Crypto Still Has Detractors, But The Reasons Are Outdated

Crypto Still Has Detractors, But The Reasons Are Outdated

Even in the face of accelerating adoption and utilization by individuals and institutions alike, crypto still has detractors. As appealing as these arguments might seem on the surface, and as often as some are repeated, they are incomplete, inaccurate, and outdated.

It should be clear to anyone that is paying attention that the era of crypto has true and fully arrived. Far gone are the days when crypto was viewed as a fringe technology, and not a day goes by without another major financial institution seeking to expand products or services linked to cryptoassets, or investing directly in the space. That said, and rising in volume alongside the permeating of crypto throughout the economy, are the voices still attempting to counter the implementation of these crypto-related products and services.

Let’s take a look at some of these arguments, and why as appealing as they can seem to some, simply are not true.

Crypto is volatile and unstable. Crypto is indeed volatile, and seeking to argue that this is untrue is not the best way to address this idea; headlines matter and are what tend to dominate this avenue of discussion. That said, other financial assets can be – and are – also volatile; Tesla and other high-flying stocks routinely swing by billions of dollars in market capitalization. Financial instruments and financial markets have always had a measure of volatility, so this is not something unique to crypto.

Additionally, this argument ignores that rapid growth of stablecoins – highlighted recently in the President’s Working Group report – that by design are intended to maintain value over time. Growing by 500% over the last 12-month period (as per the report), and with a market capitalization in excess of over $100 billion at this time, this sector is increasingly exercising influence over the crypto conversation.

In other words, looking at bitcoin volatility and labeling all crypto as volatile is a lazy argument to make.

Crypto poses systemic risks. Building on the point raised above, the rapid rise of stablecoins and continued integration of these cryptoassets into major global payment systems has also led some policymakers to label these crypto as a systemic risk. The reasoning for this is – simply put – as follows; if redemptions for a certain stablecoin (for whatever reason) exceeded the ability of the issuer or third-party partner to meet them, this could cause a run in the market of the underlying asset.

Is this a potential risk? Certainly. But given the financial instability and uncertainty currently roiling markets – including the highest inflation read in America in 30 years – it seems disingenuous to point the proverbial finger at stablecoins. Major stablecoin issuers have operated for years, many are in ongoing conversations with regulators, and these cryptoassets have been adopted and integrated into payment operations the world over.

Would major, established, and well-respected institutions that handle trillions in payment volume annually have adopted cryptoasset payments if such an approach could pose a systemic risk to financial operations?

Crypto has no intrinsic value. Another argument that has been made is that, despite evidence to the contrary, cryptoassets have no intrinsic value. Building on previous arguments made by some influential investors and institutions, the base case is that most cryptoassets have no balance sheet, earnings, or cash flows. Without these factors – the reasoning goes – how could these cryptoassets have any financial value? This, perhaps most of all the arguments presented in this piece, is the most outdated and reflects a continued lack of understanding of how the sector has evolved.

Just within the last 12-month period the cryptoasset space has rapidly expanded in terms of products, services, and offerings. These include the decentralized finance (DeFi) sector, non-fungible tokens (NFTs), and an array of smart contract enabled applications. Such use cases include numerous ways in which cryptoasset investors – individuals and institutions alike – will be able to generate income, expand assets under management, and create a truer cryptoasset based financial system.

Given that context, arguments that crypto has no intrinsic value seem to ring hollow.

Blockchain and cryptoassets have certainly been the focus of numerous headlines and debates over the last year or so, but even with the continued investment and adoption of these cryptoassets there continue to be arguments against adoption and implementation. As appealing as these arguments might be, and even if they might correctly apply to some specific use cases, they are not only incomplete, but are – at best – an incorrect representation of the cryptoasset sector at large. The time for crypto and blockchain-based-applications has arrived, and arguing against this trend simply highlights the lack of perspective of those attempting to argue such points.