Five key pointers to the long-term future of cryptocurrency and Bitcoin
Is crypto about to go mainstream? Here are the factors that might transform its future
If the events of the past few weeks have taught us anything it is that cryptocurrencies in general, and Biticon particular, are capable of some real surprises.
At a time when it seemed as if Bitcoin was bumping along, and if anything on a downward trajectory, on October 25 it suddenly began a three-day spurt which saw its price rise from $7.5k to $9.5k.
Once again the coin media is full of bullish commentators making optimistic statements about how Bitcoin will not just climb above $10k but also eclipse its highest figure of 2019 of $12,920.
Admittedly a sustained crypto climb is not a trend that everyone believes will occur. Dmitry Lazukov, head of trading at Currency.com, said: “We believe that we won’t see any stable trends this year in Bitcoin, rather there will be a lot of volatility and opportunities to speculate. There can’t be stagnation as there is too much hype around Bitcoin and the number of crypto traders is growing. Yet there can’t be trend to the moon either.”
Assuming though that Bitcoin will finish 2019 somewhere between $9-11k, what are likely to be the factors that will influence its price in 2020 and beyond? Here are five pointers to the future of cryptocurrency which will ultimately shape whether over the medium to long term digital coins become a very worthwhile investment.
Is crypto about to hit the mainstream?
Three years ago I walked past a fish and chip shop in the East Anglian seaside town of Lowestoft and noticed something very unusual. The menu in the window said that you could pay for your cod and mushy peas in either pounds sterling or, surprisingly in a place not exactly noted for financial innovation, Bitcoin.
Yet what was a novelty back then is now edging towards the mainstream. There's a growing number of retailers across the globe who are happy to take payment in cryptocurrency.
As Josh Riddett, Easy Crypto Hunter CEO, a crypto mining expert explains: “In New Zealand, salary payments are currently being offered in cryptocurrency and it won’t be long till this trend reaches the UK.
“Lamborghini, some Microsoft stores and Whole Foods, which is owned by Amazon, already accept cryptocurrency as payment. This is just the start; we will start to see more and more companies accepting cryptocurrency over the next few years. Even today there are contactless cards that exist that will convert your cryptocurrency into sterling so that you can pay for a pint at a bar, just like you can with your bank card.”
What will be fascinating is if supermarket chains, coffee shops such as Starbucks and fast food outlets such as McDonald’s start accepting cryptocurrency as a form of payment. It is not likely to happen in the next couple of years. Yet if it does happen it will increase the accessibility and popularity of Bitcoin and inevitably push its value upwards.
“It will be a natural progression into paying via cryptocurrency,” argues Riddett. “20 years ago, paying with cheques and cash was commonplace whereas now contactless payment has taken over. In the next 10 years we will see a similar transition from payment with sterling to payment with cryptocurrency” he adds.
Crypto evangelists believe it won't be just retailers who begin to help nudge Bitcoin and crypto toward the mainstream. Earlier in 2019 Facebook unveiled its Libra cryptocurrency which some pundits have predicted could end up as a leading global currency with the social platform as the world’s premium bank.
Mainstream financial institutions have also begun to take crypto more seriously. As Sean Sanders founder of crypto specialists Revix explains “Within the past 24 months global heavyweight institutions like Lloyds of London have entered the crypto custody game, the NYSE’s parent company has launched an institutional physically settled Bitcoin futures exchange called Bakkt, Fidelity – which holds $2.46 trillion in client funds – has opened a digital assets division.”
At the present time crypto does appear to be on a steady trajectory towards the mainstream, but there are a few obstacles on the ways namely...
Will crypto be outlawed by big regulators?
Nothing spooks crypto investors more than the possibility of one of the bigger, richer countries threatening to outlaw digital coins. Conversely positive news sends the price of crypto upwards.
There is little doubt that Bitcoin’s recent price fluctuations owe much to upbeat noises coming out of China. In particular statements by China's president President Xi Jinping that the country should "seize the opportunity" of Bitcoin's blockchain technology.
"We must take the blockchain as an important breakthrough for independent innovation of core technologies," Xi told the 18th collective study of the Political Bureau of the Central Committee in Beijing.
We shouldn't forget that in 2017 China banned Bitcoin and cryptocurrency exchanges and Xi's blockchain comments have been perceived by some analysts as a sign the country could ease Bitcoin and crypto restrictions.
It is not just China though. At the same time as more countries adopt tighter and rigorous controls on cryptocurrency thereby, in theory, creating a structure for digital coins to thrive, so the price of crypto will rise.
