Europe has been lagging in adopting cryptos compared to other parts of the developed world, such as the US, Australia, and Canada. While around 17% of Europeans have expressed interest in cryptocurrencies, this is about the same proportion as developing nations and falls short of the 23% global average.
EU lawmakers have implemented stringent traceability policies on crypto transfers in an effort to combat money laundering, which may affect the interest in cryptos altogether. When gauging the interest in the crypto market, studies have to look at the awareness of what cryptos are, the general outlook towards them, and hindrances to owing them.
It also includes motivations for owning and trading them, and if you are interested in becoming an investor, we recommend Aktieskolan’s guide on how to invest in cryptocurrencies. This guide is written in Swedish but you can use Google Translate to translate the article into your native language.
Will the cryptocurrency market have adverse effects on broader financial stability?
In May 2022, the European Central Bank (ECB) warned that cryptos could potentially adversely affect financial stability if this emerging sector continues to grow as rapidly as it has in the last two years and financial institutions continue to deepen their involvement within this market. The crypto market dropped sharply in early May after a major coin, terraUSD, lost almost 100% of its value.
The crash of this stablecoin prompted top global financial leaders to call for comprehensive and swift regulation of this volatile sector. As it is now more popular to invest in and buy crypto in Europe, policymakers want to ensure that investors on the continent are protected.
Historically, cryptos have been an asset niche favored by those interested in high-risk investments, which surged with the onset of the pandemic. The institutional investors drawn to this market were attracted by claims that virtual data, specifically Bitcoin, could be used as a hedge against inflation and provide high returns during low-interest rate periods.
The sector peaked in November 2021, rising to a market value of $2.9 trillion from just under $300 billion at the beginning of 2020. However, the market has been dipping since early 2022, with Bitcoin, the most significant virtual coin slumping by more than half. This and the crash of currencies like terraUSD dragged the entire crypto market downward, with its overall value falling just under $1 trillion on 13th June 2022.
The crypto market meltdown
Cryptos are experiencing some difficulties, although other financial markets face these same issues. Digital currencies were such a hot commodity that they were advertising during huge events like the NFL Super Bowl after a successful run in 2021. Now, the market is exceptionally volatile, and coins are losing large percentages of their value. Furthermore, firms like America’s Coinbase have been laying off some of their employees.
Because of these troubles, many investors are doing their best to exit the market before losing everything, adversely impacting the market further. As mentioned, cryptos are being affected by the same factors affecting stocks, forex, futures, etc. Consumer prices are at an all-time high and constantly surging at an increasingly high rate since the year started.
To bring down the economy and stabilize markets, governments must find quick solutions to lower inflation. In the case of America, the Federal Reserve has had to aggressively raise interest rates to manage inflation before it gets out of hand. If the prices need to be further cooled down, the Fed is ready to hike the interest again by the same margin.
This strategy works, but very high rates may make borrowing costs nearly unattainable for businesses and individuals, which presents the possibility of an economic recession.
Conclusion
Although the cryptocurrency market is experiencing tumultuous times, it is here to stay, and market players are intent on ensuring that the market is stabilized in the future. Since the pandemic, European markets have been more interested in digital coins, and more regional investors are joining the market. As things are constantly changing, do your best to keep up with current crypto news.