Yes, the title might sound audacious, even if you're a proponent of cryptocurrency and blockchain technology.
However, based on well funded arguments and theories from thought leaders around the world, I will try to explain why a multi trillion dollar market capitalization for cryptocurrencies is not an unrealistic scenario in the near future.
What’s discussed in this article is not financial advice, and the scope of this article is strictly limited to cryptocurrencies such as Bitcoin and Ethereum, who share many similar characteristics.
At the beginning of 2018, we began our journey of building Blockport, a platform that makes cryptocurrencies accessible to first-time enthusiasts and experienced traders alike.
It’s safe to say that the road so far has been a wild one, having launched the first version of our fiat-gateway cryptocurrency exchange within the first six months of development. At the same time, we’ve gone from being a small startup to a company with over 20 full-time employees.
However, the purpose of this article is not for me to tell you about Blockport, but rather to explore the global cryptocurrency market and its potential future. As we develop our product within the cryptocurrency space, we constantly come across a fundamental question:
"How big can the cryptocurrency market become?"
Before we dive into the numbers, let’s first briefly summarize the current state of cryptocurrencies: where they originated, and how they’ve matured.
Now over 10 years ago, Satoshi Nakamoto launched Bitcoin. In our opinion, the sequence of events that unfolded thereafter can be interpreted as one of the biggest socio-economic experiments in human history. It’s a big claim, but hear me out.
As it stands, there are currently more than 25 million digital-asset wallets that have been created for the purposes of storing cryptocurrencies. Yes, 25 million is marginal in relation to global population statistics, but what makes this figure so staggering is that almost all of these digital wallets were created in the past 18 months alone.
Over the course of this time period, people all over the world have started to acknowledge the vast potential of Bitcoin, Ethereum and other cryptocurrencies in facilitating more digitally-accessible and inclusive economic systems.
In terms of the market for cryptocurrencies itself, which has long-surpassed the one billion Dollar cap, it is rapidly filling up with institutional investors gearing up for the Web 3.0, or the so-called ‘internet of value’.
How far could all of this really go?
According to Kyle Samani, a successful venture capitalist within the blockchain space, the cryptocurrency market is not only massively expanding, but could go so far as to one day absorb the value of many non-monetary assets.
In line with this, the World Economic Forum has repeatedly predicted that around 10% of the world’s GDP will be held in the form of tokenized assets by 2027.
If we took 2017’s global GDP as a reference point, which amounted to 75 trillion US Dollars, then 10% of that would be 7.5 trillion US Dollars. If we factor inflation into that equation, as well as GDP growth in general, then the market for tokenized assets is looking to be immense by 2027, at least according to the World Economic Forum.
According to the SEC, its focus will mainly focus on digital assets in 2019. If the main regulator of the biggest economy in the world announces this, it's a huge sign of the potential this technology can have in the future.
In looking at Bitcoin and Ethereum specifically, I don’t want to discuss whether or not they themselves will take over the monetary value of certain markets, but I’d like to use their characteristics to show that it’s certainly plausible, at least within the context of traditional investment sectors.
Since fiat currencies like the US dollar were decoupled from the gold standard by Nixon in the 70s, governments started printing a lot of new fiat money, especially after the financial crisis in 2007/2008.
This led to significant increases in inflation, leading many people to store their wealth in various forms of non-monetary assets to hedge against it. Think of real-estate, debt, equities and gold.
The question that arises is: can cryptocurrency take a similar role in the future?
Cryptocurrency as a future store of value?
To provide a well funded answer to this question, we first need to describe some of the characteristics that cryptocurrencies such as Bitcoin and Ethereum share:
1. The supply of all the coins or tokens are clearly defined and publicly available.
2. They are permissionless: You can just download the software for free and start sending money across the internet.
3. They are self-sovereign: You don’t have to rely on a bank, payment service or other centralised organization to process the transactions. It’s all performed on the blockchain network.
4. They are highly divisible: You can divide every cryptocurrency into extremely small amounts, enabling easy day-to-day (micro)payments.
5. They are extremely portable: Everyone can fly across the world carrying billions worth of cryptocurrency. Try doing that with real gold.
Other primary characteristics of cryptocurrencies is that they are interchangeable and censorship resistant – no governing authority can prevent any cryptocurrency user from spending their crypto.
