In my humble opinion, the future of finance is undeniably intertwined with cryptocurrency and blockchain technology. As someone who has navigated the complexities of both traditional and digital financial landscapes, I can confidently say that the potential for transformation is immense.
In June, Security.org released data that caused quite a stir in the cryptocurrency community. The recent figures showed that approximately 40% of American adults now own cryptocurrency, marking a substantial increase compared to last year. What’s more intriguing is that this trend seems to be on an upward trajectory. Women have been particularly active in crypto investments, and an impressive 21% of those who don’t currently own any cryptocurrency are considering investing following the approval of the US Bitcoin (BTC) exchange-traded fund.
As a researcher, it’s important to note that the findings here are based on two relatively modest surveys (1,001 and 504 participants). While these results might offer valuable insights, they may not fully reflect the entire U.S. population due to their online nature. It’s crucial to keep in mind that the Federal Reserve reported only seven percent of U.S. adults as crypto investors in 2023, based on a more extensive sample size. Yet, it’s essential to consider that this data might also be subject to bias, as its respondents were drawn from those who agreed to participate in Ipsos’ KnowledgePanel.
Has the claim made by Security.org regarding crypto ownership resonated with you? If so, imagine this scenario: Approximately 40% of the global adult population (around 5.75 billion people) owning cryptocurrency, not just those in the United States. This thought has been swirling in my mind for a few months now. It’s both puzzling and thrilling to contemplate such a possibility. Here’s what I’ve been pondering about it.
There would be four major categories of change:
● Individual economics.
● Financial systems.
● Technological and social patterns.
● Environmental policy.
Let’s embark on this imaginative exploration together. It may not be too unrealistic, given the current trends.
Individual economics
One of the most touted benefits of cryptocurrency is its potential to provide financial services to the unbanked or underbanked.
In the Philippines, where about two-thirds of the population doesn’t use traditional banking services, there’s been a growing interest in cryptocurrencies. Over 13% (around 15.8 million people) have already adopted crypto, and the government is actively working towards launching a digital currency issued by the central bank to cater to this increasing demand.
Approximately $33 billion is regularly sent as cash remittances from foreign Filipino workers back home, making it an excellent scenario for cryptocurrency applications. In many underdeveloped areas, traditional banking systems can be difficult or inconvenient to access. If the use of blockchain-based financial services continues to expand, these traditional systems may face strong competition.
Cryptocurrencies might act as a tool for financial balance, connecting people who were previously left out due to financial exclusion, and enabling them to engage in economic activities more equitably.
Volatility and risk
Cryptocurrencies are often criticized for their unpredictable price changes, which could potentially be risky for those without access to traditional banking. However, if about 40% of the global population were to invest in them, that volatility might lessen. As more people join the market, the liquidity of cryptocurrencies would likely grow, making it tougher for a single large transaction (even from big investors known as “whales”) to significantly impact prices.
Assets that are popularly traded and owned often exhibit less volatile price fluctuations, as massive buying or selling actions have a reduced impact. With increasing adoption rates, it’s reasonable to expect that cryptocurrencies may become more stable (to an extent), leading to a more consistent value trend over the long term.
Investment patterns
As more than half of adults invest in cryptocurrency, the landscape of traditional investing is likely to change dramatically. A considerable proportion of individual savings might be channeled towards digital currencies instead of conventional options such as stocks or mutual funds. The concept of diversification would undergo a transformation; traditional portfolios could potentially comprise a blend of equities, bonds, and digital assets.
Financial systems
The significant change in investing habits is bound to upset the conventional financial system. Since a large number of investors are yet to invest in digital currencies, a substantial amount of funds that typically go towards traditional stocks and bonds could potentially be diverted towards the cryptocurrency marketplace.
A shift in focus could lead to liquidity issues for traditional marketplaces, causing heightened volatility and changes in asset valuations due to the dispersal of investor interest. In response, Initial Public Offerings (IPOs) might undergo restructuring, with some firms opting for Initial Coin Offerings (ICOs) as alternatives or supplements to their public debuts.
