While blockchain and cryptocurrency are often marvelled in consumer
payments, they are increasingly seen as a viable asset for private banking. Has
the much-maligned technology gained legitimacy? And is it about to make a
splash in wealth management in 2020? Patrick Brusnahan speaks to the sector
Pavel Mateev, Wirex
Bearish forecasts will shift cryptocurrency from its focus as a trading asset to its application in payments.
Go deeper with GlobalData
The price of Bitcoin experienced yet another positive-but-bumpy ride in 2019. The crypto industry predicts on Bitcoin halving in May 2020 for another historical rally of the first, and most resilient, cryptocurrency.
China’s recent supportive position on the benefits of blockchain technology lacks clarity. The legal status of cryptocurrencies and the future of major crypto exchanges in the country are yet to be determined.
For now, as the Shanghai head office reiterated on 22 November, the sale of tokens remains “essentially unauthorised” and “investors should be careful not to mix blockchain technology with virtual currency.” This ongoing uncertainty resulted in a sharp drop in the BTC price of more than 20% over a week.
This climate of obscurity is expected to shift the industry’s focus towards cryptocurrency payments as a tangible financial application in 2020.
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By GlobalDataBy now, we are all aware of the theoretical benefits of a wider adoption of crypto payments for both consumers and merchants, including faster settlements, lower fees, and cross-border remittance. Realising the access to these benefits is critical, which is why Wirex is releasing a wide selection of fiat-backed stablecoins, built on the Stellar network for speed, security and scalability. The recent announcements from our partner, Stellar, also show more commitment from the industry in leveraging the practical attributes of cryptocurrency for the benefit of the wider crypto community.
We also know that the development of a positive regulatory framework, such as the UK FCA’s recent move towards stablecoin regulation, or the incorporation of digital currency into an existing financial legal framework, is essential to ensure full public confidence in the token economy.
At Wirex – one of the three crypto-powered enterprises to secure regulatory approval from UK FCA – we are constantly on the alert for new and updated financial regulation, in order to maintain regulatory compliance and provide assurance to our customers. 2020 must be a groundbreaking year for cryptocurrencies, with trends that prioritise execution and innovation over speculation or technical rallies. The long-term goal for the industry will only be a pragmatic one.
Marc Fleury, Two Prime
The crypto industry is at a crossroads. In Gartner Hype Cycle terms, the industry currently sits in the trough of disillusionment.
After the hype of 2017 and the unprecedented fund formation that ICOs ushered into existence, Bitcoin now wallows in a bear market and access to capital has tightened dramatically. The trajectory of the industry could either continue downwards into oblivion, à la Google Glass, or climb up to Gartner’s Slope of Enlightenment. It all hinges upon the capacity to mature towards traditional financial markets.
In 2020, it will become clear in which direction crypto will turn. To that end, amid the doom and gloom, it is easy to lose sight of what has worked and still works in the crypto industry. While the blockchain industry continues its frantic search for a killer app, the truth is that the killer apps of crypto have already arrived: they are all financial in nature. Firstly, bitcoin has proven its ability to store value.
As a store of value, cryptocurrencies represent around $300bn in fund formation – an impressive feat in scale and speed, even if the spoils were highly concentrated for ‘crypto whales’.
Secondly, the crypto industry has been extremely successful in rapid fund formation, as demonstrated during the ICO boom. In 2017, seed funding of start-ups via token offerings on exchanges overtook private equity. As venture capitalists generally shun the seed stage, it filled a niche that traditional financial players left unaddressed.
In stark contrast with venture capital and private equity structures that lock up limited partners to their investments for years, the ICOs provided a liquid instrument for investors.
Finally, stablecoins are rapidly emerging as a key piece of banking infrastructure. One has to just witness governments around the world experimenting with their own digital currencies, and the political backlash against Facebook and its Libra project, to understand the importance and societal reach of these financial technologies. Within the crypto realm, we expect that professionalised capital allocation and fund formation will radically evolve in 2020.
