September 7, 2022

Transpero

Tiny articles, big solutions.

The maturing cryptocurrency market has a lot to achieve

maturing cryptocurrency market achieve
Advertisement

Crypto assets are a new asset class increasingly concerning regulators and policymakers. You can learn about the utmost potential trading techniques and strategies and evolve as an independent advanced trader. Bitcoin’s rapid growth in popularity over the past year has been accompanied by a tremendous increase in trading volumes and market capitalization, with an incredible amount of volatility. Moreover, if you are interested to start your trading journey, you may only trust reputable bitcoin trading platforms like bitcointrader.

All too often, people assume that cryptocurrencies are safe investments with no downside risk, but this couldn’t be further from the truth. Cryptocurrencies aren’t regulated by anything other than their code which can enact complexity and uncertainty for owners who trade them. Cryptocurrencies also lack the emotional anchor of a physical asset, with holders being forced to trust that their money is not in danger of being stolen.

Challenges in the cryptocurrency market:

The first thing to address is the current state of market liquidity. Right now, bitcoin’s liquidity is relatively poor compared to other assets such as stocks and ETFs. To make a market order on exchanges, you have to pay a significant premium over the current price for your transaction to go through.

Advertisement

Transaction volume is another problem, as the current number of transactions per second that can be processed by bitcoin is relatively low compared to other crypto assets and even traditional payment networks. Bitcoin’s lightning network may eventually solve this issue, but until it does, users will continue to be subject to hefty fees for making transactions.

The current lack of regulatory clarity surrounding cryptocurrencies makes it hard for financial institutions and institutional investors to enter the space confidently. In addition, Crypto asset transaction volumes are a concern for regulators because they undermine financial systems and processes on which society has come to rely.

As cryptocurrencies have become more popular and widespread, market participants have begun to demand more sophisticated services from the crypto asset market. But there is a real risk that these stakeholders will resent the current cryptocurrency market, where fees can be very high, and user experience is poor because of its lack of sophistication. So it’s not hard to make valid points about the need for improvement in this area.

Advertisement

A case in point is Dash (DASH), which has seen significant traction over the past year by offering institutional-grade function to exchanges and traders through its “instant-payout” service known as “Dash InstantSend.” Dash InstantSend offers a 0.

How can the cryptocurrency market overcome these challenges?

To address these issues, the main stakeholders need to be able to trust each other and the market in general. Unfortunately, many of the challenges cryptocurrency users face today stem from a lack of trust between parties. A decentralized system without a trusted third party is ideal for allowing different market participants to have a relationship based on contract and trust. Still, until now, that has not been possible with crypto assets.

The solution would be to create a product similar to how banks offer their customers account-based services. For example, Bitcoin uses its blockchain technology for asset-liability management. Suppose the crypto asset market were to evolve similarly to the banking industry. In that case, many problems plaguing cryptocurrency can have a resolution, and cryptocurrency could become a more established asset class.

1) Regulatory clarity

What is clear is that cryptocurrencies need to be treated as assets. Today, when someone sells a physical commodity or tradeable security on an exchange, they are required to report their transaction the same way they report financial transactions under current regulations. Likewise, when they buy these things, they receive government benefits and get their money free of capital gains tax. Unfortunately, it isn’t the case with cryptocurrencies because there isn’t any regulation around them yet in most countries.

2) Trust

The current market of cryptocurrencies doesn’t trust anyone. When you trade fiat currencies on stock exchanges, the settlement period is only several days; however, this is not the case with crypto asset exchanges. The settlement period in cryptocurrency markets is usually one minute after making a transaction. In addition, many Ponzi schemes like pump and dump and fake initial coin offering projects have led people to distrust cryptocurrency market participants. 

3) Liquidity

Cryptocurrencies such as Bitcoin have inferior liquidity compared to other assets like stocks and ETFs. To make a market order on crypto asset exchanges, you have to pay a significant premium over the current price that your transaction will go through. Except for a few cryptocurrency exchanges like coinbase and Binance, most cryptocurrency exchanges are not subjected to high liquidity.

4) Transaction speed

Cryptocurrencies such as bitcoin have a plodding transaction speed of 7–10 transactions per second compared to other crypto assets and traditional payment networks. Another problem is the lack of scalability of blockchain technology. To solve this issue, a lightning network has been introduced, but most of the participants on crypto asset exchanges still face this problem.

To achieve an institutional-grade market, it would be wise for mainstream exchanges and market makers to come together and create a new kind of exchange that allows for better liquidity, trust in its users, and an enterprise-level trading experience.