The cryptocurrency market has faced its fair share of challenges and skepticism, leading some to believe that the market has completed the stage of development and growth and has moved into the stage of stagnation.
Recent events, such as the fallout from the collapse of FTX, Terra USD, and LUNA, and the bankruptcy of Celsius, Voyager Digital, and 3AC, have triggered a new wave of skepticism and led to a decline in sentiment. Plummeting prices and the devastating impact this has had on personal finances have left many once again questioning the viability of the blockchain dream. However, is everything really that pessimistic?
Amidst eye-catching headlines highlighting stories of disappearing assets and unstable stablecoins, what is truly happening in the crypto market? What are the underlying dynamics, and what do the prospects for the future look like?
Just as the internet faced slow adoption in its early years, cryptocurrencies are still in the early stages of global acceptance. Remarkably, Bitcoin, the pioneering digital currency, is currently used by less than 2.5% of the world’s population. This figure is reminiscent of the internet’s usage in 1997, over a decade after its introduction in 1983. Forecasts for internet adoption were also pessimistic, dismissive, and ultimately proven incorrect.
Drawing a parallel with the internet, by the year 2000, the global adoption rate had grown to 5%. That is one of the reasons why analysts foresee Bitcoin and other cryptocurrencies following a similar trajectory in the coming years, at least up until 2030. The graph below clearly depicts this.
Although history does not repeat itself precisely, it offers valuable lessons. The growing ownership of digital assets and the increasing adoption of blockchain technology by individuals and institutions subtly hint at more to come. And as user numbers rise, transactions and turnover follow suit, contributing to the expansion of market capitalization and the value of cryptocurrencies (hence, more investment opportunities).
Drawing an analogy with other markets, it becomes evident that the cryptocurrency market, currently valued at around $1 trillion, is rather small. For instance, the gold market stands at $13 trillion, the timber market at $632 trillion, and the stock market at $108 trillion.
This difference indicates the potential for the cryptocurrency market to expand its share as assets could be transferred from other markets.
For instance, Oracle now offers an on-premises blockchain solution that enables organizations to run blockchain as a software appliance. Samsung leverages blockchain-based security to fortify its network of devices, ensuring a safer user experience. JPMorgan successfully executed a cross-border transaction using DeFi on a public blockchain, showcasing the transformative power of digital assets in capital markets.
Moreover, Walmart’s trademark filings related to blockchain, cryptocurrencies, NFTs, and the metaverse hint at its interest in Web3 technologies. McDonald’s has also revealed plans for digital-based products, including virtual restaurants, as indicated by its trademark applications. The market is experiencing major advancements and adoptions in the field of regulation, the list of companies participating in blockchain technology expands further, given that it continues to demonstrate its versatility through diverse use cases, strategic partnerships, and internal development efforts.
Furthermore, data shows that despite recent fluctuations, global adoption of cryptocurrencies has continued to grow.
There has been a recent plateau in growth after a period of steady increases since mid-2019. Still, a considerable number of the participants who were initially drawn to the market by surging prices in 2020 and 2021 have remained actively involved.
The number of registered accounts increased from 100 million to 420 million
The number of registered accounts increased from 100 million in 2021 to 420 million in 2023, which signifies the interest and trust of users, despite the volatility in the market. More individuals seem to view the crypto market as a legitimate investment opportunity, allocating a significant portion of their funds to digital assets and moving away from speculation. This resilience reflects the market’s evolution and its growing acceptance among investors seeking long-term value.
The growth potential of the cryptocurrency market, particularly its capitalization, is not solely reliant on investor forecasts. Concrete evidence points to significant developments within the industry, including the entry of prominent financial institutions. A notable example is BlackRock, the world’s largest asset manager, which filed for a Bitcoin exchange-traded fund in June 2023. This would allow investors to gain exposure to Bitcoin’s underlying market price without directly purchasing the asset.
Following BlackRock’s lead, other financial investment firms, such as ARK Investment Management, Valkyrie, WisdomTree, and Invesco, have also refiled for spot BTC ETFs. This wave of initiatives on Wall Street underscores the growing interest in providing investment vehicles that track the performance of Bitcoin and the digital asset market, in general.
The encouraging news is that some shifts have been successful. While the approval of a spot Bitcoin ETF by the U.S. Securities and Exchange Commission is pending, the regulatory landscape has seen progress, with the acceptance of ETFs tied to Bitcoin futures, such as the Volatility Shares 2x Bitcoin Strategy ETF (BITX).
Why does that matter? The news is positive for large-scale investors that prioritize regulated products, including multimillion-dollar family offices. So, as more investors, both retail and institutional, enter the space, liquidity is expected to increase, contributing to market efficiency and stability.
Before the advent of index funds, investors had limited choices when entering financial markets. An index represents a collection of stocks, currencies, or other financial instruments that encompass a specific market or asset group. By investing in an index, you acquire a diversified set of promising assets that are at the forefront of that particular market. In the case of the stock market, they could either select individual stocks themselves, relying on brokers for transactions, or they could opt for mutual funds. Enter John Bogle, founder of Vanguard. Bogle challenged the industry, arguing that the fees associated with mutual funds were excessively high and that they often failed to outperform the market. In response, he introduced a new type of mutual fund—one that aimed to purchase and hold every stock or bond on a major index while driving fees down to the lowest level possible.
These innovative investment vehicles have emerged as the most sought-after approach for generating profitability in the market. 2016 was a notable year when investors worldwide were withdrawing over $300 billion annually from actively managed funds and allocating more than $500 billion per year into index funds. Over the past decade, the amount invested in index funds has surged to $11 trillion. And by 2019, passive funds, including index funds, matched active funds in terms of total investment. Today, index funds such as Vanguard and Black Rock have attained the status of the largest funds in the world.
This financial revolution has undeniably benefitted investors, and now, the same principles that drove the success of index investing in traditional markets apply to cryptocurrencies. With the convenience of crypto indexes and the promising prospects of the market, investors find themselves in a favorable position. As long as they proceed with caution, it might be a good time to start taking advantage of the collective performance of multiple coins and their capacity to smooth out volatility and capitalize on the cryptocurrency market’s growth.
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