- In 2020, there was a paradigm shift towards the adoption of cryptocurrencies worldwide. Many central banks have made public their intention to launch or at least explore dominant digital currencies. The move is important to the crypto and blockchain ecosystem as it adds confidence to the idea that this new asset class will stay here.
In 2020, there was a paradigm shift towards the adoption of cryptocurrencies worldwide. Many central banks have made public their intention to launch or at least explore dominant digital currencies. The move is important to the crypto and blockchain ecosystem as it adds confidence to the idea that this new asset class will stay here.
Crypto and legal regulation
The perception of Bitcoin is not the same today as it was a few years ago. For example, JP Morgan, one of the largest investment banks in the US, believes that Bitcoin will compete with gold as an alternative asset in the long run. Indeed, the multinational investment bank claimed that Bitcoin adoption by institutional investors is just beginning and will help the cryptocurrency market grow towards institutional level infrastructure and standards.
For example, we used to think that Visa has a very negative attitude towards cryptocurrency, but turned out to be completely wrong. Actually, they are interested in crypto projects. The problem is that many banks and traditional payment systems need to be trained by crypto firms about their business – we do this to show that there is nothing wrong with the transactions we do. The infrastructure required for the efficient operation of crypto money services is not yet ready, but we are moving steadily in this direction.
While cryptocurrencies are starting to take place in the global financial system, many countries are adapting to the growing trend. China, Singapore, Estonia, Sweden, UK and Japan are some of the countries exploring the idea of promoting their CBDC (central bank digital currencies).
Christine Lagard, head of the European Central Bank (ECB), previously stated that a digital euro would allow the EU to be at the cutting edge of innovation as the EU lags behind in this competition. The idea is that this new technology can be used to make financial transactions more efficient and expand the availability of payment systems to a wider audience.
Cryptocurrencies for cross border payments
Bitcoin meets the characteristics of a store of value asset. Given its basic economic principles derived from limited supply, it can hold the amount invested in it for long periods of time. Such an important feature allows it to maintain its purchasing power and usefulness in the future, despite its high volatility.
But due to Bitcoin’s tendency to price fluctuations, it does not comply with the requirements required to function as a token for international deals. So, if we will see that crypto is being used efficiently for cross-border payments, it will not be through Bitcoin. Instead, I think stablecoins are a better candidate.
Stablecoins are pegged on the value of fiat currencies which helps them avoid periods of high volatility. They are more useful than traditional currencies as they make direct payments possible without third parties, making transactions faster, cheaper and unlimited.
Stablecoins can be programmed to allow for new and more efficient forms of financial services. Transferers with smart contracts can determine in advance how the funds will be used.
While there is some opposition from global leaders to allow the use of stablecoins as they pose a threat to the financial system, the idea of sovereign digital currencies is gaining more and more worldwide attention.
In a few years, we’ll likely see stablecoins regulated by the US. The US dollar is the dominant currency in the world. Since the issuers of dollar stablecoins will be regulated locally by the US, the stablecoins will be managed by the United States as a means of influence in the payments space.
As the whole world seems to be moving towards adopting cryptocurrencies in one form or another, legislation is taking steps to provide a legal framework for regulating these assets. Soon we will see that cryptocurrencies are regulated similar to how electronic money is controlled today.
These efforts will pave the way for enterprise-level infrastructure solutions and encourage crypto adoption on a global scale.
What can we expect from this area in 2021 and beyond?
We have seen an increasing interest in cryptocurrencies among institutional and retail investors, including those not related to the crypto industry. So far, more than 30 publicly listed companies have announced that they hold cryptocurrencies on their balance sheets, with a total amount of over $ 32 billion.
The increasing adoption of this new asset class paints a positive development for the entire crypto industry in 2021 and beyond. Fidelity, a multinational financial services company, argues that as more investors meet crypto, institutional capital inflows will continue to accelerate.
Such demand from high net worth players will press regulators to bring more clarity to the cryptocurrency industry, and this spaceit will allow to continue to grow and develop.