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Bitcoin prices will stabilize when investors start looking at it from an investment perspective, analysts said. As of now, a lack of transparency and clear understanding of fundamentals make it difficult to predict the direction of the markets. Wagner pointed out that more than half of the cryptocurrency transactions happen on the Dark Web -- a part of the internet that allows users and website operators to remain untraceable.
“Once pure greed is no longer defining the trade regime for cryptocurrencies, we will see less volatility of such a dramatic nature,” Wagner added.
Analysts think price stabilization will help bitcoin evolve as an asset class and that will highlight another challenge facing cryptocurrencies -- lack of consensus on their classification. While some analysts believe it may edge out gold as an alternative investment, others say it may compete with the forex market. Wagner expects cryptocurrencies to emerge as a new class: “an asset class that doesn’t exist yet.”
For cryptocurrencies to become an asset class, Wagner said regulators need to define them as an investment instrument and lay down a clear set of rules to govern their function in the legal marketplace. Wagner thinks cryptocurrencies should be recognized as a security and said, “It probably fits the security classification better than anything else and I think regulators are more comfortable with the idea of classifying it as such rather than anything else. It seems to tick more of the boxes of a security than a currency.”
Wagner said cryptocurrencies’ emergence as an asset class may help bitcoin to realize the hefty valuations that some market players have predicted but said it may take several years to get there.
“It will change how many entities view cryptocurrencies,” he said. “If it can be legalized and regulated, then it's a whole new ballgame and perhaps you know these lofty valuations that some people have spoken about could become reality. But right now it's just a big question mark and it's experiencing ongoing boom-and-bust cycles.”