, the recorded data refer to historical trade transactions for every unit of the currency. It indicates how the currency has changed ownership over a specific period. Technically, blockchain technology has achieved such success because it helps record transactions in “block.” Each block is linked to another by a chain, and new blocks are added to the chain.
Figure 1: Blockchain technology. Retrieved from https://www.ig.com/en/cryptocurrency-trading/what-is-cryptocurrency-trading-how-does-it-work
Cryptocurrency holders can transfer currency from one person to another by transferring money from their digital wallet to the other person’s wallet. The transaction is only considered finalized after it is verified and added to the blockchain through the mining process. The mining process is also used in creating new cryptocurrency tokens. The mining process consists of two critical roles; first, to ensure the sender has adequate currency in his or her wallet. Secondly, to confirm the transaction’s authenticity by determining whether the sender authorized the transfer using designated private security keys.
Cryptocurrency Market Trends
After looking at what cryptocurrency is and how it works, it is vital to understand its development over time. The term cryptocurrency was born in the year 1998 after the invention of the cryptographic system. After the American cryptographer David Chaum had invented the DigiCash and eCash, Wei Dai got curious about developing a decentralized payment system and applied the cryptographic system. (Sun et al. 2020) Eventually, in 2009 (after the global financial crisis in 2008), the first cryptocurrency (Bitcoin) was created. The primary purpose of creating cryptocurrency was to facilitate international payment of goods and services across parties without the interference of intermediaries.
In the beginning, people did not trust cryptocurrency as a payment system because it was new. However, over time communities have gradually accepted the cryptocurrency concept. The perception of cryptocurrency has significantly changed over the years. More people and entities are using cryptocurrency as a payment and investment system. Due to increased popularity, an increasing number of cryptocurrencies are created each year. Besides Bitcoin, currently there other cryptocurrencies in the market, such as Ethereum, Litecoin, Ripple, Zcash, Stellar Lumen, IOTA, NEM, among others. Companies such as Microsoft, Starbucks, Amazon, Visa, Paypal, Cocacola, Expedia, and Tesla have accepted cryptocurrency for payment of goods and services while others are creating their own (Walsh, 2021). For example, Kodak and Facebook are in the process of developing their own cryptocurrency.
Moreover, crypto trading has become a significant investment method for many people and companies. It is a derivative product that allows traders to speculate on whether the specific cryptocurrency will decline or rise over a specified period. The prices of the cryptocurrencies are quoted in terms of typical currencies, for instance, in dollar terms. Like other financial markets, the investors here consider the spread between the buying and selling price of the cryptocurrency. Crypto trading brokers such as Gemini.com provide crypto trading education and investment opportunities. The company allows investors to own accounts and trade online.
Impact of Cryptocurrency Market Trends on Business and the Economy
Blockchain technology brings many benefits, including the elimination of intermediaries that characterize the conventional financial system. Consequently, cryptocurrencies and digital currency make it easier to send money to somebody else without dealing with the bank or financial broker. It is almost like handing cash to somebody else, with no bank or any wall and barriers in between. Besides, banks impose an implicit control of your money which is eliminated through cryptocurrency. For instance, when you bank your money with a single bank in case of bank failure, it runs out of money and goes under receivership. As a result, the affected customers suffer until they get refunded by the deposit insurance fund, which may take quite some time. Assuming you bought cryptocurrency and possess several electronic devices for access, it is unlikely that all devices fail simultaneously. Even if they did, you could borrow or buy another device and still find your cryptocurrency intact.
When it comes to cryptocurrency, one does not need any intermediary to keep track of transactions because the cryptocurrency provider automatically does it. As a result, cryptocurrency technologies give us less time, money, and effort to accomplish the financial transaction. Cryptocurrencies have the potential to build a global economy. With a more global economy and cryptocurrencies running, it does not matter where you are born; with a smartphone and internet connection, everyone gets the opportunity. A global currency opens up the world to everyone. More people invest more inclined to invest anywhere in the world. As a result, it opens up enormous opportunities for everybody. The world population is full of talented young people looking for opportunities to generate income due to limited employment opportunities. As a result, cryptocurrency trading is a welcome opportunity in today’s economy and helps alleviate the global problem of unemployment.
