Where is the cryptocurrency industry heading in 2020?
Facebook’s Libra, Chinese crypto... boom or bust?
For the world’s crypto industries 2019 has not been a bad year. Bitcoin started 2019 priced at around $4,000. Twelve months on and it has risen to between $7-8,000, and there are many bullish predictions that it will shoot higher in 2020. Yet those figures only tell part of the story. Some traders may still be waiting to recoup their initial investment in the cryptocurrency given its dramatic price loss of the year before.
Other cryptocurrencies have also seen rises, though nowhere near as dramatic as Bitcoin. The turbulence has meant it has been tricky making cryptocurrency market predictions.
What then does 2020 hold for the cryptocurrency industry? What are the key factors that will change crypto and potentially impact on the price of the coins? What ultimately is the cryptocurrency market forecast for 2020? Here are four events and trends that will change crypto.
1 Libra and other stablecoins
One of the biggest stories of 2019 was Facebook's announcement of its cryptocurrency Libra. Unveiled in June, Libra is a global digital coin that is backed by some of the leading companies in the financial world.
The basics are that Libra is a cryptocurrency (a stablecoin – one that is backed by real-world assets and money to be precise) that lets users buy goods or send money to people with nearly zero fees. Users will buy Libra using fiat currencies and then spend it via third-party wallet apps or Facebook’s own Calibra wallet. This will be integrated into WhatsApp, Messenger and Facebook's own app.
As the year has passed though Libra has become mired with problems. The most notable being the haemorrhaging of some of its highest profile backers including PayPal, Visa and Mastercard.
The company has also insisted that Libra won’t launch until it has approval from US regulators – which some cynics have suggested will mean that it might never even make it out of the starting blocks. Even US President Donald Trump got in on the debate tweeting on July 12 that “If Facebook and other companies want to become a bank, they must seek a new Banking Charter and become subject to all Banking Regulations.”
Nevertheless Libra is slated for a 2020 launch and its arrival is sure to impact on the price of Bitcoin, Ethereum and other crypto coins. Whether that is negatively, as fears Libra might displace Bitcoin, or positively, in that it is seen as validator for cryptocurrency generally, remains to be seen.
Libra is unlikely to be the only new cryptocurrency launched in 2020. On a micro level we will probably see lots of smaller local coins aimed at making transactions easier in specific geographic locations or among defined groups.
On the global stage, one of the big developments could come from Europe. Concerns about Libra have prompted some representatives from the banking sectors in the EU’s biggest territories to moot the idea of a European cryptocurrency. A document looking at the EU’s various options was issued in November and will be discussed by EU finance ministers in early December. The EU’s main concerns with cryptocurrency in general, and Libra in particular, are money laundering, consumer protection, the functioning of payment systems, taxation and cyber security. Though were Libra to be successful long term it could prove problematic for the euro, possibly relegating it further down the list of global currencies.
Even so developing an EU coin would be a radical response and it is one fraught with potential problems.
“At the very least, we need a robust regulatory framework to deal with virtual currencies,” Markus Ferber, a German conservative who leads on financial matters for the largest EU Parliament grouping, told Reuters. “The (executive EU) Commission has been way too complacent on the issue so far. With the threat of Libra on the horizon, it is time for action now.”
2 Re-launch of Ethereum
2019 hasn't been an especially great year for Ethereum. The world’s second-highest profile cryptocurrency, which is also an innovative blockchain-based platform in its own right, has bumbled along throughout the year starting at around $150 and finishing at just over $160.
Ethereum was born from the belief that too much of the world's data is stored on servers owned by the tech giants. Yet for all its promise, very few developers have written decentralised applications using the Ethereum blockchain.
2020 will see another roll of the dice in the guise of Ethereum 2.0, the latest iteration of the technology. This will seek to address some of the core issues that critics believe have been holding it back.
Ethereum 2.0’s most seismic innovation is the shift from mining (as used by Bitcoin) to staking as a way of verifying the blocks of its blockchain. Using a concept called “proof of stake” the new version of Ethereum will reach its consensuses through a set of nodes known as validators. Validators from across the Ethereum network are selected to vote on new blocks semi-randomly with other validators agreeing on the result thereby achieving a consensus.
What this means is that running apps on Ethereum could be cheaper and run faster than on centralised networks. If this turns out to be the case then Ethereum is likely to become attractive and the price of its coin will rise.
If it doesn't work then there is the Ethereum rival Chinese-based Neo, which is currently in the middle of an upwards surge, waiting in the wings.
