Thinking back to 2020, I find it hard to think of another year in the last few decades with both all-time highs and lows.
From the COVID-19 pandemic raging through the world’s population, to record-breaking wildfires in the western United States to many other calamities, the world this year has often appeared figuratively and literally in flames.
This article is part of CoinDesk’s 2020 Year in Review – a collection of opinion pieces, essays, and interviews on the year in crypto and beyond. Garrick Hileman is Head of Research at Blockchain.com and Visiting Scholar at the London School of Economics. Current research interests include governance, digital entrepreneurship, financial law enforcement, and measuring crypto-asset adoption.
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Strikingly juxtaposed with this death and destruction, uplifting scenes of pandemic-stricken communities come together and celebrate frontline workers, innovations such as the incredibly rapid vaccine development and the world’s first privately funded space launch. ‘a reusable rocket and the red-hot markets and crypto-active space, at the center of this article.
In a few years, I think we’ll see 2020 as a critical inflection point in the broader adoption of cryptoassets and blockchain technology.
From the long-heralded and anticipated arrival of institutional crypto adoption, to the acceleration of pandemic-driven digital currency and payments, to greater regulatory clarity in key jurisdictions like the United States , 2020 has turned out to be crypto best year yet in my opinion.
As we head into 2021, what can we expect for crypto?
Related: Lessons on the failure of the application of blockchain and AI to fight COVID
Two macro forces that have propelled the rise of crypto assets like bitcoin to yet another all-time high this year show little sign of abating.
1. Inordinate public spending and printing money
Arguably, the most important factor driving the rise in valuations and adoption of crypto assets is concern about government spending and monetary stimulus. Indeed, debt levels were already a concern before the pandemic, with many (including myself) sounding the alarm bells about world war public debt levels, without world War.
Whatever the justification for the generally bipartisan pandemic stimulus, the simple mathematical reality is that when governments and central banks remove interest rates and increase the money supply, the value of relatively scarce assets often increases.
Simply put, more fiat money and debt chasing a finite number of things (e.g. Bitcoin) equals a higher price for those things.
In the crypto space, the biggest winner of this trend is bitcoin, which appears to have reached a larger commodity market this year on Wall Street and elsewhere around its ‘digital gold’ investment thesis.
Indeed, there are recent indications that, along with growing inflation fears, some investors are shifting part of their gold portfolio allocation to bitcoin. Continuing this trend would provide strong support for further appreciation in the price of bitcoin.
See also: US Dollar Worsening, Inflation Measures Bode For Continued Bitcoin Rally
With the development of several promising vaccines, the COVID-19 pandemic and the damaging economic restrictions that accompany it are expected to begin to dissipate sometime in 2021. However, unprecedented global debt distress will remain, creating debt sustainability issues. for the foreseeable future and a bullish tailwind for the algorithm. crypto assets limited by supply.
2. Economic and geopolitical tension between the United States and China
Even with the coming change in US presidential administrations, the geopolitical and strategic competition between the two global superpowers – China and the United States – is unlikely to abate.
What this evolutionary superpower clash fully means for crypto is something we’re only just beginning to understand, but some likely outcomes include:
All of these developments are broadly positive for relatively decentralized crypto assets like bitcoin and ether.
While central bank digital currencies may pose challenges for some networks of more centralized crypto assets (e.g. stablecoins) in the form of increased competition and regulatory oversight, the continued digitalization of fiat currency and payments is more complementary than competitive for decentralized crypto assets like bitcoin, which will have less design overlap. For example, central bank digital currencies will not feature limited supply like the hard cap of 21 million bitcoin coins, and it is also extremely unlikely that they will have the same degree of censorship resistance and downplaying. trust that bitcoin.
Bitcoin is a powerful tool for promoting freedom and the values of open society.
A picture of divided global governance means we are unlikely to see the kind of widespread and coordinated regulatory crackdown that hedge fund manager Ray Dalio and others have suggested will occur if the crypto ever gets ‘too big’ . And a multipolar global financial system, divided into U.S. and Chinese spheres of influence, arguably creates space and motivation for more neutral blockchain-based financial assets and infrastructure.
Money historian Niall Ferguson (my thesis supervisor) also recently argued that part of the reason the United States should embrace bitcoin and crypto assets is to support a more eco-friendly financial system. privacy and more open compared to the more centralized system actively promoted by China through its central bank. digital currency, the DCEP.
There is also the question of who controls or influences the biggest public blockchains, like Bitcoin and Ethereum. Acting US Currency Comptroller Brian Brooks recently restless on China’s disproportionate influence on cryptocurrencies like bitcoin thanks to their dominant share of computer mining power securing blockchain networks. This concern about Chinese influence over Bitcoin and Ethereum was also recently echoed by Ripple in its response to the lawsuit recently filed by the Securities and Exchange Commission.
Growing support for crypto among those concerned with democratic values and the global balance of power could mean that we will soon see one of the most positive developments for crypto assets: Governments play a direct role in supporting and even own crypto assets.
While admittedly speculative, it is possible to imagine that the United States and China both benefit from more fully integrated crypto assets like bitcoin.
As I said before, a bottom-up financial superpower like China could potentially jump the league tables of cheap reserve assets by actively acquiring bitcoin. FOMO is not limited to private sector market players, and the first-comer nation states will gain the most in any race to acquire new reserve asset. As an American, I hope the United States think twice before rushing to auction off their latest police seizure of nearly 70,000 bitcoins connected to the Silk Road closed market.
See also: Mable Jiang – Filling the Cultural Gaps in 2021: Crypto in China and the United States
At the same time, the United States and other democratic countries may increasingly view unlicensed and relatively decentralized blockchain networks as similar to the open Internet: a powerful tool for promoting freedom and values. of open society.
While the pandemic and its punitive economic and social restrictions will hopefully end next year, there is little reason to believe that the accelerated adoption of crypto we are currently witnessing will end with it.
This year has reinforced the notion that crypto assets will not only disappear, but will be an integral part of our financial lives in the future. As we close a very trying and historic 2020, the future has never been brighter for the ownership and use of bitcoin and crypto assets.