There is still a glimmer of hope for the cryptocurrency industry, despite the major blow it suffered after the FTX exchange and its affiliated trading firm, Alameda Research, was reported bankrupt. This is according to a research report released by Bank of America on Nov. 2, 2022.
According to the report, regulatory frameworks for the cryptocurrency industry are essential for mainstream adoption, and a coordinated global effort is needed to prevent arbitrage and protect investors and consumers.
Analysts Alkesh Shah and Andrew Moss also noted an increased sense of urgency to regulate the industry. The analysts explained potential benefits, including better facilitation of institutional engagement as well as allowing a focus shift coupled with moving capital away from trading speculatively and toward projects having real-world usability.
The bank notes that the failure of FTX has brought attention back to the need for regulations that create a transparent legal framework for digital assets, foster technological innovation, provide consumer and investor protection, and mitigate financial stability risks.
There are significant costs associated with ignoring digital assets, according to the bank. For example, the bank pointed out, the top 100 crypto tokens have lost 64% of their value so far this year, but they are still up 2,175% since the end of 2016.
This year, there has been a rapid increase in the development of blockchains with smart contract functionality and applications. While speculative trading may be common, the “underlying blockchain technology that is driving this speculation could be revolutionary,” said the report.
The Bank of America warns that retail and institutional disengagement could put additional pressure on cryptocurrency prices but points out that the 22% decline in digital asset prices between Nov. 2–10, 2022, was followed by a 6% increase through Nov. 25, 2022, suggesting that investors may be shifting their attention to the long-term disruption potential of blockchain technology.
That disruption is already manifesting in diverse ways. For example, central banks such as the New York Fed are conducting pilot programs to study how the benefits of blockchain technology can be brought to the traditional banking industry to increase speed, cut costs and make the process more efficient overall.
The technology is also finding application in smart cities as utilities, Wi-Fi providers and local authorities look to this technology to enhance service delivery and improve accessibility for communities that have been underserved for long. It is therefore unsurprising that as companies such as Bit Mining Ltd. (NYSE: BTCM) deepen their penetration, more and more people are changing their attitudes about these novel technologies.
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