Cryptocurrencies, once dismissed as fringe interest of tech evangelists, have skyrocketed to mainstream popularity and trillion dollar valuations. But with little regulation and high volatility, they pose significant risks to investors.
Amid a boom in cryptocurrency investment, some people are purchasing them as speculative investments hoping for future gains. Others use them as a way to pay for goods and services, particularly in countries with weak currencies like many Latin American and African nations. Some cryptocurrencies have even been adopted as legal tender in some places, though the use of bitcoin has yet to catch on in most markets.
Unlike traditional currency, cryptocurrencies’ values are largely driven by supply and demand, resulting in wild price swings that can lead to huge gains or losses for investors. And they’re subject to much less regulatory protection than securities, making them vulnerable to fraud and other threats.
As a result, cryptos are increasingly used in illicit activities, including ransomware attacks that threaten to shut down victims’ networks until they pay a fee, often paid in cryptocurrency. The currencies are also popular among criminals attempting to launder money or buy weapons and narcotics. In response, regulators have taken steps to increase enforcement and improve transparency.
The Federal Reserve and Treasury are also looking at ways to enhance the stability of cryptocurrencies, a group known as stablecoins, which claim to have a fixed value linked to an asset like gold or a major global stock index. In addition, scores of countries are considering introducing their own central bank digital currencies, or CBDCs.
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