Digital assets industry facing the uncertain future

The outbreak of COVID-19 showed that digital currencies might be affected by external factors, while previously cryptocurrencies were considered to be a safe haven during periods of crisis. 

The opinions of the experts related to the performance of digital assets during the pandemic were divided. Despite this fact, the professionals are optimistic that the worst times have already passed. 

James Wo, the founder of the Digital Finance Group said that due to the reason that cryptocurrency was decentralized and it was not connected to offline activities to a great extent, the impact of consequences after coronavirus pandemic had been less visible. Taking into account the past two years of the decline in market prices and taking the growth of popularity of the decentralized applications, the investors may be sure about the good results that crypto shows in the future.

The other expert, Yyes Longchamp who is a head of research at Swiss bank expressed a different point of view. He told that the things with digital currencies were not good at the beginning. People were disappointed because bitcoin used to be a safe haven for them. However, the situation has changed for the better.

According to a suggestion by Lewis Cohen from DLx Law, many people missed the opportunity to establish cryptocurrency as a safe haven during the pandemic. Even the slight increase in the price of bitcoin indicated that the demand for the digital asset has grown. However, the correlation between the purchase of bitcoin and the influence of the crisis on the other assets is not substantiated. 

Due to the relative youth of the industry, many investors were very suspicious about choosing bitcoins as the asset taking the considerable part of their portfolios. The same thing was related to other digital assets. 

Robert Michels, the partner at Dentons, stated that though there is a big hope for the crypto industry, it has not yet turned into reality. 

Capital allocation

The difficulties for the crypto investors were connected with the absence of legal regulations and also the lack of capital allocation. The uncertainties related to the COVID-19 pandemic led to concerns about the future state of affairs on the financial markets, so crypto projects were not prioritized by the investors. One of the main problems for the digital assets now and the crypto industry, in general, is the lack of interest and support from traditional organizations.

The enthusiasts believe that due to the fact that cryptocurrency is a relatively new product, it does not align with the traditional rules, so some laws should be changed. Michels does not agree with this opinion, he is sure that the digital assets should be regulated according to traditional rules like any fiat currency. 

The investors do not have a clear understanding of the opportunities provided by digital assets like bitcoin. The major reason is the legitimacy of the cryptocurrency. The traditional institutions often have concerns about the money laundering issues and transparency, that is why these organizations are less interested in investing. This tendency can be changed as many institutions as banks will be involved in the process of investing in digital assets.

The crypto market raises a lot of doubts because of the lack of regulations and trust. It takes a lot of time to solve the issues with transparency and regulation, so the digital assets would not be separated from traditional currency according to the predictions. 

Regulations 

There is a risk of market fragments which means that some European countries like France and Switzerland are developing faster than the others. This fact was described in the report provided by the Capital Market Union that highlighted the need for more strict regulations for digital assets. 

European stakeholders do not have enough knowledge to examine cryptocurrency in detail. It is still difficult for policymakers to draw a distinction between the old and new. However, politicians are hiring experts in digital finance and trying to consolidate the market. 

The countries that do not have deep financial markets like Malta but allow companies to open operations also cast doubts for the experts. One country that stands out from the rest is Switzerland. The professionals believe that Luxembourg might become a hub in the future that will be quite flexible.