2020 brought about 2 main events in the blockchain and digital assets space: firstly, the global pandemic Covid-19, and secondly the “halving” event of Bitcoin.
The global pandemic has wrought massive destruction to the travel and tourist industries, and greatly affected traditional retail and supply chain, numerous industries such as manufacturing, banking & finance, real estate, etc. Droves of people are dying – to the extent that even grave-diggers and hospitals are unable to cope with demand, and funerals cannot even be attended by their families and friends. Even places of worship have been shut down, and the faithful cannot attend in person, and donations cannot be received, causing the clerics to lose their main sources of income. Massive numbers of people are losing their jobs and the financial and economic climate looks bleak for the vast majority of people around the world.
Governments around the world have resorted to giving out massive stimulus handouts to their citizens and rescue packages to businesses and entire industries, and have now realised that their administrative and financial infrastructure is inadequate for many of the initiatives that they wanted to, and have rolled out to help their citizens. This has led to increased calls for CBDC’s (Central Bank Digital Currencies) which are in effect digital money, to assist in distribution of aid packages.
People are getting used to the “new normal” of social distancing, working from home, restricted movements, and businesses and industries getting shut down, and travel being impossible or greatly restricted. Countries are closing their borders and many advise that if you go out of a country, don’t expect to come back anytime soon.
The second huge event that is affecting the blockchain and digital assets space this year, and is happening as we speak, is the “halving” of bitcoin – i.e. the rewards for miners is now dropping from 12.5 bitcoins to 6.25 bitcoins every 10 minutes. This halving event led to a 10x surge in the price of bitcoins over the next 1 year, the last 2 times that this occurred in 2012 and 2016. This means that the supply of a finite asset (bitcoins will only ever have a total of 21 million by 2140 based on its algorithms and coding) is being reduced since there is less new supply (mined bitcoins from rewards is the largest source of bitcoins entering into the open market). This will also greatly affect all other digital currencies since bitcoins have a market dominance at the point of writing, of about 65-70%, meaning that any impact on bitcoin prices will usually greatly affect all altcoin and other digital assets.
What do these 2 things portend in the blockchain and digital assets space then, in 2020 and beyond?
This writer believes that the various factors in the global environment (the push factors), and the halving event’s effect on bitcoins and all altcoins, is that there will be an increased public awareness and interest in the blockchain and digital assets space, and governments around the world will start issuing their own CBDC’s and fiat currency backed stable coins.
- Industries are transforming and going digital
Most businesses that are still operating now, have gone totally digital and employees are working from home. Online collaboration and meeting tools such as Zoom and Webex, and office automation apps and software have seen a massive surge in usage. Traditional retail is dying and only massive online retailers like Amazon are doing well as people cannot even access traditional retail outlets. Venture capital and investments will go into the new growth areas such as digital assets, and the flood of cheap money in the financial ecosystem will lead to massive amounts of new funds flowing into new industries and digital assets, as old investments and industries have a very poor near-term horizon and entire industries and large businesses have been wiped out and are facing extinction and bankruptcy.
- CBDC’s and asset backed stable coins will come to the forefront
Even before Covid-19, China had already announced that their digital Yuan would be ready soon, and many governments were already starting to look into issuing their own CBDC’s and locally denominated stable coins. With Covid-19, the spotlight has been even more focused on this, as it is now a matter of national interest to roll out accessible funds as aid to their citizens. Many reports and articles have been written about people who were awarded stimulus package handouts and cannot even access them due to poor administrative infrastructure. Lines to collect benefits extend to many hours, and cars break down in queue as they have overheated while their drivers wait in line for handouts. It is therefore entirely likely that many governments will start issuing CBDC’s in the near future, and when that happens, stable coin usage will spike worldwide as people become familiar with digital money.
- The market capitalisation of crypto-currencies will rise to many trillions
Once CBDC’s and stable coins come into the picture, and entirely in line with bitcoin’s historical date from 2012 and 2016, when halving events occurred and the prices of bitcoins spiked thereafter to new heights, it is extremely likely that in the near future, the crypto-currency industry’s market capitalisation will grow in the single or double digit trillions. Gold currently has a market capitalisation of over US$8 trillion, and crypto-currencies are more flexible and cover more usage and industries, and should rise to be as large as other asset classes like equities and real estate.
- The public will have greater awareness about blockchain and digital assets and will start to use more of these
Being forced to go digital and increasingly using CBDC’s and stable coins, will get the world to become more comfortable with the usage of digital assets and the idea of the blockchain and crypto-currencies. Just as with the advent of the internet and ecommerce 20+ years ago, when people newly exposed to these things swore that they would never make an online purchase, with the world now going full digital and money itself existing in digital formats, paying for things online will become ubiquitous and everyone will get used to digital money instead of the old form of physical money.