Cryptocurrency has brought about a paradigm shift in the way people view and carry out transactions. It is a digital asset that uses cryptography to secure transactions and to control the creation of new units. It operates independently of central banks and is decentralized. This means that no single authority has control over it. However, in America, the value of cryptocurrency remains a paradox, with some people valuing it highly and others remaining skeptical.
The paradox of valuing cryptocurrency in America arises from the fact that, on one hand, its decentralized and secure nature makes it an attractive investment option for people who want to diversify their portfolio. On the other hand, the government is cautious about cryptocurrencies, and its lack of regulation makes it a risky investment option for some. In this article, we will explore the reasons behind this paradox and how it affects the value of cryptocurrency in America.
One of the reasons why cryptocurrency is highly valued by some in America is its decentralized nature. Bitcoin, for example, was created as a response to the global financial crisis of 2008, which exposed the vulnerability of central banks and financial institutions. Cryptocurrency, on the other hand, operates on a decentralized network where transactions are processed by a network of computers. This makes it immune to manipulation by financial institutions and political regimes.
Furthermore, cryptocurrency is secure and transparent. Transactions are recorded on a public ledger, called a blockchain, which is tamper-proof. This means that transactions cannot be reversed or altered, making it highly secure. Transparency is also a key feature of cryptocurrency as all transactions are recorded on the blockchain, which can be accessed by anyone.
However, the lack of regulation makes cryptocurrency a risky investment option for some. The government has been cautious about cryptocurrency and has not yet formulated a clear regulatory framework for it. This creates uncertainty and instability in the market, making it difficult for investors to make informed decisions. In addition, the lack of regulation makes the market susceptible to fraud, money laundering, and other illegal activities.
Another factor that affects the value of cryptocurrency in America is the perception of its legitimacy. Cryptocurrency has long been associated with illegal activities, such as drug trafficking and money laundering. This has led to a negative perception of cryptocurrency, with some people viewing it as a tool for criminals.
However, this perception is changing as more and more legitimate businesses begin to accept cryptocurrency as a form of payment. For example, Microsoft, Starbucks, and Tesla are among the companies that accept bitcoin as payment. This has increased the legitimacy of cryptocurrency and has resulted in a shift in the perception of its value.
In addition to legitimacy, the value of cryptocurrency is also affected by market demand. Cryptocurrency is a volatile asset, with its value fluctuating wildly. This volatility is due to the lack of regulation, market speculation, and uncertainty. Demand for cryptocurrency is driven by a variety of factors, including market sentiment, user adoption, and technological advancements.
However, the volatility of cryptocurrency has deterred some investors from investing in it, as they view it as too risky. This has resulted in a decrease in demand and a subsequent decrease in the value of cryptocurrency.
Another factor that affects the value of cryptocurrency in America is its competition with traditional fiat currency. Fiat currency is backed by governments and central banks, which gives it a level of stability and security. Cryptocurrency, on the other hand, is decentralized and not backed by any central authority. This makes it more volatile and risky than traditional currency.
However, the rise of cryptocurrency as a viable alternative to fiat currency threatens to destabilize the traditional financial system. This has resulted in a pushback from governments and financial institutions, who view cryptocurrency as a threat to their control. This pushback has further contributed to the uncertainty and instability in the market, with some investors shying away from cryptocurrency.
In conclusion, the paradox of valuing cryptocurrency in America stems from the dichotomy between its decentralized and secure nature, which makes it attractive to some investors, and the lack of regulation, negative perception, and competition with traditional currency, which makes it a risky investment option for others. Thus, the value of cryptocurrency in America remains in flux, with its value being driven by a variety of factors, including demand, legitimacy, and competition with fiat currency.
The White House has included a whole chapter dedicated to digital assets in its Economic Report of the President for 2023. However, the report’s conclusions are divergent from government actions that have relied on crypto’s implied or inherent value. The report argued that many crypto assets lack fundamental value from an economic view, debunking almost all benefits of crypto, which conflicts with government actions that have relied on crypto’s value. For example, the Securities and Exchange Commission (SEC) has benefited from acknowledging crypto’s value, with the SEC relying on crypto’s perceived value to launch and win numerous enforcement actions against digital asset companies. The Internal Revenue Service (IRS) also benefits from acknowledging crypto’s value, with crypto transactions treated as property, and general tax principles have been applied to virtual currency transactions. Although the report’s economic analysis for some cryptocurrencies is objective, the conclusions are perplexing since crypto remains a significant source of profit and potential tax proceeds. The government has also maintained a side hustle by auctioning off bitcoin and other cryptocurrencies seized by law enforcement during criminal investigations, with the proceeds going to the Treasury or the Department of Justice, where they can be spent on line-item expenses. A national ban on crypto seems far-fetched and counterintuitive, given how the crypto industry has expanded the power and reach of the US federal government. The industry must continue to exist in a constant state of confusion over its perceived legitimacy by those with immense political and regulatory power. A consistent “whole of government” policy would be shrewd, if only for clarity and to avoid biting the hand that feeds you. If crypto has no value, why tax and regulate it in the first place?
