With the growing popularity, the industry is also facing the requisite challenges. The cryptocurrency market has faced a lot of turbulence by the start of the year. However, the sentiments are still positive and strong about the cryptocurrency market in 2018. The market is expected to gain by more than 150 per cent delivering more sustainable and profitable prospects for the investors. So, what’s there to make this industry more attracting in this year-
Resolution to the Scalability of Bitcoin
Bitcoin is the most dominant cryptocurrency at present and has been the market leader in 2017 & years before as well. Bitcoin dominance stood at ~38% (dated: April 25, 2018) and it has also reached to more than 85% in 2017. However, the growing need has also brought in challenges where the cryptocurrency can only handle limited number of transactions per second. (Limited to 12 to 14 transactions with “Segregated Witness” Protocol upgrade). The existing financial infrastructure (used by banks) have the capability to handle millions of transaction per second, so the criticism received should be addressed constructively.
With more demand, currently, majorly from the investors only rather than being used as a payment system has clogged the Bitcoin system, which is further increasing the transaction time and cost. This has given opportunities to other crypto assets such as Ripple, Litecoin and Verge.
Lightning network is considered as the most potential solution to the current problem of scaling. The lightning network supports transaction services instantaneously and at a very low fees. The lightning network creates a layer on the top of bitcoin blockchain and comprises of user-generated channels that enables transaction between two parties only without broadcasting it to the whole network. The payments are fast and cheap (since no miner fees needs to be paid).
The potential upside for this year could be more than 150 per cent of the lowest point touched. Though, one should assess the complete risk, the downside could be the new lowest point of this year, i.e., below $6,200.
Favoured Regulatory Framework
The growing popularity of the cryptocurrencies has only increased the asset value but also captured the government’s attention as a parallel economy in motion. In 2017, the countries globally started building their opinion about the utility of the crypto assets and whether to regulate the digital assets or bar it as a payment mechanism. On a short perspective, regulations add up to the market FUD and have a negative impact on the market sentiment. However, on long term basis, it builds in support system for the currency to grow within the country. Here, I wish to discuss about the countries which approve of the currency.
Japan – Tokyo to be an International Financial Hub
Japanese government through its Payment Services Act has set up legal frameworks to support the legal use of cryptocurrencies as a payment service. FSA, the Japanese Financial Regulatory Arm, has approved cryptocurrency exchanges as well as cryptocurrencies to be traded.
Tokyo aims to be the leading financial centre of the Asian market. The local government is planning to cut on the taxes to attract Fintech and Asset Management firms by 2020.
Canada – Impak Coin to be the first Canadian approved cryptocurrency
In August 2017, the country changed its stance for the cryptocurrencies and approved “Impak Coin” as the first Canadian approved cryptocurrency. The country is developing as a friendly environment for cryptocurrencies with Startups and Bitcoin ATMs. The country has two virtual currency hubs – Toronto and Vancouver.
Impak coin is focused on the impact investing concept to facilitate the impact economy in the country. An impact fund is an experimental investment instrument that tries to generate social or environmental benefits and also provide a return for the principal. Impak Coin or “MPK” has been proposed by a Canadian Startup – Impak Finance and plans to raise between CAD $500,000 and CAD $10,000,000 through this token offering.
Germany – Tax Exemptions for Bitcoin
Germany is among the few countries in Europe which has recognized Bitcoin as a legal currency. Currently, in Europe, Belarus and Estonia have also legalised cryptocurrency while others have taken a not-so-positive stance for the cryptocurrencies. Germany, being an automotive hub in Europe, is a significant contributor towards the European economy. The legalization of the Bitcoin in Germany would have a significant positive implications for the crypto assets.
German tax laws has provided an exemption from 25% tax on profits for Bitcoin held for more than one year. The country is also the one of the biggest Bitcoin marketplaces in the world, followed by introduction of Ethereum trading platform.
Australia – Similar treatment as other foreign currencies
In April 2018, Australian government announced tangible plans to introduce new regulations for the cryptocurrency, where the government focused on registration of local businesses with AUSTRAC and meet the government’s AML/CTF compliance and reporting obligations.
The government has already licensed three exchanges – BTC markets, Sydney-based Independent Reserve and Blockbid – Melbourne based exchange
With effect from July 1, 2018, double-taxation of cryptocurrencies has been eliminated. Earlier, the Australians have to pay double taxation on cryptocurrencies- first, when buying it and second, when purchasing items from the assets. With passing of the new bill, bitcoin and other cryptocurrencies, will get same GST treatment as other foreign currencies.
Inflow of Institutional Investors
It is highly expected that the cryptocurrency market will attract more investors this year. As per a survey by Thomson Reuters, 20% of the financial institutions could invest in cryptocurrency trading in 2018. Around 70% of them are keen to do so in first three to six months while around 22% provided a six-to-12 months horizon.
In October 2017, The Wall Street Journal, reported about the Goldman Sachs considering to offer Blockchain-related investment product. The launch of Bitcoin Futures contract by CME Group and CBOE Group provide tremendous opportunities for institutional investors. In January, Moneygram has signed to test Ripple’ XRP token as a digital payment method.
Crypto-related funds also attracted a lot of attention in 2017. It is anticipated that crypto-ETF funds may soon be available for investors. As per estimated by Morgan Stanley, more than $2 billion were invested by hedge funds in crypto-related assets in 2017