Unless you have a crystal ball, it’s hard to predict what the future will hold for cryptocurrencies.
As far as October 2021, Jamie Dimon, JP Morgan’s CEO, declared that bitcoin is worthless.
He joins over 430 other eulogies listed on the Bitcoin Eulogies website. The first one, in December 2010, declared that bitcoin could not be a currency.
One of the latest predictions is, “Crash – then extreme rally – before final death of #Crypto.” Death will come from a US Government ban on bitcoin and crypto as part of a “monetary reset and the introduction of a global currency by central banks.”
On the other hand, we have predictions of bitcoin quickly hitting the $80,000 mark and then reaching $250,000 by 2025 and $5 million by 2030.
Who is right? It is hard to say.
However, it always makes sense to consider the basic affecting factors as well as some notable trends, which might help you make up your mind. Here is a look at just four of them.
Trend #1: Bitcoin’s Influence on The Future of Cryptocurrencies
Bitcoin leads the way for other cryptocurrencies in market share, price trends and acceptance.
Bitcoin Market Share
With more than 20k cryptocurrencies in circulation, and the global crypto market cap is around $1 trillion, as of September 2022, according to CoinMarketCap.
Bitcoin accounts for nearly $0.385 trillion of that – approximately 39%. Next is Ethereum, at roughly $0.2 trillion and almost 20% dominance of the market. Next are stable coins, USDT and USDC, with market shares of approx 7% and 5% respectively.
That means that the other remaining 20k+ cryptos make up just 29% of the total market.
Bitcoin Price Trends
But bitcoin is not just the largest. A glance at any graph of prices will show that most altcoins follow the bitcoin value trend almost exactly, with just a slight time lag (which is often a good indicator for traders and investors in altcoins). This is a great opportunity to learn how to buy USDC.
Bitcoin also leads the way in acceptance. As it has become more entrenched as a means of payment and an investment class, so acceptance of other coins has grown.
Digital Indices by the S&P Dow Jones are a good example. They started with indices to follow the performance of major cryptocurrencies, like Bitcoin and Ethereum. They have now launched the S&P Cryptocurrency Broad Digital Market Index to track the performance of 240 cryptocurrencies.
This is a clear indicator of how mainstream cryptocurrencies have become. As noted by S&P Dow Jones at the launch, “Traditional financial markets and digital assets are no longer mutually exclusive markets.”
It’s also clear that where bitcoin goes, others will follow.
Trend #2: Institutional and Consumer Adoption of Cryptocurrencies
Support is coming from some major institutions and corporations.
For example, a February 2021 “Bitcoin for Corporations” event hosted by MicroStrategy attracted nearly 7,000 corporations. The purpose was to educate corporations on how to add bitcoin to their balance sheets.
Some of the noteworthy examples of how institutions are adopting cryptocurrencies include the following:
Those with a good memory will remember Elon Musk saying that Tesla will not sell any bitcoin. Until, that is, it did, offloading 75% of the company’s holding of BTC at the end of 2021. Still, Musk is bullish on DOGE. In fact, Tesla still accepts cryptocurrency as payment, with Dogecoin being the only one at the moment.
So what does the future hold for Tesla and crypto? Well, it’s difficult to say with any degree of certainty. However, if Musk’s contradictory positions and past statements are any indication, then expect the situation to change in the future, especially as crypto goes green and, eventually, mainstream.
Twitter users can now transfer bitcoin as easily as they transfer their thoughts.
The Twitter adoption may warrant a closer look.
Integrating Two Major Networks
Twitter has integrated the Strike bitcoin Lightning wallet with its platform. Anyone can tip anyone else who has a Strike wallet anywhere in the world and at virtually no cost.
Jack Mallers, the founder of Strike, explains the enormous implications of this move in this video. We are seeing the combination of two major networks:
- The Bitcoin global monetary network, with its ability for instant settlement
- The Twitter social internet network, with over 200 million users
Mallers underlines the importance of the bitcoin network as opposed to bitcoin the cryptocurrency. It is a global monetary network, delivering functions much like the Visa, PayPal, or Western Union networks. However, it is instant and at virtually no cost.
This should be compared to Western Union as an example. Transactions can take up to 8 days, with the cost for transfers to small, emerging countries as high as 50%.
