Everyone knows the story. When the first Bitcoin Block (BTC) was mined, the protocol itself entered a world of grave economic uncertainty. Just before the market hit its lowest point in the 2009 recession, Bitcoin was created quietly and dropped like a life raft alongside a then-declining economy. The now infamous phrase “Chancellor on the verge of a second bailout for banks” has been removed from the headlines and immortalized in the history of one of the most convincing, innovative and powerful assets of the last decade in the code.
But Bitcoin didn’t immediately establish itself beyond a small community of true believers. Bitcoin and digital assets have generally been a lot in their relatively short history, from purely speculative investments and “magic internet money” to a safe haven in times of crisis and an attractive hedge against “big money inflation”.
Given the COVID-19 pandemic, an associated market collapse, and huge incentives for central banks, cryptocurrencies have proven to be remarkably resilient.
But if we watch vaccines spread across the country, cautiously optimistic that the end of the pandemic is within reach, where will crypto fit into a post-pandemic world? If the history of resilience shows us anything, we expect crypto to adjust to what the next few years will bring – crisis or not.
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Crypto banks
Just three years ago, those in charge of some of the largest banks in the world refused to even talk about Bitcoin in interviews. They called the asset itself a “scam” and labeled those who would buy it “stupid”.
The general sentiment between banks is significantly different today. On the heels of the U.S. Office for Control of Currency Interpretation Letter No. 1170, which specifically states that federally chartered banks can provide banking services to legally operated digital asset companies and hold digital assets on behalf of their customers, banks have searched for the best way to provide their clients with the crypto exposure they demand. We anticipate that older financial players will only become more interested in crypto in the coming years, with crypto becoming a major requirement of financial services.
In the short term, banks will almost certainly rely on subcustody relationships with digital asset specialists to get crypto into their customers’ hands safely and effectively. And that’s because the complexity is easier to cope with on the crypto-native side than the other way around.
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We also expect some acquisitions to take place, with some crypto service providers being swallowed up by banks with pockets deep enough to buy them. With increasing demand for crypto services and increasing clarity of regulations, more and more institutions will step in.
Distribution of decentralized apps
Just as Bitcoin was developed in response to the shortcomings of a legacy system, so decentralized funding has emerged as Crypto’s response to financial intermediaries. Until recently, however, entire parts of this ecosystem were inaccessible to institutions, mainly due to a lack of secure means to participate.
Slowly but surely, DeFi tools are emerging at the institutional level, and we expect this trend to continue. Not only will we see continued spread of DeFi growth, but instruments at the institutional level will make institutional participation far more accessible.
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Despite its significant growth, the DeFi space is still very fragmented. Cross-chain interoperability – or lack of it – is still a problem. Institutions want to be able to deploy their assets across the DeFi ecosystem. We expect significant growth in this area as more and more Layer-One protocols join DeFi and the broader Ethereum ecosystem – a development that, in addition to market stability and efficiency, has the potential to improve liquidity.
Corporate Treasuries and reduced barriers to entry
Against a backdrop of seemingly endless monetary stimulus, many private companies are treating digital assets as an inflation hedge. Some of them, like Square and MicroStrategy, have held significant positions over the past few months. We saw MassMutual buy up $ 100 million worth of Bitcoin. And with Tesla’s $ 1.5 billion purchase of Bitcoin this month, the trend is showing no signs of slowing. In the years to come, we expect digital assets to become an integral part of the balance sheets of private companies.
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Another factor is the lowered barrier to entry in retail. With tools like Celos Valora slated to hit the market, Diem is expected to hit the market in 2021, and companies like PayPal making it easier for their customers to buy crypto, we expect crypto to serve more as a banking tool for non-banks – for the provision of financial instruments in the hands of the millions without access to traditional banking services.
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Beyond the crisis narrative
Crypto appears to be tied into a crisis narrative in response to an economic crisis. In reality, digital assets have proven to be more than resilient, even in tough economic times. Only last year did Crypto prove its worth in a global emergency of once a century and gain a place in the portfolios of institutional and private investors.
As the pandemic (hopefully) moves into the rear view, it’s exciting to think about what crypto can do without being forced into a defensive position – without being defined against old assets like gold. It would be naive to say that crypto will never face another crisis – it almost certainly will. But from here, at the end of the pandemic, it’s exciting to think about what crypto can do in the next “new normal”.
The views, thoughts, and opinions expressed here are the sole rights of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Diogo Monica is Co-Founder and President of Anchorage. Prior to founding Anchorage, Diogo was the security director at Docker – an open platform for building, shipping and running distributed applications. He holds a B.Sc., an M.Sc. and a Ph.D. has published several articles in peer-reviewed IT security conferences on distributed systems and information security and is the author of several patents on secure communications, encrypted hardware and payment systems.
