If you want to take full advantage of these innovations, it is critical to identify and understand the many drawbacks and obstacles that may prevent their widespread adoption.

Scalability

One of the biggest concerns you’ll find with cryptocurrencies is the scaling issues. Despite the rapid increase in digital coins and adoption, many more transactions are processed daily by the payment giant VISA than by digital coins. In addition, the speed of a transaction is another critical point at which cryptocurrencies cannot compete with players like Mastercard and VISA unless the infrastructure providing these technologies gets massively scaled. Such a transition is complex, difficult, and definitely not seamless. The good news is many have proposed diverse solutions (such as lighting networks, starking, and sharding), and these are likely to deal with scalability issues over time.

Cyber Security Issues

Cryptocurrencies are digital technologies, which means they are prone to hacker attacks. According to Bitcoin Rush, Several ICOs have been hacked this summer, causing investors to lose many dollars. (One attack led to the loss of $473 million.) Managing this threat will require constant maintenance of security infrastructure. Still, we're already seeing players deal with it directly and use enhanced cybersecurity measures beyond what is used in traditional banking.

The Volatility Of Prices And Lack Of Inherent Value

Price volatility is a significant issue, and Buffet specifically alluded to it a few weeks ago when he described the cryptocurrency ecosystem as a bubble. There is a concern here, but you can overcome it by linking cryptocurrency values directly to tangible and intangible assets (as some new players are doing with energy derivatives or diamonds). Consumer confidence should also rise as adoption increases.

Correlations

From 2010 to 2021, the S&P 500 has fallen 17 times, while bitcoin has risen seven times. In other words, bitcoin also declined in 10 of the 17 months the S&P 500 declined. There were four months in which bitcoin's price declined when the S&P 500 suffered a decline - this indicates that bitcoin has not been able to provide diversification benefits when needed most. A positive correlation exists between bitcoin returns and S&P500 returns, which is stronger than the correlation between gold and S&P500 returns.

Regulations

Speaking on the issue of regulations, Buffet has said: “It doesn’t make sense. This thing is not regulated. It’s not under control. It’s not under the supervision [of] any…United States Federal Reserve or any other central bank. I don’t believe in this whole thing at all. I think it’s going to implode.” Although we can perfect the technology and solve all the problems mentioned above, investment in this technology will be riskier until federal governments regulate the technology. A further concern with the technology relates to logistics. Changes in protocols, for example, that are required when technology is being improved, can take so long a time and disrupt normal operations.

With all the obstacles to mass adoption, it's only logical that experienced investors such as Warren Buffet would take a cautious approach to this technology. The fact remains that cryptocurrencies (as well as blockchain technology) will thrive in the future. They offer several advantages consumers desire from a currency; transparency, decentralisation, and flexibility being among the most popular. Extending the discussion to all the things blockchain can make possible throughout all industries further reinforces this point.

CoinMetro is a cryptocurrency exchange that aims to make buying and selling cryptocurrency as easy as purchasing pounds, dollars and euros.

Offering a complete and supportive financial platform, CoinMetro provides an avenue for both newcomers, as well as professional and experienced currency traders to begin trading in cryptocurrency. Through a tokenized ecosystem, the trading platform supports familiar investment options such as professional asset management and ETFs, and also allows users to invest in up-and-coming Initial Coin Offerings (ICOs).

The team behind the business has years of experience in the forex industry, with CoinMetro’s sister company FXPIG. Drawing on their substantial experience developing technology for financial trading and understanding of the liquidity needs of currency markets, CoinMetro is uniquely positioned to support and understand the needs of the growing cryptocurrency space, as well as support the trading needs of investors wanting to add crypto to a diverse portfolio of new and traditional securities. To discuss all things forex and crypto, we caught up with the CEO of the company Kevin Murcko.

As a long-standing expert in forex and crypto, what would you say are the reasons behind, and the impact of Bitcoin’s price volatility?

With a relatively small circulation of coins, prices of cryptocurrencies are often affected by the actions of ‘whales’ – early investors with large stakes in specific markets. News is also a force to be reckoned with. News of countries enforcing bans of course plays out bearishly in the markets, while news of government endorsement predictably sends prices upward. Lack of regulation has also contributed to instability.

The impact of volatility has been twofold. On the one hand, rapid price fluctuations have made the space a profitable one for eagle-eyed traders. In order for anyone to make money in financial markets, there must be price movement, and the crypto markets have offered traders exactly that.

