Cryptocurrency is volatile, yes. But is it just a trend, or here to stay?

Anyone who has seen the erratic fluctuations in bitcoin’s price since its inception can get dizzy.

When it was first introduced in 2009, a unit of the leading cryptocurrency was valued at… zero cents. In about two years, the price had risen to $1 and then the value months later to about $30, according to data from SoFi, a student loan refinancing company. But then it dropped to $5.

By 2013, SoFi reported that the price of Bitcoin had peaked at $1,100. It took off from there, hitting a 2021 high of more than $60,000, but with a lot of severe stomach-churning. In mid-December, it was bouncing between $48,000 and $46,000.

Watching this rapid flight has left economists and experts lined up in opposing camps regarding the future of not just Bitcoin, but the entire cryptocurrency sector.

For starters: A digital currency is a form of money that is created and tracked in cyberspace by means of blockchain technology, which can best be described as a digital ledger. Unlike “fiat” currency such as the US government-backed dollar, crypto is largely unrelated to controls like the Federal Reserve Banks. All users can view the digital ledger, which makes it an unusually transparent form of currency. But there are also huge unknowns and questions about the future regulation of cryptocurrencies, a situation that always leads to volatility.

Economist Hugh Johnson, one of the capital’s leading financial advisors, included cryptocurrencies as a risk factor to watch in his 2022 annual market forecast. The combination of volatility and a lack of regulation poses a threat to market stability, he said. .

“It is difficult, at best, to make the (cypto) case have a fundamental appeal beyond being a hedge against inflation or financial chaos,” Johnson said. “If it doesn’t go beyond… if there is no fundamental reason to buy Bitcoin, it will only become speculation on the price.”

As a highly volatile asset, the more “wallets” of ordinary Americans are tied to cryptocurrencies, “the greater the risk to household spending and economic health if cryptocurrencies fall materially,” said Shaun Leonard, Johnson’s colleague, chief investment officer at financial planning firm Graypoint. “

Leonard points out that the volatility of cryptocurrency has also made companies reluctant to accept it as payment — and some high-profile scams have not helped solidify cryptocurrency’s place in the economy.

For Johnson and Leonard, perhaps the most significant threat posed by crypto assets is to undermine the Federal Reserve’s control over the money supply. If crypto assets increase as a percentage of liquid assets and trade freely, this could cause the Federal Reserve to lose its grip and change its ability to influence economic activity by setting interest rates. (However, libertarian-minded proponents of bitcoin and other forms of cryptocurrency see this kind of disruption in economic control systems as an advantage rather than a bug.)

Moreover, the crypto community can vote to increase the supply of certain cryptocurrencies. Advisers said it’s a force the Federal Reserve will not allow to be delegated. Given that the global banking system is trusted by the majority of investors and citizens, cryptocurrencies do not necessarily satisfy a “real economic need either,” Leonard said.

Bitcoin is supposed to be limited to a maximum of 21 million “coins” that will be produced.


Richard Plotka, who directs the IT and Web Science program at Rensselaer Polytechnic Institute in Troy, is far more optimistic about the acceptance of cryptocurrencies by the financial sector. But the idea that crypto could be another form of fiat currency — currency that is legally provided by the government and not backed by a physical commodity like gold — must gain widespread acceptance before that can happen, he said.

While Plotka, who wants to set up a research center dedicated to the cryptocurrency development market at RPI, acknowledges the existence of the “Wild West” element of this world at the moment while noting its continuous development.

In his opinion, crypto will change the economy – but not overnight.

“I think eventually it will stabilize, especially once the government(s) start supporting it,” he said.

Plotka said that the current crypto system is unpredictable because not all the kinks have been fully resolved, and anyone can have a say in what happens to the value of the digital currency.

He does not doubt that the emergence of cryptocurrencies will be “disruptive” for banks and other currencies. Once the system’s most worrisome bugs are addressed, anticipate that broker services – similar to those offering more analog financial businesses – will facilitate blockchain transactions and make them accessible and transparent for less technically savvy users.

Many banks and institutions have already started trying to break into the sometimes confusing crypto market. For example, Mastercard has partnered with three cryptocurrency providers in the Asia Pacific region to offer crypto payment cards that convert digital currency into traditional money. In Central America, El Salvador has committed to building a city funded by Bitcoin-backed bonds.

And in one sure sign that cryptocurrency is here to stay — or at least be taxed — the US government is implementing reporting requirements for cryptocurrency transactions.

Plotka sees cryptocurrency becoming the “gold of the future,” as other currencies are measured against bitcoin.

This story appears in Times Union’s new quarterly magazine devoted to the major trends driving the metropolitan area’s economy.


“It’s the perfect electronic money for everyone,” he said. “Only he’s going to get there first… and that’s what this war is about.”