• Some of the biggest challenges facing crypto today include hacks and rug pulls, very high volatility, scammers and the use of crypto in illicit activity.
• Regulations have also become a big challenge, with some being too restrictive and other jurisdictions lacking regulations altogether which keeps institutional investors away.

In the first part of this series, we looked at the presence of illicit activity as well as the rise of scammers, hackers and rug pulls in crypto and the way forward for the industry (you can find the first part here).

Extreme volatility

One of the aspects that cryptocurrencies have become known for is volatility. The prices of most cryptos tend to swing back and forth more than with almost any other asset.

In the past day, BTC has lost a mere 2 percent while Ethereum is down 5 percent. However, there are days when their prices have dipped or shot by about 20 percent.

In the past week, the biggest gainer in the top 100 has been Anchor Protocol (ANC) which shot up by 53 percent, with Terra’s LUNA up by 42 percent. Convex Finance was the biggest loser at 26 percent.

This volatility is a blessing and a curse for crypto. For traders, extreme volatility is a godsend. It’s from this volatility that these traders make money. Day traders make money whether Bitcoin goes up or down and it’s this volatility that has attracted scores of them into the industry.

However, this volatility works against Bitcoin as well. For one, it invalidates its use as cash (although there are other factors too such as high fees and slow transactions). If a merchant is to receive payment in BTC today for a service or a good, the money he receives could be worth significantly less a week later.

This has been one of the biggest criticisms that anti-Bitcoiners have leveled against BTC, and rightly so.

The counterargument has been that Bitcoin is an asset, not a currency. This, however, goes against Satoshi Nakamoto’s original goal for Bitcoin, which as he outlined on the whitepaper, is for it to be “peer-to-peer electronic cash.”

The way forward: Bitcoin’s volatility has been reducing for years now. Gone are the days when just one announcement by a mega-corporation that it would accept crypto payments would result in a 20 percent overnight rise. Nowadays, it takes something really impactful to push the price up or down (remember when China announced it was banning Bitcoin last year and the price barely moved?).

Read More: China banned Bitcoin, again, but here’s why you shouldn’t take it too seriously

The reduced volatility also comes from more widespread adoption. With more people owning Bitcoin, one entity, no matter how big, is unlikely to influence the price as much as it would have five years ago. The presence of institutional investors also helps.

John Wu, the president of Ava Labs, a blockchain firm, explained:

Having larger institutions with deeper pockets and steadier hands buying cryptos will help. They can withstand the volatility.

As for payments in BTC, the rise of payment processors like BitPay will play a key role. These processors allow merchants to accept BTC payments from clients but receive the money in whatever currency they want, including fiat currencies. Stablecoins as well will play a big part in the future of crypto payments.

Regulations (or a lack thereof)

Regulations have to be the biggest factor that will determine the future of cryptocurrencies. Five years ago, few regulators cared about crypto. However, as the market shot past $2 trillion and Bitcoin became worth much more than any global banking entity, regulators took note.

Now, every other country is at some stage of crypto regulation. Some like China have gone all out and banned crypto. Others like Russia and India are treading the line as they weigh whether to ban or regulate Bitcoin. There are others like Malta and Switzerland which have been much more accomodating of cryptos and put in place laws that foster the industry’s growth.

The biggest group of countries has yet to come up with regulations and is treating every case independently. One example is the United States, a country in which it’s still unclear who is in charge of crypto between the SEC, the CFTC and others. Gary Gensler has been the de facto crypto lord in the U.S but the CFTC and the IRS have all cracked down at will.

Read More: Who exactly should oversee crypto market? The CFTC, the SEC, or a Completely new federal regulator?

It’s imperative that the industry becomes regulated if Bitcoin is to become a mainstream asset. There have been some very positive moments, such as the approval of Bitcoin futures ETFs in the U.S, legal tender status for BTC in El Salvador and the legalization of crypto in countries such as Ukraine.

The way forward: Regulators must formulate and implement guidelines for the crypto industry. While it’s crucial to do this at a national level, it’s also important for global bodies such as the Financial Action Task Force, and regional bodies such as the European Union to take the lead.

In addition to legalizing cryptos whether as assets or currencies, regulators further need to set out the rules for exchanges and other virtual asset service providers. They also need to stay abreast of new developments in the space, such as the rise of DeFi, NFTs and now the metaverse.