When Will Cryptocurrencies Go Mainstream?
In early March 2023, Amundi, the largest French asset management company, released a Thematic Paper analyzing the future of cryptocurrencies after the crisis.
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Investors seeking to diversify their portfolios were affected by the initial perception of a decline in cryptocurrency prices in 2022, the Luna crash, and FTX's bankruptcy, according to Amundi. Even more, it reinforced investors' concerns about the high volatility of the young market and the lack of regulation, confirming their apprehensions. Furthermore, analysts interpret this decline as a more intensified version of the traditional market crisis, and the rise in Bitcoin prices at the beginning of 2023 only reinforces their beliefs about the strong correlation with risky assets. However, Amundi believes that the crisis creates opportunities for crypto investors.
Macro factors for 2023
As the trend of increasing key rates due to high inflation continues, investors do not expect positive news. However, once the trend reverses, it could create a favorable environment for the rise of cryptocurrency prices, especially Bitcoin, despite its failure to protect investors' assets in 2022.
Cryptocurrencies can be adopted by banks, financial institutions, and companies across different sectors of the economy, resulting in new opportunities for crypto development. Companies can create new cryptocurrencies, support existing ones, or pursue other initiatives such as payment systems, asset tokenization, lending, and integrating NFTs into their products. This could lead to innovative and exciting possibilities, breaking away from the trend of NFTs mainly being used in digital art and collectibles in 2021.
Amundi points out DeFi services and decentralized applications as promising areas. According to the company, as technology advances, these services may gain wider adoption and receive new financing. This will enable them to become less dependent on centralized control. Most of these projects are controlled by developers or major investors who hold the majority of the project's tokens, allowing them to block community initiatives.
Amundi urges governments not to negatively view cryptocurrency development. As an example, they point to the case of El Salvador, which is considering converting a portion of its reserves into bitcoin or legalizing it as a legitimate means of payment. While the impact of small countries on the crypto market may not be enough to sustain a prolonged bull run, such news can still be a positive development at a local level.
Amundi identifies CBDC as the final factor, distinguishing it from cryptocurrencies by highlighting that it does not have to use blockchain technology. It is sometimes designed to respond to cryptocurrency challenges, such as private stablecoins. Nevertheless, CBDCs can encourage new developments and engage the public in learning about digital assets.
Virtue flourishes in misfortune
A number of analysts and organizations in 2022 declared cryptocurrencies to be fake assets and called for them to be blocked or heavily regulated. Amundi, however, strongly disagrees and presents compelling arguments to debunk this claim:
1. Investors should see the crisis as a cleansing process, ridding the market of bad projects and unrealistic expectations. This will ultimately lead to more realistic goals. This is a common occurrence among technological stocks before they reach their current heights. Furthermore, this isn't the first time Bitcoin has experienced a significant drop in value. People have been quick to declare it dead, yet time and time again, its price has bounced back stronger than ever, reaching new heights.
2. Despite the crisis, Ethereum has transitioned from PoW technology to a new PoS consensus algorithm. As a result, it has reduced its energy consumption and improved its reputation within the environmental community. Nowadays, almost all top-level cryptocurrencies operate on PoS technology. Thus, the energy consumption issue now mainly pertains to Bitcoin rather than all cryptocurrencies.
3. The 2022 crisis not only left cryptocurrency principles unscathed – decentralization and transaction immutability – but also strengthened them, as all negative events were linked to centralized third parties such as exchanges, lenders, and hedge funds. These entities brought with them typical fraudulent financier behavior: excessive leverage, poor risk management, and outright scams.
4. Despite a downturn in institutional investors' interest, it has not vanished entirely. In 2022, BlackRock acquired a stake in Circle and integrated its Aladdin platform with Coinbase, demonstrating that price pressure has not hindered potential investments in cryptocurrency development.
5. Regulation is often viewed as a negative factor, but in reality, it can be a positive signal for the crypto market. In the past, direct prohibition of cryptocurrencies was on the table in several major economies, but now regulators are pushing back against this idea. While creating global rules is a challenging task, it's only a matter of time until the crypto sector receives stable regulation. This will provide a solid foundation for its growth and development.
Cryptocurrency's Journey to Mass Adoption
Amundi believes that even if global regulation is established and the various risks associated with cryptocurrencies (fraud, hacking, environmental impact) are reduced, there is no guarantee that they will eventually become mainstream. Many experiments in different sectors of the economy, from finance to medicine, have yielded positive technical results but have failed to gain mass-market adoption. If the trend continues, investors may eventually lose interest in the crypto industry. The exception is Bitcoin, which is viewed as a store of value rather than a decentralized application asset.
Asset tokenization offers numerous possibilities for different operations with traditional assets, making the financial sector the most suitable for this purpose. However, despite the vast potential for innovation, new projects have faced difficulties displacing earlier solutions and gaining substantial market share due to a range of challenges, such as legal, technical, and political issues.
Project creators should spend more time promoting blockchain and cryptocurrency technologies to regular users, as these technologies have tremendous potential in a variety of economic sectors. However, the problem may simply be that cryptocurrencies need more time to become mainstream, as previous technologies.
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