We predict a shift in allocation from infrastructure technology investment to the financial applications of said blockchains — there will be less meaningless focus on the technology and increased focus on the capital. In a classic case of misallocation, ICOs in 2017 wasted their proceeds on useless tech, lavish parties and illicit activities.
At the same time, we see immense and untapped potential for fund formation. The key is proper capital allocation. The crypto world will continue to evolve rapidly. Many institutional financial players want to capitalise on the next crypto bull market, but most of them just do not know how. Expect new forms of digital asset that bridge the worlds of traditional finance and crypto.
It is our prediction that crypto will spawn new applications in the fund-formation category in particular.
In order to ensure that crypto moves toward the Slope of Enlightenment, we must focus on the successes of crypto, evolve the existing products and infrastructure, and bring about maturity and credibility. Let us apply this crypto fund formation to the real world and the real economy, and we will unlock abundance like we have never seen.
Brian Kerr, Kava Labs
Looking ahead to 2020, I expect that we will see greater focus in both the blockchain and financial sectors on the development and deployment of user-friendly decentralised finance (DeFi) applications.
The rise of DeFi technology will mark the evolution of existing fintech services which have challenged traditional financial institutions in many of the world’s economies. The stage is already set for the adoption of DeFi services by the growing popularity of cryptocurrencies, particularly Bitcoin, XRP, and Ethereum – all of which are household names in recent years.
The cryptocurrency market has grown large enough that today, more than 20% of the world’s population has purchased digital assets. That is almost 1.5 billion people. Despite the scale of this new economy, and the progress the industry has made to date, cryptocurrency markets remain seriously underserviced.
There are limited resources for those who wish to unlock the full value of their cryptocurrency holdings, or who want to use digital assets as a long-term store of value. I believe that in 2020 we will see more sophisticated DeFi applications coming to market, which span a range of cryptocurrencies and provide DeFi services to many who previously had no access to them. Until now, DeFi applications have focused almost exclusively on Ethereum.
Even the world’s most popular cryptocurrency, Bitcoin, has gone without DeFi services, such as decentralised lending and borrowing, insurance, or collateralised loans – services viewed as ‘expected’ in traditional finance. While stablecoins, which were highly topical in 2017 and 2018, have valuable utility in lending and borrowing markets for long-term loan issuances and giving traders exposure to fiat-based rates while enabling arbitrage opportunities, DeFi services have much more to offer the growing crypto economy.
In 2020, we can expect to see more demand from investors for reliable services that can help them do more with their digital asset investments, rather than simply holding tokens in the hope that their value will increase. DeFi platforms will be perfectly positioned to meet this demand. Looking beyond 2020, you can be sure that the hype surrounding DeFi and blockchain will fade.
Within the next five years, crypto and blockchain will become integrated with more traditional industries, just as internet technology was in the 2000s following the dotcom boom. Soon, decentralised services will be the norm, and the blockchain technology which underpins them will be packaged seamlessly into the UX of applications.
Alex Lam, RockX
It looks like 2020 may be the biggest year for blockchain and digital asset adoption yet. The year may be quieter from a technological standpoint, with fewer new products, but we will see the entrance of new players, including institutions and more traditional investors. Political and economic events in 2019, such as the trade war between China and the US, Brexit, and the situation in Hong Kong, have shaken the confidence of investors in traditional markets.
The third quarter of the year saw Hong Kong stocks experience massive downward trends, coming in as the worst in the world, according to reports. For traditional investors, uncertainty over the political future of the city seems to have scared them away in the short term.
As a result of these events, we have seen gold and Bitcoin receive significant interest from first-time investors, with many new positions opened in both markets across the globe. With Bitcoin futures and options accepted within financial circles, we may soon see these investment possibilities extended to other cryptos, opening up the availability of institutional-grade crypto investment vehicles and further positioning digital assets as a safe alternative to hedge against global risks.
