In the previous 12 months, the bitcoin network soared in value by nearly 1,000 percent. That is an incredible success by any measure, but it still not a complete anomaly. The BTC rally has been outmatched by ETH token and the second-biggest cryptocurrency network ethereum. While BTC token reached a value of over 61,000 USD, the same period took the price of ETH token to over 2,000 USD. That meant that this network climbed 1,200 percent from a price of just over 100 USD for a token. Other cryptocurrencies managed to attain huge levels of success, there is now a dark opening slowly forming for both bitcoin and ethereum.
It comes in the form of potentially the ultimate kryptonite that could stand in the way of further crypto expansion – regulatory oversight and regulatory demands, especially in the US. The reason for that could be the appearance of CBDCs or Central Bank Digital Currencies. The same one-two punch could be devastating to the entire crypto ecosystem, but at the same time, it could provide a big chance for the smaller network in this top pair and pave the way for ethereum on a massive scale.
Bank of America Analysis
A recent analysis of the Bank of America provides an interesting look behind the curtain of traditional finance and investment circles. At the same time, it also offers a glimpse into the mechanism of regulatory control that might be slowly forming around the crypto space. The analysis of this huge traditional financial entity examines bitcoin, but ethereum as well, noting that the ETH tokens in a programming and fintech sense have a lot more features. Besides this, they come with a higher level of flexibility than those of the bitcoin network.
Furthermore, the report, which is called Bitcoin’s Dirty Little Secrets shows that bitcoin is developing an ongoing correlation to other risky assets. It is also not tied to any form of inflation, thanks to its token cap and an entirely different means of generating individual BTCs. Still, the volatility remains exceptionally high in the market and all of this simply makes it an impractical means of storing wealth. The same goes, according to the Bank of America, for the use of bitcoin as a payments mechanism. Because of this, the analysis perceives the bitcoin network as an entity that only works if the price is going up. Otherwise, they see no reason to own BTC tokens.
Antithesis to Cryptocurrencies
The report from the Bank of America also delves into the issues that the entire cryptocurrency field might soon face on an unprecedented scale. These are mainly related to the problem of the CBDCs and how the same tokens could end up being a kryptonite for all manner of crypto tokens. There are numerous examples of this process and it is currently underway in several essential quarters for the international world of finance. The PBoC is a perfect example, but not the only one. The European The US FED Chair Jerome Powell stated that this year will be pivotal for the public consultation on the future and the possibilities of creating a digital USD.
However, there is also a place where the potential for the ethereum network lies in silent wait. The Bank of America analysis believes one of its faucets – decentralized finance and its individual elements – could stand to replace many roles of traditional banks. The research paper finds that possibility very intriguing and potentially drastically more disruptive than the use of cryptocurrencies in general where they stand now in places like the esports community and other locations that are already massive early adopter hubs.
Ongoing Wave of DeFi
The analysts from the Bank of America are positive that the DeFi technology and underlying ethereum network have the potential to be a lot more disruptive than bitcoin. In their view, the rise of the DeFi concept is directly tied to the rise of the ethereum principles that it provides to the wider decentralized finance.
It would not be able to function without the abilities of ETH tokens, on which most of these services are based upon. Also, bitcoin, no matter how popular it might be at any given point or what is its token price, would not be able to fill that role. On the strictly technological side, its potential is drastically lower than that of ETH tokens. But, what makes it so interesting to the analysts of this massive traditional entity is the fact that they only see it as coming into its own.
Building Blocks of the Future
The future of the DeFi project is bright and also, it is important to recognize, it is generally unconnected to the future pathways of individual token prices. They simply offer a relevant service and for that, they will find their place in the markets for financial services, especially in those domains where such regular services are either difficult to access or completely unavailable. The second problem is what hundreds of millions face all over the world when they just do not have adequate identification documents. So, even if the crypto markets go through a massive crash – which they will at some point – the DeFi services will keep growing.
Even the CBDCs do not stand a big chance in foreign markets, especially in places that are very underdeveloped. So, there is a future for this application of decentralized ledger, but here the key danger arises as well – regulatory clampdown. By being a force that parallels not just that of fiat money – which cryptocurrencies already do – but also the financial institutions themselves, with things like loans and other things, regulatory agencies will need to act. Some of that will be with velvet gloves and in line with supporting (more or less) the growing industry of DeFi. Others will not be so inclined to help and will instead come down hard and fast. That presents a huge danger to ethereum, but also bitcoin and thus the entire crypto and DeFi domain.