by Dr. Mustafa Sayim, a Senior Lecturer with London School of Business & Finance (LSBF)
It has become increasingly important to understand what drives returns and volatility in cryptocurrency markets, yet how to predict returns and volatility still remains a major problem. This is because traditional financial theories do not consider the impact of investor behaviour that credibly affects the values of financial securities. For instance, think about Elon Musk’s impact on the digital currency market. Therefore, in the future, there will be clearer regulations and we will see more companies accepting digital currency payments. Further institutional adoption is also to be expected.
As a result, we can expect ongoing discussions among law and policymakers all over the world about how to create laws and regulations that create safe investing environments for investors while also making them less appealing to cybercriminals. A lack of laws and regulations in the digital currency market have also been a big issue, although investors’ interests have been increasing. That is why some governments have increasingly expressed an interest in imposing new regulations on the industry.
The digital currency market is in its infancy stage and has been advancing constantly. It is difficult to forecast the returns and volatility in the digital currency markets in the long term. In the future, however, it is expected that regulations and institutional adoption of digital currency payments will stabilise the market. That way, we can understand how the market functions.
Major participants in the digital currency market have been also looking for clear regulations and guidelines. We may also expect that some governments can make decisions that digital currency transactions would be illegal as China declared. There is also a fear that if stricter laws and guidelines are not imposed, investors will get badly impacted. Hence, more digital currency regulation is needed.
Well-known companies such as AMC, Amazon, Walmart and Tesla, will be able to accept digital currency payments. Online payment companies like PayPal and Square will allow users to buy on their platforms using digital currency. Also, some companies hold huge investments in crypto assets.
It is also worth mentioning that since digital currency is in an infancy state and, due to the lack of regulations, it is considered a new and speculative investment. Without knowing what drives predictions, we do not know yet how to value digital currencies. Although nothing is guaranteed, if we invest in digital currency by taking a long position, it is likely that demand and value will increase.
In conclusion, clear regulations, more individual and institutional investors’ involvement in the digital currency, and more companies’ adoption are going to continue to drive the growth of the digital currency market in the future.
