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 Matveev, Wirex
Bearish forecasts will shift cryptocurrency from its focus as a trading asset to its application in payments.
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.
By 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.
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.