Crypto integration
On the contrary, not all outcomes will be unfavorable. The rising interest in cryptocurrency investment options could result in closer ties with established systems. This integration is already underway as evident by the approval of Bitcoin ETFs, serving as a regulated and traditional approach for investors to access crypto markets. As mainstream adoption grows, these financial products may eventually become commonplace, even unexciting.
Regulation and policy changes
In order for widespread use to occur, changes in regulations will be essential. Fortunately, there have been significant advancements in this field. For example, Senate majority leader Chuck Schumer has promised to drive crypto regulation forward before the year’s end. It is expected that laws aimed at protecting investors, preventing market manipulation, and encouraging innovation will appear across the globe. Governments will need to collaborate with the private sector to create guidelines that enable cryptocurrencies to grow while maintaining overall financial stability.
Digital payment expansion
One way to rephrase that would be: Certain laws need to tackle the rapid growth of digital payment methods, such as cryptocurrencies. Notably, a bipartisan proposal was submitted by Senators Tedd Budd (R-NC), Kyrsten Sinema (I-AZ), Cynthia Lummis (R-WY), and Kirsten Gillibrand (D-NY) aiming to exempt small crypto transactions from capital gains tax. If this bill passes, it could pave the way for other nations to adopt a similar approach, making digital currencies an integral part of their day-to-day economies. This would mean being able to pay for your daily coffee or settle dinner bills without having to consider tax complications.
Technological and social patterns
With growing adoption of cryptocurrencies, there’s a surge in the development of blockchain technologies as well. New applications for these systems are sprouting up daily, from managing supply chains to improving healthcare. These decentralized databases have the potential to boost transparency, security, and traceability across various sectors.
Digital identification and trust
Worldwide governments are investigating digital identifications, but not many are integrating blockchain technology into their projects yet. If cryptocurrency continues to grow, it’s likely that blockchain-integrated citizen authentication will become a natural outcome. Using the blockchain for digital IDs could drastically decrease fraud, simplify transactions, and provide secure, authenticated access. Companies like Concordium could help ensure your ID is universally accepted, safely kept, and indisputable through multiple layers of identification.
Social implications
To reach 40% or more adoption, faith should be placed in technology over established human institutions by many. This transition might demand a significant leap of trust. As peer-to-peer transactions increase in popularity, the role of traditional banking could diminish. The tech-savvy younger generation is likely to spearhead this transformation, fostering innovation and reshaping business models. However, this shift could widen digital gaps, with those lacking internet access or technological knowledge potentially becoming even more marginalized. To prevent this, policy and educational initiatives should be developed to promote equal access to these new financial systems.
Environmental policy
A significant concern related to the broad adoption of cryptocurrencies is their environmental footprint. Notably, prominent cryptos such as Bitcoin (BTC) function based on a ‘proof-of-work’ system, which necessitates substantial computational power and, in turn, high energy consumption. The Environmental Working Group has been vocal about the need for transformation, promoting their “Change the Code, not the Climate” campaign, urging Bitcoin to transition from proof-of-work to more energy-efficient alternatives like proof-of-stake.
But the environmental narrative isn’t just about despair; it also highlights potential opportunities through crypto and blockchain technology for promoting green energy projects. For instance, a system called peer-to-peer energy trading allows individuals to buy and sell their renewable energy directly among neighbors, potentially reducing our dependence on conventional power sources.
Final thoughts
Broad cryptocurrency usage is yet to be fully realized, requiring careful and comprehensive policies that nurture technological advancements in this field.
I’m optimistic that the latest advancements in the U.S., as well as persistent public advocacy in the EU and the UK, will lead legislators to understand that the public is seeking and entitled to sturdy, facilitative cryptocurrency regulations rather than continuous limitations.
Boris Bohrer-Bilowitzki is the CEO of Concordium, an L1 blockchain and technology firm. He worked previously as the chief commercial officer for Copper.co and as the senior relationship manager at Newscape Capital Group, both in London. He attended the University of St. Gallen and holds an MBA from IMADEC University.
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2024-09-02 14:11