Around the world, venture capitalists have invested a total of $30 billion in cryptocurrency or Web 3.0 startups in 2021, with organizations like Tesla, Block and MicroStrategy all adding bitcoin to their balance sheets.
These astronomical numbers are even more impressive considering that the world’s first cryptocurrency – Bitcoin has only existed since 2008 – has amassed a value of $41,000 per coin at the time of this writing.
2021 was a boom year for Bitcoin, offering new opportunities for investors and businesses as decentralized finance and NFTs grew in the ecosystem, but it was also a year that presented a whole new set of challenges for the asset, as global inflation hit investors’ pockets hard.
This is an unprecedented test of Bitcoin’s staying power as geopolitical tensions in Eastern Europe spill over. While it is still early days, we can see an upward trend in bitcoin following Russia’s invasion of Ukraine – suggesting that the asset is still seen as a safe haven asset for investors in the midst of a testing economic situation.
Institutional interest ensures growth prospects remain intact
Institutional interest in Bitcoin and the broader cryptocurrency space is strong. In addition to leading trading platforms like Coinbase, a growing number of institutions are investing in a variety of cryptocurrency projects. In the case of software developer MicroStrategy, the company is simply buying BTC with the intention of holding it on its balance sheet.
Others have developed tools to integrate cryptocurrencies more broadly into the economy. Silvergate Capital, for example, operates a network that can remit dollars and euros around the clock – a key capability because the cryptocurrency market never closes. To facilitate this, Silvergate acquired Diem Association’s stablecoin assets.
Elsewhere, financial services company Block has been working on developing applications for everyday use as a digital alternative to fiat currencies. Google Cloud has also launched its own blockchain division to help customers adapt to this emerging technology.
As more institutions look to develop blockchain and cryptocurrency solutions, it is highly likely that this will lead to much greater staying power for the likes of bitcoin and other cryptocurrencies. In turn, better institutional interest may help keep cryptocurrencies stable, despite their famously extreme levels of volatility.
Emerging use cases in the blockchain space have also paved the way for NFTs and DeFi projects to gain prominence, expanding the ways in which cryptocurrencies can influence the world.
Bitcoin’s utility in geopolitical tensions
Perhaps most importantly, Bitcoin has recently demonstrated that its technology can be a force in mitigating factors that could lead to economic downturns.
To illustrate this point, Maxim Manturov, head of investment advisory at Freedom Finance Europe, points out how bitcoin quickly became legal tender in Ukraine following the Russian invasion in February 2022.
“Ukraine has legalized cryptocurrencies. Ukrainian President Volodymyr Zelensky signed the law on ‘virtual assets’ adopted by the Verkhovna Rada of Ukraine on Feb. 17, 2022,” Manturov noted.
“The National Securities and Stock Market Commission (NSSM) and the National Bank of Ukraine will regulate the virtual assets market. What are the provisions of the adopted law on virtual assets? Foreign and Ukrainian companies will be able to officially work with cryptoassets, open bank accounts, pay taxes and offer their services to the people.”
Importantly, the move also helps Ukraine establish a channel for receiving humanitarian aid in BTC.
Due to Bitcoin’s decentralized nature, the asset may be able to help in national emergencies in countries around the world – especially when economic complications lead to the devaluation of fiat currencies due to hyperinflation.
The Road to the Mainstream
Institutional confidence in cryptocurrencies remains despite the fact that bitcoin is still about 40% off its all-time high of November 2021. Data from Deloitte suggests that 88% of senior executives believe blockchain technology will eventually achieve mainstream adoption.
It is worth noting that it was only recently that Bitcoin’s blockchain framework finally began to achieve the level of global recognition that its technology framework deserves. Since then, we have seen the rise of DeFi and NFT as a taster of what a distributed digital ledger can achieve.
While it is difficult to predict how cryptocurrency adoption will grow and whether another NFT-style emergence may be needed as a catalyst for more mainstream adoption, the fact that Bitcoin’s technology has played a positive role in aiding the economy in the face of the economic crisis suggests that the asset has enough potential to not only exceed its expectations, but to outperform its benchmarks in the event of an economic downturn.
While there may be more twists and turns before the global economic outlook recovers, Bitcoin has shown that its use cases can ensure that cryptocurrency stays here in some form.
Post time: Apr-25-2022