The Bitcoin Lightning Network
The Twitter adoption highlights another development: the Lightning network.
The Lightning Network sits as a second layer on top of the Bitcoin blockchain. It is an off-chain solution to Bitcoin’s scaling limitations, especially for small transactions. In theory, it can handle millions of payments per second.
It allows for peer-to-peer payment channels and opens the door for merchants to accept small cryptocurrency payments without waiting for validation or paying high transaction costs.
Major banks such as Morgan Stanley, Goldman Sachs, and JPMorgan Chase allow wealthy clients access to bitcoin funds.
Yes, even Jamie Dimon has been forced to concede that while he may believe bitcoin is a fraud, many of his bank’s clients don’t agree with him!
And people with ordinary bank accounts will also soon be able to buy, hold, and sell bitcoin through their existing accounts. This follows a partnership between the New York Digital Investment Group (NYDIG) and Fidelity National Information to bring bitcoin services to hundreds of US banks.
Payment channels like Visa, Square, PayPal, and Mode all accept crypto payments.
Square also actively invests in bitcoin and is involved in educating others about its benefits.
Mastercard has for some time supported cryptocurrencies on its network. This is the most mainstream platform for cryptos.
Now, banks and merchants on the Mastercard payments network can incorporate crypto into products such as credit and debit cards and reward programs.
Amazon doesn’t accept crypto payments, but you can pay indirectly for gift cards with cryptos.
Walmart shoppers will be able to purchase bitcoin at Coinstar kiosks in 200 US stores.
Cryptocurrencies Accepted for Payments
Outside of bitcoin, Litecoin is one of the most widely accepted cryptocurrencies for payments.
It is one of the oldest cryptocurrencies, launched in 2011. It has prided itself on being a payments-focused crypto. Founders believe that actual use-cases and adoption will drive Litecoin’s growth and price.
It has high liquidity as it is available on nearly every major exchange and has an impressive number of fiat on- and off-ramps. More than 2,000 merchants accept it.
Consumer Adoption of Cryptocurrencies for Payment
A report from CryptoRefills Labs gives some insight into consumer adoption of cryptocurrencies for purchasing goods and services.
Some of the findings are interesting:
- Crypto-consumers are scattered across the globe
- Most are young
- They represent a range of socioeconomic profiles
- Those from fragile economies see the global digital economy as a financial solution
- Those from developed economies tend to be high-income earners and are often crypto-traders
- Immigrants see the potential for easier remittances to families in their home countries
- 66% of crypto-shoppers believe that crypto is the way to shop for goods and services
- 78% choose bitcoin as the preferred currency
There are still difficulties with crypto-shopping: finding stores that accept cryptocurrencies, high transaction fees, and processing delays.
However, 72% of respondents believed that crypto-payments would become more common in the future.
The Future of Remuneration in Cryptocurrency
Freelancers and members of the gig economy have long accepted cryptos as remuneration for their work.
This trend is spreading, particularly in the sporting world. Several sporting franchises accept cryptos for game tickets, merchandise sales, and even as payment to team members.
Russel Okung was the first US professional athlete to have part of his salary converted to bitcoin. He converted $7.5 million of his salary to bitcoin in December 2020, when the price was about $27,000. If he has HODLed it, it is now worth $17,5 million!
The Sacramento Kings have been accepting bitcoin since 2014 and now have sufficient on the balance sheet to pay players, coaches and staff in bitcoin if they want it.
This brings us to the lesson. If players and other employees want payments in bitcoin, then institutions will have to add bitcoin to their balance sheets.
Trend #3: Regulations
While some blockchain and crypto purists rail against any form of regulation, others believe it is necessary to bring standardization to the market and protect stakeholders.
However, with many countries being relatively loyal to crypto, even a threat of impending regulation tends to depress the market.
Regulatory Moves on Cryptocurrencies
Some notable concerns have included:
- The outright Chinese ban on all things crypto, including mining.
- US Senate discussions about the comparative acceptability of proof-of-work vs. proof-of-stake protocols. As one pundit put it, this is like the Senate deciding between iOS and Android! They are also considering identity reporting on DeFi platforms.
