Education • 6 min read
By Camilla Marziani
Have you met anyone during the last 3 years who didn’t know what cryptocurrencies are? With more and more people discovering crypto, many have decided to start investing in the asset class. However, cryptos are notoriously known as high-risk investments, but then why are more people investing? Here are 5 reasons why crypto is becoming so popular.
A quick web search regarding the topic would result in article after article showcasing how much money you would have by now if you had invested in Bitcoin or other altcoins one, five, or ten years ago. Recently however, investors seem to be too busy joining the party rather than feeling sorry about what they may have missed: more and more people are investing in crypto, a market that saw volumes of around $4 billion within one year just in Brazil, and that has a total market cap worth more than $3T.
Also, the crypto-world is still full of surprises - just recently, Bitcoin reached a new all-time-high. Also, announcements of major upgrades tend to boost investor sentiment - just think about ETH 2.0 or Taproot. But there’s more behind the recent growth of crypto investments.
In the past few years, crypto’s popularity has grown exponentially. Once considered niche knowledge for experts only, but thanks to its recurrent presence in pop culture, crypto is now a subject everyone has at least heard about.
What increased along with the popularity of cryptocurrencies was awareness: this may be one of the reasons many newbies have started investing and - in certain cases - holding cryptocurrencies. In fact, with crypto being talked about regularly, many people started looking into it, reading about it, and discovering various projects.
The community also grew around the motto of investing and holding a cryptocurrency to reach a shared goal - that’s, for instance, what happened with Dogecoin. Unfortunately, it wouldn’t be the first time that major losses occurred from taking this type of approach to high-risk investing.
The hype has a central role in bringing people to crypto, but this doesn’t shield anyone from the risks of investing. We recommend you do your research and really inform yourself on all possible outcomes before making any financial decision.
Plain and simple: (thankfully) pop culture may not be enough of a reason to invest for many. What also contributed to getting crypto on the radar (and sometimes in the portfolios) of investors is the fact that institutional investing in crypto is increasing rapidly, in the midst of the debate whether it could be a hedge against inflation.
Business technology company, MicroStrategy, made quite some headlines with its monumental Bitcoin investments, now worth $6.7 billion. Another well-known company that flaunts large crypto holdings is Tesla, holding $2.5 billion worth of Bitcoin at the moment.
Not only companies and institutions, but also individual investors are dedicating fair shares of their portfolios to crypto assets, such as the co-founder of Reddit, who is a known Ethereum holder, and Orlando Bravo, co-founder of Thoma Bravo, who is confirmed to be owning Bitcoin.
Institutions, companies, and famous investors have all helped to put crypto in the spotlight, and have made potential investors aware of the use cases of cryptocurrencies.
Up to a few years ago, and to some extent still, it wasn’t uncommon to associate cryptocurrencies, and Bitcoin in particular, with malicious uses. This was likely linked to the Darknet and the Silk Road, an encrypted marketplace for a wide range of illegal activities, prominently in the news. It operated from 2011 to 2013 and Bitcoin was employed for many transactions.
Today, the use cases of crypto have lost most of the negative aura. Instead, their utilisation is getting more practical and concrete, resulting in more positive news coverage.
Bitcoin's introduction as legal tender in El Salvador has paved the way for initial speculation around cryptocurrencies’ adoption in other countries. Even though nothing has been carved in stone yet, this event could be the starting point of wider crypto adoption.
Also, paying with crypto isn’t necessarily associated with criminal activities anymore: companies like Microsoft, Amazon, Coca Cola and many others accept crypto as a payment method. Just last June, Sotheby’s sold a 100-carat diamond for over $12M, entirely paid for in crypto.
Thanks to ever-increasing recognition by enterprises, institutions and even countries, crypto is likely turning into a more everyday asset in the eyes of investors and is drifting away from its infamous image.
Several blockchains support NFTs and DApps, among which Ethereum (ETH) is still the leading network for Defi and DApps. Naturally, other cryptocurrencies are establishing themselves as contenders, three of them being Solana (SOL), Avalanche (AVAX) and Algorand (ALGO).
NFTs are also charming social media platforms: Tiktok launched its NFT collection and Facebook recently invested $50M in research for its metaverse. NFTs even managed to take the centre stage in the football world, so much that we now have the first NFT UEFA EURO 2020 trophy for the goal of the tournament.
NFTs are the pride and joy of crypto in a way, as they utilise blockchain technology: the popularity of one inevitably reflects on the other.
The growing popularity of cryptocurrencies has also brought an urgent topic to the table: the environmental impact of crypto mining. Mining comes with high energy costs, especially involving blockchains using Proof of Work (PoW), as used by the crypto giants Bitcoin and, at least for now, Ethereum.
To tackle the environmental issues related to Proof of Work, many altcoins are opting for Proof of Stake (PoS) as a cheaper and more sustainable solution. Some blockchains, such as Algorand (ALGO), have even taken things one step further by becoming carbon negative.
It’s also worth noting that there have been some interesting, and perhaps unusual developments around PoW mining and on how to make it more eco-friendly. For example, a Bitcoin mine in El Salvador elected to be powered by the energy of a volcano.
This solution might be new in El Salvador, but not in Iceland, where geothermal energy for mining has been used for years.
Nonetheless, this increasingly popular, “greener” algorithm could have brought more people to invest in crypto, now that the carbon footprints of many altcoins are getting lower.
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