3 Crypto ETFs
One innovation that could have a profound impact on the future of cryptocurrencies would be the launch of a crypto Exchange-Traded Fund (ETF) in the US. Most ETFs track an index or a basket of assets. Were it ever to be approved a cryptocurrency ETF would track one or more digital tokens, so in theory not just Bitcoin but other coins too. Digital token ETFs would trade like standard stock on an exchange and would be bought and sold in a standard way.
An ETF would create a new cryptocurrency marketplace and make trading in crypto simpler and arguably more attractive to a large number of would be investors. For more risk-averse investors it would add a veneer of respectability to the crypto world and enable investors to track the digital currency market without owning digital coins.
What is your sentiment on META?
Crypto ETFs do already exist – Stockholm-based XBT Providers launched its CoinShares ETF two years ago – but not in the major financial markets such as the US and UK.
In the US the Securities and Exchange Commission (SEC) has indicated that it will not approve cryptocurrency ETFs until the markets demonstrate a degree of stability and security. Quite how they define these terms remains to be seen.
Many companies have tried to launch ETFs and been refused permission by the SEC. There are however more positive noises coming out of the US about a possible crypto ETF, and it is not beyond the realms of possibility that one or more ETFs will debut next year. There is a precedent too in that they are growing number of ETFs that now track blockchain companies.
4 Increasing scrutiny
As we have already seen, the arrival of Libra is likely to act as a catalyst encouraging the world’s financial regulators take a longer look at cryptocurrencies. The US is already in the midst of a heated debate about digital coins and there are many critical voices concerned that their arrival could predicate a lose-lose scenario for the legislature.
“Cryptocurrency either doesn’t work, in which case investors lose a lot of money,” argues Brad Sherman, a Democrat from California, “or it does achieve its objectives and displaces the US dollar as the sole reserve currency in the world. You’re going to be making powerful burglary tools and letting your business partners commit the burglary.”
Other politicians have highlighted crypto’s potential use by drug dealers, tax evaders and terrorists.
Conversely there are those in the legislature that are more sympathetic to both cryptocurrency and blockchain. Republican congressman for Minnesota Tom Emmer is among them. He recently outlined his intention to introduce a new bill that could provide token sales legal protection from SEC enforcement actions.
“Companies that have followed our current rules of the road, even if convoluted, deserve the certainty that they can offer their digital asset to the public and help contribute to a truly decentralised network,” he told the US Congress.
Yet the biggest issue for those who want the US to lead the world on crypto might actually be the ignorance of its own politicians.
“The biggest issue we face is that a lot of members of Congress are not familiar with technology,” asserts Florida congressman Darren Soto. “Look no further than when Facebook CEO Mark Zuckerberg was brought in to Washington to testify. That’s exhibit A of the learning curve for many members of Congress.”
It isn’t just the US and the EU that are mulling over the legal ramifications of cryptocurrency. How China responds to cryptocurrency consistently impacts on the price of Bitcoin. Any utterance from President Xi Jinping on crypto or blockchain seems to set Bitcoin prices spiralling up or down, depending on what the sentiment was.
The shadow hanging over crypto is whether the Chinese government makes good on its promise to introduce its own digital currency. This has apparently been in development since 2014. China has also passed a new law, which will come into effect on January 1, aimed at “facilitating the development of the cryptography business and ensuring the security of cyberspace and information”. Many industry experts predict that this will be the precursor to the announcement of the currency in early 2020.
Rae Deng, founding partner of Du Capital, a crypto investment firm based in Singapore, said at the East Tech West conference, hosted by broadcaster CNBC, that she sees another flourishing crypto scene coming, with more Chinese investment striding to the market.
Quite what the coin will be like is another matter. It actually won't replicate some of Bitcoin’s core traits of decentralisation and anonymity. There may be concerns about privacy too. The implications though could be potentially huge.
If China was the “first major economy to adopt a native digital currency” as University of Pennsylvania professor Kevin Werbach wrote in Wired, China could force other countries to similarly go digital. China could mandate payments from nations with Chinese power plants or other infrastructure improvements built under the “Belt and Road” initiative be in the Chinese digital currency. Enormous companies doing business in China could be similarly forced to adopt, or lose access to, Foxconn factories or resources.
So how big is the cryptocurrency industry likely to be in 2020? What will be the total crypto market cap? There are many signs that the crypto industry will become more mainstream in 2020. How this affects the crypto coin market is anyone’s guess at the moment. Come back next year and find out.
FURTHER READING: Trading Bitcoin for beginners
FURTHER READING: Thai lawmakers hint at cryptocurrency law change in 2020