A popular talking point among those in financial services is, ‘do investments in cryptocurrency matter?’.
The debate isn’t about the potential profits or philosophy behind crypto. It is about whether cryptocurrency has made any difference to the global economy.
Some believe digital asset investment is reshaping international finances. At the other extreme, some argue it is a sideshow and irrelevant to ‘real’ economies.
So, do investments in cryptocurrency matter?
Do Investments in Cryptocurrency Matter?
In terms of impacting global economies, the answer must be ‘yes’.
When they first appeared, cryptos were not understood or dismissed as a fanciful fad with no viable long-term future. The status quo of the financial world would not be changed by computer users outside the mainstream industry moving bytes of data around.
Today, it cannot truly be argued that cryptocurrencies are not impacting the world economy. Although still relatively new technologies, blockchain, DeFi, and crypto have made their mark. And the evolution and development continue, suggesting the impact can only become more significant.
How has cryptocurrency impacted ‘traditional’ economics?
Cryptocurrency has Reduced Reliance on Fiat
When business is conducted in fiat currencies, cross-border trade can become complex and costs uncertain. Fluctuating currency values, often impacted by political issues and general inflation, create problems for businesses.
Fiat currencies that rely on ‘old fashioned’ financial tools, like a bank account, can exclude people, especially those in remote and developing nations. The ‘unbanked’ have been at a disadvantage.
Cryptocurrency addresses these issues, reducing the reliance on fiat. Substituting a digital currency, like Bitcoin, for fiat simplifies cross-border trade and allows the unbanked to become economically active.
As they are decentralised, cryptocurrencies are free from most of the problems that afflict national currencies. The value is not dictated by governments and central banks as a tool to address, for example, an inflation crisis.
People can now rely on digital currencies and decentralised online protocols to move money around. They can buy and sell goods and services internationally without worrying about fiat value comparisons. They can transfer money to others even if unbanked, and generally reduce reliance on traditional payment methods and currencies.
With blockchain’s built-in security and immutability, individuals and businesses can also have a greater degree of confidence.
Cryptocurrency has Changed the International Remittance Industry
Economic growth in emerging economies is fueled by overseas remittances. Many people worldwide use this method to work abroad and frequently send money to their family and other loved ones back home.
Securing instantaneous global transfers using cryptocurrency is an attractive alternative to traditional payment methods. It dramatically simplifies the process, reduces cost, and increases the security of international money transfers.
Cryptocurrency has Created New Roles in the FinTech Sector
The growth of DeFi hasn’t just changed how financial processes are conducted. It has created new jobs, which impacts the global economy.
New opportunities for different skill sets in FinTech increase earning potential, and some of these roles are well paid. Additionally, they can often be fulfilled remotely, from anywhere in the world, ensuring the economic benefits are not limited to already prosperous economies.
The growth of any sector and the creation of new employment will drive economic growth. That has been seen with blockchain and digital currencies.
There is a new demand for professional skills in associated fields, particularly software engineering, data analytics, applied mathematics, and finance. In many ways, the moment has never been better to work in these businesses, thanks to the global job market for cryptocurrency and related spaces.
DeFi is a Wider Movement Because of Cryptocurrency
Decentralised Finance, or DeFi, is focused on direct peer-to-peer transactions which are not governed by nations or financial institutions. They do not rely on ‘middlemen’, like banks.
In the traditional global economic model, governments and central banks set monetary policy and we must use established institutions to engage in finance.
Inside DeFi, the rules are set by those involved and we no longer need those institutions.
The popularity of cryptocurrency, even if some interest was sparked by its ‘novelty’ value, has exposed more people to the DeFi philosophy. It has led to people questioning why the value of their money should be dictated by a government fighting an economic crisis of its own making. It has led people to ask why they must pay ‘middlemen’ to access and transfer their money.
The impact has been that cryptocurrency and DeFi cannot be ignored. Every day we seem to see more and more institutions joining the space, governments announcing support for crypto development, and central banks investigating their own digital currencies – CBDCs.
Do Investments in Cryptocurrency Matter?
Obviously, this is just a brief look at only a handful of the effects that cryptocurrency and the technology behind it have had on the global economy.
There are many more.
What is certain is that cryptocurrency has impacted the way economies operate.
People buying cryptos like Bitcoin, or any of the thousands of memecoins, has shifted the way finance works away from the ‘traditional’ model. That will continue as the tech evolves. Governments and large financial firms are now sitting up and paying attention. They are shifting what they do and how they do it.
They are doing this because of the level of crypto investment. So, in terms of changing economic models, when we ask, ‘do investments in cryptocurrency matter’, the answer must be ‘yes’.