In the short term innovations like Exchange Traded Funds (ETFs) being approved by major world economies will give traders a degree of flexibility while at the same time reassuring them by giving them more formal ways of trading.
In the US the country’s Securities and Exchange Commission recently rejected another attempt at a Bitcoin Exchange Traded Fund (ETF) over concerns of transparency issues and market manipulation. This is a disappointment for as Christel Quek – the Co-Founder and Chief Commercial Officers at mobile wallet company BOLT.Global points out.
“Crypto markets have been closely watching each ETF application for any signs of progress as it is hoped that a US Bitcoin ETF would provide traders and investors a more formal access to the cryptocurrency than going though the various crypto exchange platforms.”
Yet surely it is now only a matter of time before one application gets approved.
Meanwhile a number of countries across the globe have been working on addressing what for many potential readers is a key stumbling block to investing in crypto - trust.
“The Blockchain Act just ratified in Liechtenstein, is so significant, “ argues Bittrex Global’s CEO, Kiran Raj. “It provides a new framework for the token economy, one with greater oversight plus asset and investor protection. It’s a sign that regulation is a catalyst and not an inhibitor of innovation – and an indicator that Europe is quickly spearheading the blockchain revolution.”
Liechtenstein is just one of a slew of countries that have either approved or are working on blockchain/crypto legislation to create a framework for local investors. Others include San Marino, Switzerland, Belarus and Malta.
For other countries creating a legislative framework for blockchain and cryptocurrency is driven by a need to recalibrate monetary systems, such as in Venezuela where the government is trying to rebuild its economy on a cryptocurrency model.
Ultimately then regulation needs to help push cryptocurrencies from the periphery of financial systems.
“If cryptocurrencies are to become mainstream, technical improvements are needed,” argues Teunis Brosens, Lead Economist for Digital Finance and Regulation, ING. “But to gain trust and acceptance beyond a core group of enthusiasts, affiliation with existing well-known brands would help. In short, cryptocurrency would need to present itself to potential users from within the existing financial framework, instead of placing itself outside.”
Is a rationalisation of crypto coming?
At the current time there are around 2,000 cryptocurrencies across the globe. And not just the high profile ones like Bitcoin, Ethereum, Ripple and Facebook backed Libra. There is even a growing trend for local cryptocurrencies, for example in Wales which recently introduced a digital coin framework based on a model imported from Italy.
Yet there are high profile crypto watchers who think that a cryptopocalypse, in which many of the nascent currencies are blown away, is inevitable.
One such cynic is American economist, academic and avowed crypto sceptic Nouriel Roubini who told delegates at the recent CC Forum conference in London said he was adamant that in years to come there won't be thousands of cryptocurrencies competing with fiat across the globe.
Another panelist at the event, Brock Pierce, an entrepreneur who is chairman of the Bitcoin Foundation, also thinks that a cryptopocalypse is on its way. He argued that, as with early internet start-ups, 99 percent of crypto projects will fail. Yet as the internet gave us eBay, Amazon and others, so some crypto projects will emerge and become highly influential.
The rationalisation of cryptocurrencies could potentially be a good thing for the price of the larger cryptocurrencies. It might speed up a process whereby one, or more likely a handful of cryptocurrencies, become truly global currencies and rivals to leading fiat currencies like the dollar and the euro.
What economic factors could impact crypto?
There are many analysts in both the mainstream financial and the crypto worlds who fear that the world is on the verge of a major economic slowdown. Factors like a US/China trade war, the fallout from Brexit and a populist politician-fuelled backlash against notions of globalisation and the trading of goods and services, could seriously impact the world’s economy.
Even the former Bank of England governor Mervyn King was prompted to warn that the world is sleepwalking into a fresh economic and financial crisis that will have devastating consequences for the democratic market system.
How then might this impact on the price of cryptocurrencies in the coming three to five years?
Crypto advocates tend to argue that the explosion of cryptocurrencies, and the disparate nature of crypto more generally, can help shield investors from the worst effects of the downturn, as they have more places to diversify. Assuming they have concerns about stocks and shares crypto presents them another place to invest alongside safe and steady assets like gold.
At the CC Forum event Brock Pierce admitted to a “very nervous outlook” that made him a big advocate for gold and crypto. He acknowledged that the latter is still not ready for the average investor but added: “I still have great hope it will innovate and make things easier for the average consumer, but I too am a big fan of hard assets and not a fan of stocks and bonds.”
It is a view that chimes with the crypto hardcore, but other traders might have issues with it.
