Cryptocurrency investment is on the rise in several fintech markets across the globe and has the potential to transform the business world. Cryptocurrencies are digital forms of cash that do not only enable purchase of goods and services online but also present viable investment opportunities (Chuen, Guo, & Wang, 2017). Investors across the world are fast embracing the idea of investing in digital currencies and financial markets continue to experience a shift from traditional currencies and investments.
To this end, cryptocurrencies are considered digital financial assets that present investors with risks and return like other assets. Since the launch of bitcoin in 2009, several other types of cryptocurrencies have been developed in different economies. The digital currencies possess certain attributes that have been at the center of their increasing popularity among investors including anonymity of transactions, quick transaction execution, low transaction costs, transaction security and control, and transaction transparency. However, skeptics of cryptocurrency investment argue that such investments are volatile, have low acceptance rate, have no elaborate regulation, and are not flexible because of irreversibility of transactions.
Types of Cryptocurrencies
In the recent past, the global financial environment has encountered an inevitable shift towards a digital ecosystem that has been characterized by development of several types of cryptocurrencies. The main forms of cryptocurrencies include bitcoin, Stellar, Litecoin, Ripple and Ethereum (Scholar & Makarov, 2020). These currencies present different characteristics that offer distinctive benefits to investors. These characteristics are normally based on an asset’s volatility, ease of use, security of transactions, and potential of return. The emergence of these currencies is at the center of the ongoing financial transformation and has drawn significant attention from investors looking for alternative safe avenues for investments.
Drivers of Cryptocurrency Investment
Firstly, cryptocurrency investment presents a flexible mode of investments for investors across the globe irrespective of their geographical location. The digital assets are traded online and one only needs to register and open an account from any part of the world and start business. Investment in digital cash eliminates bureaucracies associated with traditional investments that are subject to approvals by regulating authorities such as central banks (Hazar & Yilmaz, 2018). Second, investing in cryptocurrency provides investors with better control and security of their investments. The blockchain technology used in development of the currencies provides multiple security mechanisms that enhance security and give investors control in terms of how the investment is managed (Chuen, Guo, & Wang, 2017). For instance, bitcoin’s security features require traders to seek user’s consent before effecting any changes. Another major driver of cryptocurrency investment is the transparency of transactions that allows for visibility of all completed transactions while hiding the identity of traders (Hazar & Yilmaz, 2018). The open protocols enable analysis of data and traceability of business transactions by providing clear audit trails on the performance of investments. Moreover, cryptocurrency investment is associated with low transaction fees and fast processing compared to traditional investments. Investors incur minimal commission charges on undertakings, and additional fee is also minimal even where they need to pay more for their transactions to hasten (Scholar & Makarov, 2020). Lastly, cryptocurrency investment in bitcoins provides some level of stability in returns because of the non-inflationary tendencies associated with traditional currencies that are subject to fiscal measures by central banks (Chuen, Guo, & Wang, 2017). In sum, cryptocurrency investment offers secure, efficient, transparent, and flexible forms of investment on a global platform
Challenges of Cryptocurrency Investments
Even with the numerous benefits highlighted above, cryptocurrency investment still has challenges that hamper the adoption of cryptocurrencies as investment vehicles. Possible government intervention and the effect of such measures continue to cause skepticism among several investors (Chuen et al., 2017). Although countries like China have set the pace in terms of creating a legal framework that can govern the sector, most countries are yet to take the step. Secondly, as much as cryptocurrency investment popularity continues to gain momentum across the globe, the adoption rate by financial markets is still low globally. The trend is attributed to the steep learning curve associated with digital currency investment (Scholar & Makarov, 2020). Third, most cryptocurrency transactions are immutable with no reversal mechanism once money is withdrawn from one’s account (Hazar & Yilmaz, 2018). Despite the underlying challenges, fintech is expected to be a major business driver in the future, and as such, most of these bottlenecks are likely to be eradicated.
Cryptocurrency investment continues to gain popularity across global financial markets, and most investors are closely monitoring how fintech is developing and transforming e-commerce. Whereas some of the investors have taken advantage of the technology and already invested, some are keen to see how governments will regulate the sector that has left regulators and policy makers grappling with formulation and enactment of appropriate laws. Apart from legislation, proponents of cryptocurrency investment are advocating for the development of better tools and features within the currencies to eliminate the current challenges of irreversibility and volatility in some of the currencies. With traditional financial institutions and governments such as China already embracing cryptocurrency investment, the world is most likely to witness growth in the sector in the near future. Hence, cryptocurrency investment is fast developing and though still faced with lack of appropriate legislative framework, it presents viable investment avenues for current and future investors.
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References Chuen, D. L., Guo, L., & Wang, Y. (2017). Cryptocurrency: A new investment opportunity? Electronic Journal, 2-26. DOI: 10.2139/ssrn.2994097 Hazar, H. B. & Yilmaz, N. K. (2018). Predicting the future of cryptocurrency investment trends by conjoint analysis. Pressacademia, 5(4), 321-330. DOI: 10.17261/Pressacademia.2018.999 Scholar, A. & Makarov, I. (2020). Trading and arbitrage in cryptocurrency markets. Journal of Financial Economics, 135(2), 293-319. https://doi.org/10.1016/j.jfineco.2019.07.001