Since 2009, when Bitcoin was first created, the technology has spawned tens of thousands of digital currency enterprises, creating a good investment environment.
Investors now come in several varieties. What was once a tiny group of nerdy believers is now a varied mix of individuals, including cypherpunks, mainstream corporations, and significant investors.
Experts told CoinDesk that, as cryptocurrencies gain traction as an investment asset, investors are expressing interest in a more extensive array of crypto assets outside bitcoin.
Move away from “digital gold.”
Ajit Tripathi, a former investment banker at Barclays and Goldman Sachs and, until recently, the head of institutional business at Aave project, asserts that the landscape for institutional crypto investors has shifted dramatically in recent months.
Tripathi told CoinDesk in an interview, “I’ve been talking to some sovereign fund [managers] last week, and they [have] started making token investments.” Most of these investments would be in bitcoin and crypto-exposed venture funds, including Pantera and a16z. Alternatively, a portion of this allocation might be invested in lesser cryptocurrencies.
Due to the “inflation hedge” and “digital gold” storylines, bitcoin formerly appeared to be the safest wager. In addition, bitcoin was one of just two crypto assets cleared by the US Securities and Exchange Commission of regulatory hazards. Tripathi stated that the surrounding narrative of bitcoin is shifting and that the focus is gradually shifting to newer initiatives, including ether, MATIC, ATOM, and SOL, as well as gaming and DeFi tokens.
The co-founder of payment firm Flexa, Tyler Spalding, concurs. According to him, institutional investors are becoming increasingly interested in tokens created by decentralised trading protocols such as Uniswap, Compound, and SushiSwap.
Tyler Spalding – Co-Founder @ Flexa. Image: On the move
Stablecoins as opposed to CBDCs?
Stablecoins are an essential component of the crypto market architecture. The two largest stablecoins backed by the dollar are tether (USDT) and USDC.
According to Eswar Prasad, professor at Cornell University and former International Monetary Fund (IMF) official, stablecoins may soon face competition from central bank digital currencies (CBDC).
“The emergence of CBDCs and the displacement of cash by CBDCs will almost certainly become a reality. We already see China, Japan and Sweden central banks initiating experiments with CBDCs. I suspect all of these economies will issue CBDCs in the next three to five years,” Prasad told CoinDesk.
Unlike stablecoins based on decentralised, permissionless ledgers such as Ethereum or Tron, central banks prefer controllable ecosystems. John Kiff, a former senior financial sector specialist at the IMF, opined that once CBDCs are in place, there is minimal likelihood that world governments will let stablecoins be on par with them.
He stressed that private stablecoins will always have a role in grey market use cases and capital control evasion. However, a larger market will likely be exclusive to stablecoins, according to Kiff: tokenised securities.
Kiff stated that several nations are already experimenting with issuing securities on blockchain and settling them with digital currencies, such as the recently tested Helvetia initiative by the Bank for International Settlements, Swiss National Bank, and SIX Exchange.
He anticipates the expansion of such programmes in the coming years, particularly in emerging economies. However, he warned in industrialised economies with sophisticated securities markets that it would take some time to put all infrastructure on the new tracks. According to Kiff, we will only see a limited pilot of this type in the United States in the next three to five years.
Christopher Giancarlo, former head of the Commodity Futures Trading Commission and nicknamed “Crypto Dad” for his positive attitude towards cryptocurrencies, feels there is an opportunity for “healthy rivalry” between CBDCs and privately produced stablecoins “at least in the free world,” he added.
Ex-CFTC Chair ‘Crypto Dad’ Giancarlo. Image: CoinDesk
Ajit Tripathi disagrees, arguing that CBDCs would find little practical application in industrialised countries, whereas privately produced stablecoins will become a fundamental banking component. They will be far more regulated than they are currently and will likely resemble banks in terms of regulation. Tripathi stated, “And then, as long as you follow the rules, you are a part of the payment rails,”
Tripathi believes it will be one to two years before stablecoins get banking licences or a comparable regulatory standing.
The rail builders
What are the implications for investors? As the technological and legal framework for the next generation of digital payments is established, those building that infrastructure and those investing in the builders will gain from the shift.
Kiff said that investors might be interested in projects developing enterprise solutions on Ethereum or R3’s Corda, which have been highly popular for CBDC pilots worldwide. He stated that projects like Stellar, Algorand, and Avalanche might be viable options for providing governments with CBDC technology.
Decentralised protocols with their governance tokens, such as Compound or Uniswap, will become ultra-successful in the coming years, according to Flexa’s Spalding, if they adopt a revenue distribution scheme similar to that of regular corporations with their shareholders.
Alex McDougall, CEO of the technology firm Stablecorp, believes the industry will devise viable, “hardened, proven, and contested” decentralised governance models over the next seven to ten years. However, these models will take up to 20 years to weather anticipated legal and regulatory fights.
In the meantime, companies building bridges between blockchains, fiat currencies, and trading platforms, though not necessarily decentralised, will reap the rewards, releasing the “trillion dollars of friction tax locked up in the financial services system right now,” according to McDougall.
Bitcoin standard persists
According to analysts, these patterns do not indicate that market capitalisation’s oldest and largest cryptocurrency has lost its appeal to investors. If anything, it is regarded as the standard of the cryptocurrency market, not as lucrative as other currencies but not as risky.
Bitcoin will certainly maintain this position, especially if it clings to its origins, the proof-of-work system, although we grumble so much about it, as Kiff put it. He noted that bitcoin remains the most decentralised cryptocurrency.
Bitcoin will maintain its position. Image: Jaruwan Jaiyangyuen – Shutterstock
Former CFTC chairman Giancarlo stated that recent weeks had highlighted an intriguing trend: Over the past year, while the US dollar has strengthened, other global reserve currencies have weakened. Not bitcoin, however. While British merchants have been selling pounds to purchase dollars, bitcoin continues to trade in a tight range of around $20,000 per coin.
Traders do not sell bitcoin to purchase dollars in the same way that they sell yen or pounds. When many traditional currencies lose value during global economic hardship, bitcoin does not.
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