Cryptocurrency hasn’t yet been fully embraced by consumers or investors since its inception in 2009. Critics continue to decry its lack of intrinsic value and volatility compared to traditional stocks or currencies. However, there are some indications that hard line could be softening. While Treasury Secretary Janet Yellen says that it would likely take years for the United States to implement a federal cryptocurrency, the option certainly appears to be on the table.
As more countries examine crypto’s viability and potential regulations with a keener eye, we may be approaching a make-or-break moment, where we see digital currencies either adopted or shunned by major governments.
While some companies have already taken the plunge to accept crypto payments, an officially recognized digital dollar could change the game for brands and consumers. Here are a few consequences that we could see if the U.S. moves to implement a federally-recognized digital currency.
Cryptocurrency could emerge as a mainstream payment method
Right now, digital currencies aren’t really “currencies,” but more like speculative assets that, when sold, can trigger tax liabilities in the eyes of the IRS. Outside of some notable exceptions, few businesses are accepting Bitcoin for everyday purchases. It’s hard to make a business case for accepting a currency that transacts more like stock than cash.
The decision of whether to accept crypto as a valid payment currently falls on companies. As it stands, these are assets that aren’t backed or ensured by governments. That makes accepting something like Bitcoin a risky proposition for most businesses, especially when a tweet from Elon Musk could dramatically shift the price.
A quick look at the market for Bitcoin shows a high of $67,582 USD in November 2021. As of September 30, 2022, the price was roughly $19,431. That means that someone who invested $100 in Bitcoin just over nine months ago would now be left with $28.75. Investors in Luna were even less fortunate. Companies value stability and the ability to manage expenses efficiently. Right now, crypto assets are somewhat antithetical to that.
With support from the U.S. government and a more robust infrastructure in place, these concerns could be alleviated, with brands and consumers feeling emboldened to spend and accept crypto. Government backing would give cryptocurrency intrinsic value, just as treasuries ultimately instill value into their paper currencies. Once the U.S. reaches that point, it won’t be long before a digital dollar is normalized as legal tender.
Investors could lose interest as regulation yields stabilization
While a federally-recognized and regulated cryptocurrency would be a much larger part of people’s everyday lives, it could dilute investor interest. In many ways, the volatility and chance to rake in massive profits quickly is what has made cryptocurrency so attractive to retail investors who have higher risk appetites.
The crypto investing landscape in its current form is a financial Wild West. As governments work to catch up to a rapidly growing and increasingly complex trend, regulation is slowly taking shape. Formal action could be months or years away, meaning that, for now, crypto could continue on its wild roller coaster ride that already has investors spooked.
For those looking to invest safely and sustainably, regulation will be a good thing. Variance equals risk in the investing puzzle, and while riskier assets hold the promise of larger returns, that volatility tends to turn off risk-averse investors.
Less-pronounced peaks and valleys could cause cryptocurrencies to lose their trendy status and become more mainstream. In many ways, we’re seeing what appears to be a prelude right now, as major markets and more traditional investing circles become enamored with digital currencies. Fidelity recently became the first provider to allow investors to put Bitcoin in their 401(k)s, and growing adoption suggests it won’t be the last.
Back-office operations could be made more efficient
A legitimized national cryptocurrency could be a boon for corporations in streamlining transactions and back-office operations. While not necessarily relevant to consumers, it would drive change for many of the companies that they regularly interact with, replacing some of today’s more manual processes that may be a bottleneck.
Waiting periods and processing delays could be dramatically shortened, as money could transfer immediately once transactions are verified—and a digital dollar linked to the user could allay some fraud fears. Storing currency on a digital platform mandates consideration of cybersecurity. Still, government backing would do a great deal to make a federal cryptocurrency safer than today’s decentralized options.
Tips for corporate crypto preparedness
With all that said, the financial and fintech industries would need to take the proper steps to ensure their readiness if and when a federal cryptocurrency is instituted. Changes to existing regulations and tax codes should be expected, and companies will need to maintain compliance with anti-money laundering and know-your-customer rules, as well as relevant tax laws wherever they’re selling. This could also mean more complexities when it comes to selling cross-border.
Blockchain technology will also have to become an area of investment for these businesses, as it powers the production, use, and ownership of digital currencies. Without the right infrastructure in place, blockchain transactions might not be possible for businesses otherwise interested in the concept.
Perhaps the most important consideration is security. Currency that lives on the web adds new challenges to that conversation. With sensitive financial data and transactions, there is no room for error when it comes to staving off bad actors. Rushing the process of making cryptocurrency a part of your business could mean exposure to unnecessary risk. Companies will need to carefully map out every scenario, be honest in identifying their own vulnerabilities, and move aggressively to patch any holes.
Ultimately, it’s hard to predict all of the nuances that a federal cryptocurrency could bring to the financial landscape. However, it’s plain to see the adoption of a federally-backed cryptocurrency would have significant ramifications for consumers and investors alike.