Tuesday, February 27, 2024

Cryptocurrency index: Is it an oxymoron?

2021 has been one of the strangest years as far as cryptocurrencies are concerned. In the first quarter of 2021, Bitcoin surged to an all-time high. At its peak, a single Bitcoin was worth more than $60,000 dollars. However, during the second quarter, it crashed. Completely contrasting decisions have been taken in terms of global regulation as well. On one hand, the likes of Canada and China banned the world’s biggest crypto exchange Binance, and on the other, El Salvador legalized Bitcoin. There are derivatives and indices on crypto as well. So, the question is – will indices and derives be at all effective in bringing transparency to an opaque market?

From the users’ perspectives, cryptocurrencies are extremely fragile, as the transaction details of the receivers and senders of digital currencies stay completely anonymous. Users may also lose all their savings if they forget the passwords to their crypto wallets. There’s also no recourse or redress mechanism if there are any incidents of hacking or theft.

Cryptocurrencies are divisive on the regulation front as well. Will countries and their respective governments all have their own cryptocurrencies similar to what China is planning? Or will they follow El Salvador’s example and legalize one or more existing cryptocurrencies? It’s also an issue for businesses – some want to accept crypto payments, while others want to steer clear of it.

The crypto competitive landscape is incredibly complex as well, as not all cryptocurrencies are actually meant to be cryptocurrencies. Some are commodities, some are stores of value, while others are all about tech. In such a scenario, clubbing them under the umbrella of a single index would lead to a lot of confusion among investors.

So, all in all, it’s safe to say that cryptocurrency indices are nothing more than oxymorons.

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