For years now, cryptocurrencies have been a topic of hot debate. They have split audiences since their emergence owing to specific characteristics. Although they are used as digital assets often, the prime reason behind their development was a way to a quick, safe, easy, and secure payment.
Cryptocurrency is a widely available and easily accessible virtual currency or a distributed exchange medium. It is digital, encrypted, and decentralized, making it impractical to have single authority management and maintenance as in fiat currency.
As per the Union’s draft Crypto Asset Regulation- “Cryptocurrency is a digital or virtual value or right a person can transfer and store electronically using shared ledger or similar technology.”
Cryptocurrencies & Their Changing Dynamics
There is an average ownership rate of 4.2 percent, with over 320 million crypto users in 2022. Hungary constitutes over about 143,200 crypto users, 1.48 percent of its population, to be precise. In a survey conducted in 2021 for ages 18-64 years, 10 percent of respondents gave a positive answer.
With Ethereum gaining more investors and the ever-rising investments in Hungary, is it finally the time for fixed-income institutions to utilize this digital asset?
Since there can not be a definite answer to it, and you can never be sure of a country’s economic practices, it is better to address some prominent aspects of the discussion. So keep reading to learn about Ethereum, some recent facts about it, and why stable-income Hungary institutions might consider it.
ETH All The Way!
Often regarded by many as the ultimate token, Ethereum is the second most-owned and used blockchain worldwide and a technology platform in its on-progress period for a while now. It lays the foundation for the imminent future of the internet (Web3) and the future of finance (Defi). Its native currency is Ether.
Ethereum has successfully stolen the light thanks to its merge that happened recently. The last couple of years were a boon for ETH, with a high increase in the adoption and utilization figures marking its growth. Approximately half of the Defi system relies on Ethereum at present.
It finally switched or upgraded to Proof-of-Stake after seven years of anticipation. The merge, as some say, would go down in the history of cryptocurrency, believing it might be a step towards broader adoption.
Seeing institutional investors investing substantial capital in digital assets, many industry participants have begun eyeing its growing potential. This merger is an upgrade that would significantly less electricity use. Further, it will attract financial institutions and policymakers and increase the acceptability of Ethereum.
ETH 1.0 ➡️ ETH 2.0: The Next Big Change
Ethereum has undergone a fortunate transition from PoW (Proof-of-Work) to PoS (Proof-of-Stake). It entails that this particular blockchain’s transactions will not be recorded by spending a massive amount of computer power to validate transactions. Instead, validators that have staked Ether will process them. If an investor indulges or acts in bad faith, his assets will be forfeited.
Companies Showing Patterns Of ETH Switch
Hungary has established itself as an open and export-driven economic country. From a centrally planned economy, it has transitioned to a market economy. Moreover, Hungary is a leading trading partner for its electronics and is recognized as a high-income country by the World Bank.
The European Investment Bank deployed the Ethereum network to issue its first digital bond on a public blockchain. Goldman Sachs, Morgan Stanley, and other banks began trading cryptos last year. In addition, large financial corporations like Citigroup shared their interest in joining the crypto market, saying they would operate digital currency once they were confident to work with them.
Hungary houses twenty popular exchanges available to citizens and institutions. However, like most systems, these exchanges require identity verification. Ethereum is also available on online platforms.
Why Hungary? Regulations Regarding Crypto In The Country
As per the earlier rule, capital gains on cryptos were subject to a taxation of 30.5 percent, meaning investors profiting from them had to transfer or pay the state one-third of it. Taxes on these digital assets were utilized to repay the old debts.
Hungary’s most recent crypto guidelines and regulations can undoubtedly frame an illustration for policymakers. The finance minister reduced the taxes levied on cryptocurrency to half last year as a Covid-19 relief program, and the capital earnings or profits tax on cryptos came from 30.5 percent to 15 percent.
Adding to it, the Hungarian government has taken a big step and moved towards independent legal recognition and regulation of cryptocurrencies, and the cryptocurrency data will be made accessible to the authorities.
Hurdles On The Way Of Streamlined Crypto Adoption
Cryptocurrencies are highly volatile, making price fluctuations normal in this field. Moreover, unplanned staking can be a downside. Staking means locking your funds for a preferred timespan (it can be months or years), with no access to them in that duration. The timeline for staking (or staked) Ether is one of the biggest hurdles for institutions.
Many believe that traditionally locking-up Ethereum exposes the investors and institutions to risk. And if they desire to partake in ETH staking, they should likely look for liquid derivatives, acquiring ETH yield while retaining liquidity.
Another factor that institutions consider within the crypto market is uncertain regulation. The U.S. president gave an executive order to outline a structure and approach to address the growing risks and avail of the benefits of digital assets by ensuring reliable development.
However, when the White House showed a first-ever detailed and comprehensive framework or structure regarding the responsible development of digital assets. Some institutions and industry participants criticized the crypto framework, commenting that it relied majorly on the regulation of enforcement and lacked clarity.
Bottom Line: Will Stable Income Hungary Institutions Switch To The ETH?
Ethereum outperformed its biggest competitor, Bitcoin, with the “merge.” The transition from Proof-of-Work has significantly boosted the demand and supply of ETH. It is close when the ETH’s value will increase in the long run.
Moreover, it takes time to anticipate the next move of stable income institutions. The market and macro environment play a crucial role in such cases. For instance, the Federal Reserve has recently hiked the interest rates by 75 points to aid the public in facing high inflation.
Lastly, if the traditional finance securities’ yields keep going up, the staking yield accompanied by Ethereum will turn out to be less appealing compared to previous or traditional bond and treasury yields.