- Pressure on exchanges has led to exchanges like Binance making a “pivot to compliance” and instituting tax reporting and anti-money-laundering steps. They also slashed withdrawals for unverified customers, cut leverage options by 80%, and withdrew from some futures markets.
The Impact of The Chinese Government Ban on Cryptocurrencies
The Beijing Government justified its September 2021 ban on crypto transactions and mining because the industry was “disrupting economic and financial order” and “endangering the safety of people’s property”.
The real reason is probably government concerns about the freedom that crypto gives to citizens to transfer their wealth around the world instantly. It might also be an attempt to support the digital yuan – a central bank digital currency (CBDC).
However, it is a ban that affects one of the most significant crypto regions in the world.
What has been really interesting, and perhaps is a sign of the strength of cryptocurrency for the future, is how little the market has reacted to this ban.
These have been the market reactions to Chinese bans:
- Dec 2013: -63%
- Sept 2017: -36%
- May 2021: -34%
- Sep 2021: -9%
Whatever the reasons for the change, it is notable that, unlike 2013, a global superpower declared war on cryptocurrencies in 2021– and the market barely moved.
Trend #4: What Do CBDCs Mean For The Future Of Cryptocurrencies?
Central Bank Digital Currencies (CBDCs) are on the rise. A CBDC is virtual money backed and issued by a central bank. The positive expectation is that these digital currencies will improve cross-border payments and limit the risks of currency substitution.
However, they go against a fundamental tenet for cryptocurrencies – freedom from the control of governments and intermediaries.
And they have the same problem of fiat currencies around the world: governments simply print their way out of economic crises. This leads to inflation and devaluation of the money and erodes real wages and people’s savings.
Which Countries Have CBDCs
According to the Atlantic Council CBDC Tracker, five countries have introduced CBDCs, and another 81 countries are exploring them. They represent over 90% of the global GDP. Currently, the European Central Bank, the Bank of Japan and the Bank of England are ahead of the US Federal Reserve in their planning – these are the four largest central banks.
Fourteen countries, including major economies like Sweden and South Korea, are in the pilot phase.
China is furthest ahead with its digital yuan, which is a significant challenge to the dominance of the US dollar, especially in developing countries. China even promises visitors the currency for the 2022 Winter Olympics – in exchange for passport information.
In February 2021, Nigeria banned banks and financial institutions from transacting or operating in cryptocurrencies. Like China, Nigeria claimed they posed a threat to the financial system.
So it is probably no surprise that, in October 2021, Nigeria announced the launch of its own digital currency – the eNaira – with 33 banks already on its platform. The eNaira and the physical Naira will have the same value and will exchange 1:1 with each other. The projection is that this launch will increase GDP over the next ten years by $29 billion.
Will CBDCs Displace Cryptocurrencies?
According to Morgan Stanley and the European Central Bank, cryptocurrencies can coexist with CBDCs, as they serve a different purpose. They are seen more as a store of value and a speculative asset than a replacement to payment systems. Stablecoins may be most affected.
The Bank of America, on the other hand, believes that CBDCs will be like “kryptonite” to crypto.
This brings us back to the eulogy quoted at the beginning – the final death of crypto due to a US ban on crypto ahead of a “monetary reset and the introduction of a global currency by central banks.”
The pattern we have seen in Nigeria and China is that cryptocurrencies are banned to make way for the CBDC. If this pattern is repeated in other countries, it may well represent a risk to the future of cryptocurrencies.
Predicting the future for cryptocurrency probably needs a crystal ball.
However, some trends may give clarity about the direction that cryptocurrencies may take and when the next crypto bull run can be expected.
- Trend #1 is that bitcoin takes the lead and other cryptos follow. As acceptance for bitcoin increases, the future for other cryptos improves.
- Trend #2 is growing consumer and institutional adoption of cryptocurrencies, with corporations increasingly adding bitcoin to their balance sheets.
- Trend #3 tracks the impact of regulations on cryptocurrencies. While there are some threats and increasing pressure to comply, it is notable that the market shrugged off the Chinese ban on crypto.
- Trend #4 may represent the greatest threat to the future of cryptocurrencies – the increasing number of countries developing CBDCs, their own digital currencies.