Kyle R. Chapman, a Partner at COSIMO Ventures, wrote recently for Barrons “Because its supply is not controlled by any one person or entity, it’s more likely that Bitcoin will perform independently of broad market pressures (akin to how one would expect gold to react) – potentially even appreciating in value should demand for alternative forms of dependable value storage arise.”
He adds though this might not be the same for Ethereum. “By contrast, Ethereum is far more likely to follow market trends. That’s because its platform allows other companies to build products on top of the Ethereum protocol, putting significant onus on mainstream investors to keep products afloat. If the investors suffer, the companies suffer, which causes Ethereum to suffer as a result.”
A downturn might also spur countries into simplifying things for crypto investors by introducing regulatory frameworks and encouraging opportunities like ETFs. Obviously the world has never undergone an economic recession during cryptocurrency’s short existence, so there is little economists can refer to in the history books while making predictions.
How will technology impact on Bitcoin?
One key area which will impact on how cryptocurrencies evolve in coming years is technology. Incremental improvements in the technologies that underpin blockchain and crypto are sure to have a positive effect in increasing trust in systems, speeding up transactions and creating stable environments for investors.
Yet that is only part of the picture. Artificial Intelligence could certainly play a role in helping investors predict crypto fluctuations.
In a fascinating article published in Phys in the summer Nikola Gradojevic of the Gordon S. Lang School of Business and Economics at the University of Guelph, decided how his team combined Bitcoin technical analysis and neural networks to find patterns among the Bitcoin price data that allowed them to more accurately predict future returns.
“Compared to other predictive models, our Artificial Neural Networks provided the most accurate and reliable predictive method for Bitcoin. We concluded that the historical evolution of daily Bitcoin prices followed predictive trends (or bubbles) that potentially arise from the speculative nature of cryptocurrency trading.
“We believe that the future of forecasting Bitcoin – and perhaps investing in general – lies in the abilities of artificial intelligence and artificial neural networks. While people may argue over the merits of Bitcoin as a currency, we can at least appreciate it as a fascinating – and now easier-to-predict – commodity.”
Further down the line though quantum computing could create new challenges for both cryptocurrency and blockchain
“Bitcoin, like other crypto currencies, is underpinned by Elliptic Curve cryptography,” explains Andersen Cheng, the CEO of cyber security company Post Quantum. “While Elliptic Curve is secure today, but which will become vulnerable once quantum computers develop further as they are able to run Peter Shor’s algorithm. Shor’s algorithm can factorise very large prime numbers which is the key problem facing crypto currencies. In a sense, Bitcoin is in a similar position to all the world’s encrypted systems in that the cryptographic approach will need to change or be supplemented by a quantum-safe ‘wrapper’. Blockchain hashing is actually quantum-safe. However, the signature scheme for validating and making a transfer isn’t. When a quantum computer is powerful enough to replicate a private key, the hacker can start signing Bitcoin transfers and that trust will be destroyed when the recipient can no longer tell if the transfer came from the rightful owner.”
While it will be many years before a commercially viable quantum computer is available, Cheng thinks that the concern will be when they are tested under lab conditions.
“The “lab” will most likely keep it quiet even if it has a working quantum computer, as the creator will be able to start signing crypto transfers before anyone notices. For a system like Bitcoin all that would need to happen to cause widespread panic is for it to become public that a quantum machine had been developed, at which point the value of
Bitcoin would drop to zero immediately. It is well known that nation states across the world are pushing hard to develop quantum computers, as well as leading tech firms that are making services available via the cloud.”
Cheng and his team are among many individuals and companies looking at ways of addressing this issue, but it does highlight the potential fragility of digital currencies as the world adopts ever more powerful and sophisticated technology.
There are clearly many factors which will impact on the future of cryptocurrency and especially Bitcoin. Yet when a mainstream bank like ING has positive things to say about its future it does inspire a degree of optimism.
“Cryptocurrencies remain a volatile and largely speculative asset but won’t necessarily stay this way forever,” says Jessica Exton, Behavioural Scientist, ING. “As for whether crypto is on its way to becoming the new cash: we see uptake of all payment and investment options as they prove relevant and useful continuing. Diversification is therefore more likely…. at least for now.”
“Crypto is notorious for being hard to predict over relatively short-term periods but if one looks at the long-term price of Bitcoin, it’s hard to see the price going anything other than up, especially with the halving on the horizon in 2020,” concludes Lee Hills, CEO of blockchain regulatory specialists SolutionsHub.im
“With that in mind, not only is $50,000 BTC by 2021 realistic, I believe it to be conservative.”
In less than two years we will discover if he is right...