According to CryptoCurrency Certification Consortium (C4) (n.d), the cryptocurrency market operates like other commodity markets where the price is determined by the supply and demand forces. However, given their decentralized nature, they are free and not easily influenced by political or economic externalities like traditional currencies. While people are growing confident in cryptocurrency, several factors influence the price of cryptocurrencies, which creates more challenges for users. As noted by Caporale & Plastun (2019), these factors include; 1) cryptocurrency supply which is the number of coins created and the initial trading rate, 2) the market capitalization, which refer to the total value of cryptocurrency coins that exists and user perceptions, 3) the media or press which determine how the currency is portrayed and the coverage time provided, 4) the rate of integration of cryptocurrency with existing economic and political infrastructure, and 5) significant incidents concerning regulation, security, and socio-economic setbacks.
According to Kharpal (2021), the cryptocurrency had a market capitalization of $2.43 trillion on 12 May 2021. However, on 13 May 2021, the market capitalization value dropped by $365.85 billion to stand at $2.06 trillion. Such a drop was caused by Elon Musk’s morning tweet, which communicated the suspension of car purchases using Bitcoin. This is a classic example of how negatively cryptocurrency can wipe out investments. The main objective of blockchain technology is to eliminate mediators from the financial system. Such a move excludes the government from interfering in a financial transaction. Despite having tangible benefits in reduced transaction costs, it also eliminates the government’s ability to protect players. Sun et al. (2020) note that while legal institutions protect people against manipulating stock and money markets, cryptocurrency exchanges do not offer such protection. Investors are isolated, and big players can influence cryptocurrency’s price through increased press and media coverage. Musk, Tesla CEO’s decision to tweet the unfortunate news led to significant losses for investors. Who knows, maybe it was a planned move to drop Bitcoin price. Kharpal (2021) noted that Elon Musk had played a significant role in driving the prices of Dogecoin and Bitcoin high over the last several months.
Although it makes it easy to perform intercountry transactions between parties, the high volatility of these currencies makes it difficult for many people and companies to accept payment. Even companies that receive payment in cryptocurrency do so on a limited scale. For instance, Microsoft accepts Bitcoin payment only for Windows Store and Xbox content (Walsh, 2021). Besides, due to a lack of government control and solid guarantee in protecting buyers, unscrupulous dealing will increase, especially in developing countries.
Summary of Findings
Knowing and understanding business trends tends to facilitate businesses’ strategic decisions resulting in faster success. Cryptocurrency is one of the biggest business emerging trends; commonly considered the currency of the future. The reason is that cryptocurrency has revolutionized the payment and investment systems today. The main objective of developing the cryptography system was to bypass regulation and create a decentralized currency that would facilitate the payment of goods and services. Despite a slow start due to a lack of trust, the cryptocurrency market has grown significantly. More people and companies now use it for payment and investment through speculation. Despite the apparent benefits, we cannot sidekick the inherent drawbacks. By bypassing the government’s red tape, the cryptocurrency market poses currency holders to volatile currency prices and a lack of protection from market manipulation.
References
Caporale, G., & Plastun, A. (2019). Price overreactions in the cryptocurrency market. Journal Of Economic Studies, 46(5), 1137-1155. https://doi.org/10.1108/jes-09-2018-0310
CryptoCurrency Certification Consortium (C4). (n.d). CryptoCurrency Certification Consortium (C4). CryptoCurrency Certification Consortium (C4). Retrieved 14 May 2021, from https://cryptoconsortium.org/.
Gemini. (n.d). Cryptocurrency Exchange to Buy Bitcoin and Ether | Gemini. Gemini. Retrieved 14 May 2021, from https://www.gemini.com/.
Kharpal, A. (2021). As much as $365 billion wiped off cryptocurrency market after Tesla stops car purchases with bitcoin. NBC News. Retrieved 14 May 2021, from https://www.nbcnews.com/tech/tech-news/365-billion-wiped-cryptocurrency-market-musks-tweet-rcna922.
Sun, W., Dedahanov, A., Shin, H., & Kim, K. (2020). Switching intention to crypto-currency market: Factors predisposing some individuals to risky investment. PLOS ONE, 15(6), e0234155. https://doi.org/10.1371/journal.pone.0234155
Walsh, D. (2021). These are the major companies that accept cryptocurrencies as payment. euronews. Retrieved 14 May 2021, from https://www.euronews.com/2021/04/07/paying-with-cryptocurrencies-these-are-the-major-companies-that-accept-cryptos-as-payment.
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