Potential market: Gold & Valuable metals
The first potential market that cryptocurrencies can take a significant share from is the Gold, Silver and other-valuable-metals market. Although gold is still mined today, the inflation thereof is relatively steady (roughly 1.5% annually), implying that it is not an ideal form of an inflation-hedging asset.
Therefore, when approaching gold as a solid store of value, Samani claims that “gold is almost entirely inferior to cryptocurrencies as a store of value, except for the fact that gold is older” .
With the above characteristics in mind, it could be said that cryptocurrencies will slowly overtake the market of gold stocks, because rational market actors will always be on the lookout for an inflationary hedge that is (1) easier to use, (2) easier to store, (3) more secure and/or (4) easier to carry around.
Essentially, it’s therefore not strange to think that Bitcoin (or a cryptocurrency with similar characteristics) could slowly overtake the monetary value of the gold stocks market, which is currently worth around 7 trillion Dollars.
The only benefit mentioned when comparing gold to cryptocurrencies, is the fact that gold is older than Bitcoin, and therefore more trusted as a store of value. However, he points out that this argument will not hold in the future, as trust in currencies rises year over year because of all the benefits described above.
Many people outside the cryptocurrency world often ask me: "what is the intrinsic value of cryptocurrency?"
This underlines the real shift that has to happen in order to achieve mass adoption: fundamental references of value that are embedded inside people's minds. Trusting technology instead of shining metal. In terms of all other characteristics, cryptocurrencies are already superior to Gold and Silver. By a landslide.
Therefore, it's only a matter of time, since our current youthful generation is already adopting this "trusting technology" mindset en masse, and studies indicate that Millenials already trust cryptocurrencies more than the traditional stock market.
How will this shift happen?
The adoption of technological innovation moves in waves, with various tipping points along the way that can trigger sudden buy-in from the masses. Things that may seem strange at first can be adopted very quickly if the benefits of such innovation add up - it’s often just a matter of time before people start using it.
Keep in mind that just a few years ago, no one realistically thought people would rent out their homes to complete strangers (Airbnb now largest rental marketplace in the world), let alone drive them around in their own cars (Uber now largest taxi company in the world).
If you’re not quite convinced yet that cryptocurrencies hold a massive future potential, then read this essay written by Samani.
Potential market: Local fiat currencies
Around 80% of the world’s population (~5 billion people) have no way of transcending the limitations of their country’ local fiat currency. Think of countries such as Iran, Turkey, Venezuela, Argentina and many more.
In these countries, people are constantly looking for value-storage mechanisms that are able to hedge against hyperinflation. Since people in these countries don’t have access to foreign gold exchanges (and heavily distrust their local ones), cryptocurrencies may pose a viable solution.
Because cryptocurrencies (at least in terms of their original conception) are completely permissionless, they provide a solution that is self-sovereign in terms of its nature.
Everyone with a smartphone and access to internet can store their hard earned salaries in cryptocurrencies by owning a smartphone and having access to the internet. Both of these prerequisites are becoming more and more accessible at a global scale, even in third world countries.
On top of being permissionless, cryptocurrencies are censorship resistant, which means that no one (not even governments) can prevent a user from receiving or spending their cryptocurrencies. A user can just download the software to interact with the blockchain on the internet, and start sending cryptocurrencies, no questions asked.
This dramatically expands the potential market for cryptocurrencies by offering the world a store of value for people that do not trust their governments and/or local fiat currencies, opening up a market of approximately 90 trillion Dollars.
A way out
One of the major benefits of cryptocurrencies for people that want to escape the limitations of their local fiat currencies, is that as long as they have the control over their private keys, they control their money. Even if things get really really bad, you can always access your money as long as you have access to your private key and the internet.
Think about what this means for people that are suppressed by their governments or locked up in jail for whatever reason. They will still be able to store their savings in cryptocurrencies for friends and family. No one can freeze or confiscate it.
Of course, secondary complications arise when we go into more detail about safe & secure management of private keys, but this is something that can be addressed by building easy-to-use applications with multiple security layers that require multi-signatures, hardware ledgers and other key management solutions that we may not know of yet (we’re actually working on some of these solutions at Blockport).