This will be made possible by renewed efforts globally to provide clear regulations on digital assets, which we have already seen this year. A range of jurisdictions, from China to the EU, have been busy introducing new policies to bring clarity to cryptocurrency markets – and this is something we can expect to see more of in 2020 on a global scale. Cross-country regulation will happen much more often in 2020, especially as the recommendations of the Financial Action Task Force are brought into effect.
Once regulation around digital assets is more concrete, I expect that mainstream financial institutions will be much more willing to embrace cryptocurrencies as governments endorse their legitimacy as an asset class.
While governments will probably further embrace digital assets in 2020, I do not expect that this will be the year of government-backed cryptocurrencies, despite what some suggest. It seems likely that only China’s Digital Currency Electronic Payment will be launched.
Few other governments that have shown interest in launching a national cryptocurrency possess the combination of technological expertise, economic scale and political desire needed to launch a government-controlled crypto. As the industry starts to mature, I do not think we will see much technological innovation in 2020 compared to past years, and fewer new applications of blockchain and cryptocurrency technology are likely to emerge.
The industry has already produced many potential applications and interesting proofs of concept, and in 2020 we will see these ideas go mainstream. As a result, we will see the increased professionalism of the digital asset space and greater adoption of professional services in the industry. This process has already begun with technology and financial industry giants launching their own digital assets, such as Facebook’s Libra and the JP Morgan Coin.
Against a background of economic uncertainty and increased awareness among regulators of the potential of digital assets, this process will almost certainly continue.
Michael Ou, CoolBitX
2019 marked another tumultuous year for crypto. While digital assets have been increasingly accepted as a legitimate asset class by institutions and traditional financiers, and the scam projects which were prevalent in the 2017 and 2018 crypto boom have dissipated, major events such as Facebook’s launch of Libra have drawn the scrutiny and ire of mainstream consumers and regulators around the world.
However, there has also been much progress when it comes to establishing frameworks to prevent criminal activity in the crypto industry, and to improve the reputation of digital assets as a whole. 2020 should reveal the fruits of this labour, with clear crypto regulations put in place around the world.
In June 2019, the Financial Action Task Force (FATF) released its latest standards for combating money laundering and terrorist financing. The FATF required Virtual Asset Service Providers to comply with Recommendation 16, aka the Travel Rule. This meant that crypto exchanges must collect and transfer customers’ personally identifiable information during transactions, and be compliant by October 2020. Given that majority of blockchains do not have built-in protocols to automatically capture users’ real-world identities, the FATF guidance caused uproar as market players felt the regulations would result in the extinction of the crypto industry.
However, this is far from the truth. Countries such as Japan and South Korea have demonstrated how crypto has not only survived but thrived under regulation, foreshadowing what is to come on a global scale in 2020.
Japan and South Korea have led the way in cryptocurrency adoption by passing legislation that either recognises digital assets as legal tender or providing a regulatory framework for blockchain and cryptocurrency businesses. Clear-cut regulations have attracted traditional financial institutions to move swiftly to the crypto market.
In Japan, major corporations and institutions such as Nomura, SBI and Rakuten have made significant investments into the national crypto industry, displaying a much wider acceptance of blockchain and crypto than anywhere else in the world.
In 2020, with the global implementation of the FATF guidance, we will see a greater acceptance and adoption of crypto by traditional institutions, just as in Japan.
However, the journey to mainstream acceptance comes with its own set of difficulties. Industry players must collaborate with regulators to bring about frameworks that do not hinder innovation. On the other hand, regulators must not only listen to industry players, but also have an open dialogue with each other to address the borderless issues of money laundering and terrorist financing.
At the end of the day, the benefits of regulation far outweigh the costs. Many players may be in denial, but regulation will not be the demise of crypto, and 2020 will prove that it is the catalyst that will move the industry forward.
