I have been investing in capital markets for over four decades, yet I have never witnessed a phenomenon quite like the rise of cryptocurrency. I first encountered this new asset class in 2010. In the age of technological innovation, these past 11 years have felt like an eternity.
When I initially heard about Bitcoin, I dismissed it as the next generation of video games. Although I enjoyed various computer games during my university years, I abandoned them when I started my career on Wall Street and began raising a family. Back then, Bitcoin seemed like just another arcade game—a pastime where players spent hours accumulating seemingly worthless rewards.
Of course, history has shown that these “rewards” were far from valueless. Had you invested $10 in digital currency in 2010, purchasing 200 Bitcoin at 5 cents each, your investment would be worth over $13 million today—considering Bitcoin’s peak price of $65,500 per coin.
Over the past decade, as the market evolved, I have come to appreciate the power of blockchain technology. When Bitcoin reached $100, I still considered it a bubble. At $1,000, I believed the market had lost control. By the time it hit $10,000, I realized that my inability to break free from conventional thinking had caused me to miss a monumental investment opportunity. As someone who values and embraces libertarian philosophy, Bitcoin and other cryptocurrencies represent a compelling embodiment of this ideology.
Although I now fully acknowledge that cryptocurrencies are here to stay and that this asset class will likely continue growing in market capitalization, three significant challenges remain. These issues—regulation, cybersecurity, and carbon emissions—continue to hinder the development of cryptocurrencies and must be addressed for the market to reach its full potential.
Between April 14 and May 19, Bitcoin’s price fell by more than 50%, underscoring the substantial challenges that leading cryptocurrencies face in their journey toward mainstream acceptance.
Challenge 1: Custody and Trust
While younger generations may have no qualms about digital wallets, a significant portion of investors remain uneasy about storing wealth in “wallets” that exist only in cyberspace—especially when that wealth cannot be physically tucked into a back pocket.
Platforms like Coinbase, Square, and PayPal have instilled some confidence in cryptocurrency storage. However, unlike traditional assets such as stocks, bonds, and commodities, a lingering sense of doubt persists.
Custody remains one of the most critical issues that the crypto sector must resolve. All investing and trading are built on a foundation of trust. Yet, recurring news of investors losing access to their cryptocurrencies due to forgotten or lost passwords only amplifies these concerns.
If exchanges, trading platforms, and financial institutions can effectively address custody challenges, it would mark a significant leap forward for the cryptocurrency asset class.
Challenge 2: Cybersecurity Threats
The May 2021 Colonial Pipeline cyberattack disrupted fuel supply along the U.S. East Coast, creating significant complications during the pandemic. The company ultimately capitulated to the hackers, paying a ransom in exchange for restored operations.
This incident raised serious concerns among investors: if the United States could not protect the cybersecurity of one of its most critical energy infrastructures, how secure can cryptocurrency networks truly be against sophisticated hackers?
The Colonial Pipeline attack left a lasting negative impression because it highlighted the vulnerabilities not only of individual digital wallets but also of cryptocurrency exchanges themselves. In 2014, Tokyo-based Mt. Gox—then a leading cryptocurrency exchange—was hacked, resulting in the theft of $460 million worth of Bitcoin and the eventual collapse of the exchange.
Only by decisively addressing cybersecurity risks can cryptocurrencies gain broader acceptance in the mainstream financial world.
Challenge 3: Carbon Emissions
Bitcoin mining consumes an enormous amount of electrical energy. Earlier this year, Tesla announced that it had purchased $1.5 billion in Bitcoin and would accept the cryptocurrency as payment for its electric vehicles. This news helped propel the crypto market to new heights.
However, Tesla is a company that has thrived by championing the green energy revolution. When it became apparent that Bitcoin mining’s energy consumption and carbon emissions were substantial, the electric car maker reversed its decision to accept Bitcoin—triggering an immediate market sell-off.
As the chart below illustrates, following Tesla’s announcement, Bitcoin’s price plummeted from $59,900 on May 10 to a low of $30,205 on May 17. The cryptocurrency had been abandoned by one of its most high-profile supporters.
The crypto market must confront its carbon emissions problem, especially if it wishes to retain the support of environmentally conscious investors and corporations.
Easy Money Often Carries High Risks
The current environment of loose monetary policy may foster a false sense of security among new investors and traders. Stories of modest investments turning into vast fortunes over the past decade have created a “get-rich-quick” narrative that continues to attract speculators.
Beyond the speculative frenzy, thousands of new cryptocurrencies have emerged. There are now nearly 10,000 different digital currencies in existence. While many people have suffered significant losses in the crypto market, those who invested in the “right” cryptocurrencies continue to see returns, drawing more capital into the space.
From a trading perspective, the most suitable cryptocurrencies for trend-based profit strategies are those with high liquidity, a market capitalization exceeding $1 billion, and narrow bid-ask spreads. As of May 19, only 88 of the 9,945 cryptocurrencies—less than 0.9%—met these criteria.
Many cryptocurrencies will inevitably vanish into the digital abyss. Investors must exercise caution and avoid being hypnotized by tales of easy wealth.
Cryptocurrency Will Change the World—But It Will Take Time
Blockchain technology represents a technological evolution within financial markets. Cryptocurrencies reflect a growing ideological shift—a belief that governmental control over money supply is excessive and that the wave of central bank liquidity and tsunami of fiscal stimulus measures have eroded the value of traditional currencies, which derive worth from the full faith and credit of issuing nations.
Most digital currencies have a limited supply, whereas governments can print more dollars, euros, yen, pounds, and other fiat currencies at will. Cryptocurrencies present a fundamental challenge to state-controlled money supply.
Regardless, the digital currency revolution is underway. However, it will take time to mature. With thousands of cryptocurrencies in circulation, rankings are expected to shift continually, leading to a vastly different landscape in the coming months and years.
Custody, cybersecurity, and carbon emissions are three critical challenges facing cryptocurrencies. At the same time, governments—accustomed to wielding absolute authority over money supply—will likely introduce more regulatory measures. As the total market capitalization of crypto assets rises, so too will concerns and scrutiny.
Frequently Asked Questions
What are the main risks of investing in cryptocurrency?
The primary risks include high volatility, regulatory uncertainty, cybersecurity threats, and potential loss of access due to forgotten passwords or hardware failures. Additionally, the environmental impact of mining some cryptocurrencies remains a significant concern.
How can I securely store my cryptocurrency?
You can use hardware wallets, paper wallets, or reputable custodial services offered by established exchanges. It's essential to follow best practices for digital security, including two-factor authentication and secure backup of private keys. For those looking to explore advanced security options, you can review updated storage guidelines here.
Why is Bitcoin mining so energy-intensive?
Bitcoin mining requires solving complex mathematical problems to validate transactions and secure the network. This process, known as proof-of-work, demands substantial computational power, which in turn consumes large amounts of electricity.
Are all cryptocurrencies bad for the environment?
Not all cryptocurrencies use energy-intensive consensus mechanisms. Some, like those using proof-of-stake, are designed to be far more energy-efficient. The environmental impact varies significantly between different digital assets.
Will governments ban cryptocurrencies?
While some countries may impose strict regulations or even bans, a complete global prohibition is unlikely. Many governments are exploring central bank digital currencies (CBDCs) and frameworks to integrate cryptocurrencies within existing financial systems.
What is the long-term outlook for cryptocurrency?
The long-term outlook remains positive for blockchain technology and major cryptocurrencies, though the market is expected to undergo consolidation and increased regulation. Innovation in scalability, security, and sustainability will likely drive future growth. To discover strategic insights for long-term crypto investing, consider staying informed through reliable sources.