What happened
This week has certainly been an interesting one in the crypto market. For privacy token Monero (CRYPTO:XMR), some of the headwinds facing cryptocurrencies in general have turned out to be a positive catalyst for this token. Since last Friday’s close, Monero has appreciated 13.8% as of 11:30 a.m. ET today.
Most major cryptocurrencies are up over the past seven days. However, Monero’s increase has outpaced most of its large-cap peers due to one key catalyst.
Namely, on Tuesday, Federal Reserve Chairman Jerome Powell told a U.S. Senate committee that a report on central bank digital currencies (CBDCs) would be ready “within weeks.” This announcement stoked fears that top cryptocurrencies may see competition from a government-backed cryptocurrency. However, Monero’s focus on privacy and untraceable transactions has provided investors with a key reason to own this token this week.
Most of Monero’s gains this week came following this announcement on Tuesday.
Image source: Getty Images.
So what
The XMR token is a key privacy token, powering the Monero network. With XMR, users can transact on the blockchain in an untraceable manner. Monero has been able to do this via a complex cryptographic process, something that has been touted as both a good and bad thing by crypto enthusiasts.
On the one hand, completely untraceable transactions open the door for nefarious activities on the blockchain. While many recent reports suggest that a small fraction of crypto transactions are tied to black market activities, a purposefully opaque avenue for those seeking to carry out illicit actions can obviously be used in the wrong way.
On the other hand, transacting in other cryptocurrencies is inherently traceable. While no names or user data are tied to accounts, users can see which accounts are posting large transactions. In this way, it’s been possible for experts to make educated guesses as to who owns which accounts, and essentially dox large accounts.
Privacy tokens like Monero largely counteract the rather transparent nature of blockchain technology. Accordingly, investors looking for cryptocurrencies that may be less affected by this regulation appear to be gravitating toward Monero this week.
Now what
The Federal Reserve has been contemplating incorporating a CBDC in some form for quite some time. Reportedly, the Fed has been looking into whether such a tool could be useful since July. However, with a timeline now put on this topic, investors appear to be reconsidering which tokens may outperform in a future that may include central bank digital currencies.
Those who believe in the future of privacy tokens may want to consider Monero. It’s among the largest of all privacy networks and could gain increased attention as regulatory headwinds pick up.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.