On the other hand, with a larger price bracket, comes larger levels of risk: sizeable gains on one day can be all but wiped out in the following day of trading.

Of course, a currency should ideally hold its value and be a reasonably reliable store of wealth. In this sense, extreme volatility has also tarnished the reputation of cryptocurrency as a traditional currency, and resultantly, countries are increasingly choosing to regulate crypto as an asset.

But it’s important to note that while cryptocurrencies have been volatile assets in the past, this doesn’t mean that this will always be the case in the future. In fact, some cryptocurrency developers are taking active measures to limit volatility by, for example, pegging the price of their token to that of the US dollar.

Can you tell us a bit about the history of forex regulations?  How have they affected the marketplace?

The history of FX regulation really depends on which country you’re looking at. All countries have their own independent regulatory bodies, and are typically subject to different rules.

China, for example, was late to enter the foreign exchange market and late to impose regulations. As recently as August 2016, Chinese authorities found 192 illegal banks conducting shady forex transactions valued at $30 billion. The State Administration of Foreign Exchange (SAFE) also found instances of companies evading regulations by using false information, transferring illegal assets, and evidence of money laundering via forex trading schemes.

Globally, of course, there are regulations with global ramifications. MIFID II, for instance, has caused an upheaval in FX markets this year.

The net effect of all this regulation has been to achieve what I suppose is the goal of all regulation: it’s helped the FX markets to thrive and maintained financial stability.

What can be learnt from the introduction of regulations in the forex industry?

By reflecting on how the forex industry has been shaped by regulation over the last 20 years, we can get a rough idea of how everything might play out for a decentralised international cryptocurrency marketplace.

Before Bitcoin and alternative cryptocurrencies were established in the late 2000s, the forex industry was facing radical change as the internet opened up the market to the public. New retail brokers started to appear alongside the traditional banks, providing new services and competition. As forex trading made the move online, there was an element of the ‘wild west’ culture that has also characterised the early stages of cryptocurrency. As both markets have experienced a similar introduction to the trading space, the future development of regulations for cryptocurrencies will mirror that of forex trading 10 years ago.

The current conditions in FX enforce businesses to jump through a variety of hoops - such as meeting minimum capital requirements, establishing audit requirements, and adhering to reporting and bookkeeping - before becoming a licensed forex broker. Thanks to this detailed process, regulators are able to weed out fraudulent brokers before they get to market. We expect equivalent hoops to be introduced into the cryptocurrency space. This is all likely to happen quickly, given that cryptocurrencies are now very much a mainstream financial asset.

Like the historic forex market, there’s a certain pull and push in the crypto world between the need for overt regulation and control, versus a laissez-faire approach in which a free market is allowed to regulate itself. In the case of crypto, I expect the regulated approach will win out.

Why does the crypto community need to adopt wider regulation and become part of the regulatory process?

Regulation, if done correctly, legitimises the cryptocurrency market by removing that ‘wild west’ element to it – the very same which once characterised the forex markets.

Regulation brings stability to a market often regarded as excessively volatile, and protects investors from criminal activity; given just how many fraudulent Initial Coin Offerings, cryptocurrency hacks, and fraudulent exchanges are about, this is long overdue.

Why does the crypto community need to be part of this process? For the simple reason that, if left in the hands of potentially misguided legislators, regulation could undermine the growth of this booming part of the financial services sector.

We’ve seen just how awry crypto regulation can get. Chinese policy for example, has achieved little other than to quash innovation and growth, and has simply driven cryptocurrency activities abroad.

What do you think the rest of 2018 holds for forex and crypto?

We have a rough idea of what this year holds for crypto, following on from the recent G20 meeting of finance ministers in Buenos Aires. Member nations have agreed that cryptocurrencies needed to be examined, but that more information is needed before any regulations could be proposed. While there will be further details on this in July, we do have some signs about what recommendations will be announced. Expect

- A bilateral approach to regulation, as Christine Lagarde has recommended on numerous occasions this year;

- Crypto to be treated as an asset, and not as a currency, as various financial regulators have hinted at throughout the year;

- Crypto regulation to ultimately consist of a mixture of existing rules and new rules.

Forex is more difficult to pin down at the moment, with US protectionism on the rise and the prospect of a trade war. This year, the Euro looks bearish, with the dollar’s value as the reserve currency of choice diminishing in step with uncertainty over US trade policy. Whether this will persist to the end of the year remains to be seen.

Website: www.coinmetro.com