Cryptocurrencies have taken the world by storm, having persisted after all manner of attacks from government officials, bankers, and investment advisors. The influx of the latter group poured gasoline on the fires of market valuations, driving prices up so quickly, asymptotically if you will, that there was nowhere to go but down. Many made millions during the run up, while others lost millions after the crash. 2018 will go down as a boom and bust year for Bitcoin and all of its brethren, nearly 2,000 in number by most accounts. After such an historic year, the inevitable question is: What’s next?
As 2018 draws to a close, many industry pundits are beginning to polish off their crystal balls to see what the future might bring in the year ahead. 2019 will actually be the tenth anniversary of the first Bitcoin transaction at the point of sale, a cause for celebration, but, while the decade may have brought a modicum of stability to the industry, there is still a long way to go on that front, before critics will ever be satisfied. There will be many more articles to come that speak to future probabilities, but here is a quick summation of how a few major issues might play out down the road:
Bitcoin’s Leadership Status: Bitcoin will remain the undisputed “leader of the pack”. It presently accounts for roughly 53% of the market capitalization of all coin products, and while this figure may go done slightly over time, that is a sign of health in the industry, as other innovative products bring diversity and compete for recognition. Bitcoin will remain the “safe haven” of the group, and equity analysts believe it may provide a similar function in their world. Capital flight needs a good place to hide from time to time.
Replacing Fiat Currencies: Early zealots of virtual currencies proclaimed that Bitcoin and others would revolutionize banking, replace fiat currencies, and replace current payment system operators. The debate will continue on the latter point, but most insiders concede that the limitations of blockchain technology with respect to capacity and speed of settlement completion will forever block existing payment systems from fading into the sunset. As for depreciating fiat currencies and bankers expanding the money supply, cryptocurrencies do fill a need in this category, something attune to a “virtual Gold standard” of sorts. As volatility drops, look for more uses as a trusted store of value.
Price Volatility: As much as it may be desired, volatility in price behavior will not dissipate anytime soon. The industry is still in its infancy. Venture capitalists are throwing billions at projects, while Initial Coin Offerings are raising even more. Since by design, supplies of circulating coins are strictly controlled by system algorithms, there will always be “knee-jerk” reactions to news events across every jurisdiction of the globe. Technologies have always followed a specific, well-known evolutionary cycle, although many profess that things have definitely speeded up. More regulation is next but look for a consolidation at some point, not necessarily in 2019. There are too many programs chasing too few dollars in profits. Something will have to give at some point.
Regulation: Look for more of it. It is natural after ten years of unbridled growth. It is also healthy in many regards and necessary if institutional investors are to climb on board the crypto train. For the really “Big Money” to get involved, there needs to more sanity and less fraud in the market. Transparency, accountability, and regulatory compliance will be watchwords going forward. It is a good thing that the Financial Action Task Force, an inter-governmental organization that was founded in 1989 by G7 financial ministers, announced that it “will publish its first rules for cryptocurrency regulation by June 2019.” A global approach will hopefully overrule petty local regulatory skirmishes so that the business can thrive and prosper on an international basis.
Exchange Standards and Compliance: Crypto exchanges are now big business. Bitstamp was just acquired for $400 million. If the industry is to thrive and prosper, its exchanges must adhere to common operating standards and security protocols, if only for the credibility that they will bring. Exchange operators understand the need. A recent survey revealed that 88% of exchanges welcome and want regulatory oversight. Many experts are also suggesting that exchanges need to depart from their centralized operating model and adopt a form of the distributed operating system, much as with the decentralized nature of its backbone, blockchain technology. Look for initial moves in both directions.
What are futurists saying about the long-term viability of the cryptocurrency market? One CEO for one of the largest global financial consultancies surprised listeners when he spoke to the future of today’s crypto market. Nigel Green, the CEO and founder of The deVere Group, recently predicted that, “The pace of mass adoption will speed up and the cryptocurrency market cap can reasonably be assumed to reach at least 5000% above its current valuation over the next decade.” Current guesstimates put the industry’s market cap at $400 billion, including coinage, exchanges, and miners. If you do the math, Nigel’s forecast would be $20 trillion. Does that smell like success to you?