Is today’s crypto volatility tomorrow’s tech stability?

Cryptocurrency now has an estimated global value of more than US$2.5 trillion – an exceptional valuation for what is, in relative terms, a new technology and asset class. But is crypto volatility a real concern?

For Nicolas Cary, founder of Blockchain.com, choosing to invest in crypto comes down to how comfortable an individual is with risk. Investors, he said, need to think about crypto with clear eyes and after plenty of research.

“You need to understand your own risk tolerance with anything,” Nicolas said. “But don’t just do it because your friend is doing it. You need to understand why crypto is relevant to this day and age. Do your homework.”

With an ever-growing internet, crypto is necessary

As of 2021, there were more than 300 million crypto owners globally. It’s estimated that figure will surpass one billion owners by the end of 2022, with Bitcoin still the biggest player.

Perhaps the fundamental question, then, is the one Nicolas examined: why is crypto relevant?

“It’s my view that, over the next decade, the internet will be the largest contributor globally to GDP,” he explained. “And this internet economy is going to need the ability for people to exchange wealth digitally across borders; to teleport the way we exchange precious information.

“So, if you want to do that, you’re going to need a digital fabric that’s wrapped itself around the world that makes that possible. That is exactly what cryptocurrencies are for.”

There’s an inherent tension between the current risks surrounding cryptocurrencies and the blockchain system underpinning these assets.

It’s my view that, over the next decade, the internet will be the largest contributor globally to GDP. And this internet economy is going to need the ability for people to exchange wealth digitally.

– Nicolas Cary, founder at Blockchain.com

Good technology, bad asset

Checkout.com CEO Guillaume Pousaz said: “I’m a huge believer in crypto, [but] not necessarily in the asset class. [The fluctuation] is insane. I don’t think it’s healthy.”

“But if you look at the technology which underpins everything, it’s an incredible technology,” he continued. “And I think there’s absolutely a world, 10 years from now, where stable coins are running everything. It’s just better technology.”

Because crypto is a growing asset class, its stability is a matter of concern for the global economy. A single bitcoin, for example, has grown from US$0.09 in July 2010 to roughly US$39,000 in February of 2022.

This represents an astonishing increase – one that can look very promising to advocates of crypto. But the volatility of this value paints a different picture.

In April 2021, Bitcoin prices rose to an all-time high of US$63,000, only to fall by 50 percent by July 2021, then rise again – to another record high – in November to $68,900. They went back into decline by March of 2022.

A better future is possible

As more and more users buy into crypto, prices will begin to have a greater impact on the market. These fluctuations could have the potential to impact consumers’ pockets.

‘Stable coins’ may offer an alternative to this volatility.

According to Nicolas, stable coins are “…just programmable dollars” – essentially price-pegged either to fiat currency or commodities. They could provide a digital currency that satisfies both consumers and regulators, and be less prone to vast fluctuations in value.

“There are positive yields and a lot of different stable coins, which means you don’t actually have to have exposure to volatile crypto assets to actually gain some interest,” Nicolas explained.

For now, there are many pain-points to widespread crypto use, from complicated interfaces to a lack of real-world applications (such as grocery shopping or mortgage repayments).

Tim Draper, founder at seed-stage VC firm Draper Associates said: “The moment that I think is going to be a real cataclysmic event is the moment I can buy my food, my clothing and my shelter all in Bitcoin. There’s no reason for me to ever use fiat currency again.”

Nicolas predicted that this change is coming: “I think by 2030, probably three billion people will be using cryptocurrencies every single day in their lives.”

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Main image of a chart tracking crypto volatility: Jeremy Bezanger/Unsplash