As Samani states in his essay: “It’s difficult to overstate the magnitude of this market expansionary effect. For the first time in modern human history, people will have the choice of storing their wealth in state-free currency as opposed to their local fiat currency. Weak governments will collapse, causing mass migrations away from fiat currency”.
Potential market: Offshore banking
A common practice for many of the world’s elite is to store a large portion of their wealth in offshore bank accounts so that governments cannot access or tax it. As it stands, the monetary value of offshore banking is estimated between $20 – 30 Trillion.
As trust in cryptocurrencies increases, and assuming their volatility diminishes, it’s not unreasonable to expect that the elite will also start to move their wealth from offshore banks into cryptocurrencies, as they provide significantly more privacy and self-sovereignty. If implemented correctly, cryptocurrencies can also add an additional layer of security to people’s investment endeavours.
More specifically, if this scenario played out and investors wanted to bridge over to cryptocurrencies, they would probably move their wealth to privacy-coins such as Monero or Zcash (Zcash is currently live on Blockport, and Monero will be soon!)
Again, it’s difficult to gauge what the monetary implications of this are, but this would open up an additional market of, give or take, 15 trillion US Dollars.
Potential market: Non-monetary assets
A massive amount of the world’s wealth is being stored in debt, equities and real estate as a way to build capital and hedge against fiat currency inflation. Apart from debt, equities and real estate, other non-monetary assets are also used as wealth-storage mechanisms, from fine art to oil futures.
Roughly speaking, this total market value is worth more than 500+ trillion Dollars. According to Samani, it seems likely that 1 to 5% of this total value is not actually productive value, but rather a mere wealth storage mechanism.
This can be seen in larger cities, where a lot of expensive apartments are bought without anyone living in them, or for the sake of simply renting out.
If we look at the question of whether or not people will continue to invest in “non-productive assets”, there is a good chance that they might in the future pivot towards cryptocurrencies as alternative wealth storage mechanisms.
Put differently, even though many types of assets are now accepted as sturdy forms of value to hedge inflation, capital could flow away from non-monetary assets towards monetary assets like cryptocurrencies, due to their state-free nature and other leading characteristics, as outlined above.
Where does this leave us now?
Based on the characteristics of cryptocurrencies and the potential markets described above, it's clear that we can expect some interesting shifts in financial flows. This is based on their potential to act as alternatives to traditional fiat currencies, offshore investment opportunities, fundraising mechanisms, real estate assets and more. It’s also based on the regulatory frameworks that are being developed in order to bring cryptocurrencies into the mainstream.
Moving out of their infancy, cryptocurrencies will mature significantly within the coming years, overcoming their global scalability issues that need to be ironed out before wider societal adoption can ensue.
In going back to the original question of how big the cryptocurrency market could become, you’d expect me at this point to provide you with an estimated and concluding figure, somewhere within the hundred trillion Dollar tier, of how big the market potential for cryptocurrencies really is.
For what it’s worth, Samani adds up many of the figures listed above, and concludes that the global cryptocurrency market could reach anywhere between $50 and $100 Trillion.
As I’m sure you’re familiar with, however, it is difficult to read such figures and intuitively digest the scale and scope of what such numbers really mean.
So rather than leaving you with such figures, I implore you to see the market potential for cryptocurrencies as more than just a monetary sum.
But this potential goes hand-in-hand with cryptocurrencies’ potential of facilitating real socio-economic change: bridging development gaps, opening up new markets, improving old ones, and simply acting as a better value-storage system.
What do we think?
Operating in the cryptocurrency space, people often ask us: Will Bitcoin replace traditional Fiat currencies, and will everyone start using it as a mainstream payment method?
Our belief is that based on the characteristics and current scalability of Bitcoin’s technological foundations, it’s still more suitable as a value-storage mechanism then as an end-to-end payment system. That said, people shouldn’t underestimate the potential value of this suitability.
Bitcoin aside, we believe that cryptocurrencies in general, especially those focused on payment solutions, do in fact offer immense potential as future payment solutions.
For now, the responsibility lies with all of us within the space to drive mainstream adoption.
Kai Bennink, Founder - Blockport
Blockport is an easy-to-use cryptocurrency exchange that bridges the traditional world of finance with the new digital economy of cryptocurrency.
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