Pre-COVID, cryptocurrency was still a relatively unknown commodity in mainstream circles and to average consumers. Two years into the pandemic (or post-pandemic, can we say???), that has changed entirely.
Deloitte’s 2021 global blockchain survey highlights the extent of crypto’s emergence – and this survey was conducted only one year into the pandemic, in March/April 2021.
Note: “FSI Pioneers” are respondents whose organisations have already deployed blockchain activities into production and/or integrated digital assets into their core business activities
Remarkably, 76% of respondents believe that “digital assets will serve as a strong alternative to, or outright replacement for, fiat currencies in the next 5-10 years”. That’s quite a staggering number and one that really surprised us, even as crypto enthusiasts.
Deloitte’s survey was fielded across 10 different countries across the globe, with a total of 1,280 respondents.
The most obvious stat jumping off the page is that the bulk of the respondents are drawn from first world countries. This is notable because Bitcoin, and crypto at large, is often said to have additional implications for developing nations with weak currencies. Proponents argue for its potential to offer an escape route for citizens of failing currencies, as seen, for example, in Venezuela.
The biggest adopters on a per capita basis, after all, are Nigerians. We also saw Russian crypto volume spike recently as the ruble tumbled and Bitcoin hit an all-time-high in the currency. So with the bulk of the respondents above, these macro factors are not a concern. These survey respondents appear to be purely focussed on the immediate ramifications for their businesses and industries – and nearly all are centred in major financial hubs, too.
Ramifications of Crypto Growth
In the case that digital currencies do overtake fiat in the next 10 years, it would be hard to believe the market cap of Bitcoin will remain at the current level of $772 billion (equating to $40,600 per bitcoin); surely in that event, it would be closer to the store-of-value that is gold’s market cap sitting at $12.7 trillion (equating to over $600,000 per bitcoin).
A genuine alternative or replacement to fiat would entail broad ramifications; this would transform foreign policy and the FX market. What would happen if another war akin to Russia/Ukraine – with crypto a viable alternative, could the world still leverage economic sanctions to restrain the war effort? How many companies will go full-Tesla and hold Bitcoin on their balance sheets? How many sovereign funds will have followed El Salvador’s lead?
Respondents had “at least a general understanding of blockchain, cryptocurrencies, and digital assets”. Thus, given so many in the real world still don’t possess even vague knowledge about the intricacies of how blockchain technology works, we can perhaps expect this 76% to be a little bloated. However, it’s an enormous number to begin with, so even diluting that down conservatively, one can still draw a poignant conclusion.
The role of digital assets
As there are now more than 12,000 cryptocurrencies, the range of use cases is vast. Asset custody perhaps takes a predictable place as the top forecasted use case, however the use cases in second and third – new payment channels and diversifying investments/portfolios – present as much more disruptive and intriguing scenarios.
Over 40% of respondents believe crypto will have a role in their organization in these areas – suggesting a world where pension funds routinely hold cryptocurrency, or invoices and revenue are settled in crypto.
“Diversifying investments/portfolios” is undoubtedly most likely to be a role fulfilled by Bitcoin, however the world’s biggest crypto may not necessarily be best placed to deliver on the use case of “new payment channels”. While Bitcoin’s lightning network has been making tangible progress in regard to scalability, there remain a host of cryptos specifically dedicated to streamlining the payment process.
Bitcoin was the first cryptocurrency, and blockchain technology has evolved significantly since then. While proof-of-work is necessary to maintain the hardest form of money and facilitate the creation of a reputable store-of-value asset, there may be other blockchain mechanisms, such as proof-of-stake, which could suit a payment process better. However, for now, this is all speculation – perhaps Bitcoin will dominate the payment space too.
The consequences here will likely be seismic for the industry at large. Middlemen claiming fees on all sorts of expenses (credit card payments, asset custody, international transfers, remittances, liquidity providers to name a few) will see their industries upended, while speed and efficiency could improve as fragmented industries become streamlined – if, and it’s a big if – crypto delivers on its promise.
Barriers to entry
So, what is making people think twice about the inevitably of cryptocurrency mass adaptation?
Unsurprisingly, regulatory barriers place highly, with 63% of respondents citing it as the biggest obstacle to the use of digital assets globally. The financial services industry is one of the most heavily regulated in the world, and the back-and-forth between users and regulators frequently makes headlines.
While many assume that regulation will catch up with crypto and a natural middle ground will be found as the industry matures, perhaps more surprising is the fact that cybersecurity places above regulatory concerns in first place. Crypto has come a long way from the days of seemingly daily high-profile hacks, such as the Mt Gox hack in 2014, and constant links to the dark web and illegal criminal acts.
However, this data reinforces the fact that crypto still represents an enigmatic and murky asset class to the majority. Anonymous, irreversible and highly complex, blockchain assets still intimidate many unimitated with the technology. Coupled with the frequent media headlines, such as this CNN article outlining that scammers took off with $14 billion in 2021, it’s no surprise fraud features so highly.
· Over 75% of financial services industry (FSI) respondents strongly or somewhat agree that their organization will lose an opportunity for competitive advantage if they fail to adopt blockchain and digital assets
This above stat we find especially interesting. It highlights how the speed of crypto adoption over the last two years has put businesses on notice. Crypto has come from almost nothing to a topic which graces financial news sections daily, for better or worse. As with any great disruption, especially when technology is involved, there will inevitably be losers, as companies and industries transform as a result of the advances.
This goes beyond companies, too – the biggest Bitcoin bull of them all, El Salvador President Nayib Bukele, claims soon it will be irresponsible for countries not to own Bitcoin, such is its scarcity and inevitable price increase. When we see 75% of respondents opine that their companies may lose an edge if they don’t give in to the technology, it draws up reminders of the social media revolution sweeping business last decade, or the Internet at large before that.
There’s no doubt that this data paints an extremely bullish picture for the continued growth of cryptocurrency.
While we need to remain cognisant that the demographic here perhaps is more crypto-centric than the average citizen, it’s still very promising for digital asset enthusiasts. It’s yet another signal of the legitimacy that cryptocurrency has achieved as an asset class in the mainstream eye.
The ramifications of some of the above predictions are enormous – make no mistake, the financial and monetary environments at large would be completely transformed.
However, whether these opinions come true or not, and to what extent, is a different story. I guess we will have to wait and see – but it should be a fun ride either way.