Elon Musk and Jack Dorsey are bullish on it, Mark Cuban has said bananas are worth more (although he’s recently endorsed blockchain). Regardless of what your personal stance is on Bitcoin, there’s no denying the world’s most famous cryptocurrency had a breakthrough year.
Now, a quarter into 2021, we’re already seeing big shifts in the financial landscape. From the market-awakening GameStop rally, which decentralized finance experts are viewing as a direct endorsement, to the rise of Ethereum, which has outpaced all other coins in the crypto asset class, it’s become clear, the traditional finance system has to progress or be prepared for disruption.
As market analysts continue to debate the future of cryptocurrency’s role in mainstream markets, here are three predictions for where it’s headed based on trends you’ll want to watch in 2021 and beyond.
Federal Banks Will Become the Trojan Horse for Crypto Education
One of crypto’s biggest barriers to mainstream adoption has been the lack of public education around it. People simply aren’t educated in how to use alternative currencies to buy, sell, trade, or invest. However, federal banks could have a Trojan horse effect on mainstream adoption, as they start to produce digital currencies of their own.
Late last year, the Bank for International Settlements and seven central banks published a report laying out a framework for central bank digital currencies (CBDC). While the U.S. is likely a year or more away from launching its own, analysts believe China and Sweden could launch CBDC as soon as this year.
Further fuelling the banks’ dive into the digital world, is the recent approval by the Office of the Comptroller of the Currency (OCC) to allow banks to use stablecoin. This is an exciting move that encourages banks to pivot from their legacy systems and keep up with the changing technology.
As decentralized ledgers like blockchain begin to replace traditional financial systems like SWIFT, customers will become more educated in the benefit of the crypto asset class, which may lead to even further disruption of public markets.
Capital Markets Will Become Tokenized for 24/7 Trade
Just as email replaced the need for physical mailrooms and 9 to 5 operations, as cash becomes tokenized, the way we trade and exchange will have fewer physical barriers.
In the Analog Age, we relied on humans to buy, sell or invest in public markets for us. By the very nature of humans needing rest, time limitations were set to regulate when trading could happen. As we advance further into the Digital Age, however, technology like blockchain which can store, and validate information, means customers are less dependent on humans for trade, which opens up the possibility for market trade to happen anytime, anywhere.
With this freedom, you can expect more companies to list on blockchain exchanges like Binance. We might even see some interesting mergers and acquisitions. Think—Binance acquires the New York Stock Exchange or vice versa.
Global Adoption Will Follow
As trade becomes more globally diverse, watch out for a shift in how we value currencies. The U.S. dollar, for instance, has held a disproportionate amount of power in the global financial system for more than a century, with nearly 80 percent of global trade happening in USD. In order to maintain its economic stability, the U.S. relies on other countries viewing the USD as the standard for global exchange. What the pandemic has highlighted, however, is the record amount of USD being printed to offer economic relief, which could have a negative impact on the currency. However well-intended, printing too much money leads to inflation, which can threaten even the strongest of economies.
You need only look to Greece or Venezuela, which have experienced hyperinflation and economic instability, to see the impact. There, going to the grocery store to buy a bag of oranges will cost $5 one day, and $20 the next week. It’s no coincidence that in those countries, bitcoin—which was engineered to only ever produce 21 million coins—has amongst it the largest uptake.
Up until now, governments have made it difficult for locals to get out of a failing domestic currency, however as we move further into the digital world, consumers will have more optionality as to which currency they buy and trade with. As global patrons wake up to economic alternatives, trade will start to happen in different assets far more frequently.
It’s hard to believe, but the monetary system we are operating on is a mere 50 years old. As ordained as our financial institutions appear to be, history has proven that economic change can happen quickly particularly when assets are overproduced. Keep a watch as we might just be poised to relive this economic lesson again. Luckily this time we have a liferaft: Bitcoin.
About the author: Mitchell Demeter is a serial entrepreneur and pioneering figure in the cryptocurrency industry. Having gained worldwide attention for launching the world’s first Bitcoin ATM, Mitchell now serves as president of Netcoins, a trading platform that makes it easy for anyone to buy, sell, and understand cryptocurrency.