In the first decade following the 2008 financial crisis, the 2010s introduced the world to a new technology holding the incredible potential for revolutionising the global financial system — virtual assets. Today, following the recent transition to the new 20s decade, their impressive evolution over past years has governments and industry players alike looking to the future, in the hopes of predicting which path their anticipated growth might take. Yet, it is key indicators in the past, tied to events that occurred throughout 2019, that lend the greatest insights on the shape of the future global blockchain and digital asset landscape.
Though still in its nascent state, this industry has experiences too much interest, too much possibility and too great of a performance over the past decade for the world to ignore. The turning point has passed and the long crypto winter is finally withering, with an elusive spring seemingly poised to realise the hopes for greater mainstreaming and global adoption. Therefore the question we now ask ourselves is not whether it will survive, but instead — what form with the industry take in the coming years?
At this critical time junction, this article looks back to the significant events of the past year, focusing in particular on Facebook’s Libra stablecoin project, and examines their effects that continue to resonate and shape the industry today and in the years to come.
Bitcoin’s Summer Splurge
As bitcoin celebrated its 10 anniversary in January 2019, Q1 progressed in a stable trend, turning bullish at the closing. Indeed, after a long period of fighting for the resuscitation of the crypto industry in 2018, 2019 progression slowly propelled the resurgence of crypto to the global scene. A primary marker of this renewed attention was Bitcoin’s and correlated altcoins’ performances over the summer.
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Contradicting premature declarations of the industry’s death, Bitcoin’s spring rally initiated a bull run which dragged its price to a new high not seen since the 2017 bubble. On June 26th, the King Coin reached up to its annual high of approximately $13,800, before turning back to slowly descend back to the $7K range by December.
There are several factors that have been tied to this impressive display, first and foremost of which is Facebook’s confirmation of plans for a 2020 launch of the Libra stablecoin in May 2019. Accordingly, initial hype surrounding the project turned the international spotlight on the crypto industry for the first time since 2017 and propelled Bitcoin and altcoins upwards.
But as the full implications of this global new coin began to sink in, awakening fears among politicians and lawmakers worldwide, Libra’s well-documented regulatory, and still ongoing, troubles began. Considering in particular Facebook’s 2.45 billion active users, of which even a portion could contribute to high-scale consequences on global financial structures through their adoption of the coin, these were all the more severe. In Europe especially, emphasis has been put on mapping the uncertain consequences of stablescoins on national economies.
With regulatory concerns turning to action. Bitcoin and altcoins correspondingly slowly began to decrease in value, starting a long bear trend which continued to the end of the year. And as the planned 2020 launch of Libra approaches, we can still expect to see the results of Facebook’s efforts to reconcile its stated desire for full compliance with the competitive aspect of a global crypto race, to continue to echo throughout the industry.
A second influencing factor has been the global rise in international and domestic political tensions. The protests in Hong Kong, hyperinflation in Venezuela, Brexit in the United Kingdom — all of these events point to the fact that we live in increasingly uncertain times, a fact not-so-pleasantly supported by the decision of the Bulletin of Atomic Scientists to move the hypothetical Doomsday Clock closer to midnight this January. It now stands foreboding at 100 seconds before humanity faces existential crisis.
In the matter of digital assets, the study of behavioural investment patterns by financial analysts has tied this feeling of uncertainty to an increasing number of investors turning to cryptocurrencies, and specifically Bitcoin, to hedge against these political and economic turbulences. Data further suggests that this behaviour has especially been tied to the protracted U.S.-China trade war, ongoing throughout 2019. Illustrating this pattern, August witnessed a 7% fall for Bitcoin amid a de-escalation of tensions between the world’s two top economic powers.
Thus, with Bitcoin being increasingly treated as a haven in times of turmoil (as further suggested by its recent price jump following the U.S. drone strike that killed Iranian major General Qasem Soleimani in early January), its trading volume has consistently risen over the past year, with the coin coming once more to be assimilated to “digital gold”. Of course, due to the inherent nature of virtual assets, their valuation is especially tied to global human sentiment towards the industry, more so than any other traditional asset class. Nonetheless, by virtue of this reliance on the fundamental workings of human psychology, Bitcoin’s impressive growth over the past year as one of its best performing assets, as well as its unparalleled performance in the previous decade, can be taken as a reliant metric of a continuing and growing interest in the industry. As a result, we can expect to persistently witness political and economic events to be primary drivers of crypto prices, particularly as concerns mount of an approaching recession, implying further future radical movements.
Finally, from a more technical perspective, an important event which will continue to drive global Bitcoin adoption comes with the development of the Lightning Network. One of the biggest concerns that has plagued Bitcoin since its creating is the issue of its scalability. New blocks get added to the chain in 10 minute intervals, amounting to approximately 7 transactions per second. However, when considering the number of transactions per second processed by SWIFT or VISA, the blockchain appears as an inefficient system for global implementation. Nonetheless, although a global consensus on a solution to this problem has yet to be reached, the Lightning Network could prove to bring that ideal closer to fruition.
Just like Internet before browsers and applications, before transport layer security and the development of the internet protocol suite as we now know it, networks looked substantially different. And though it is now hard to imagine a world without the World Wide Web, there was a time only a few decades ago when many would actively dismiss the idea of a global network mainstreamed for daily use. Today, blockchain technology is in a similar state. Thus, the development and testing of Bitcoin’s second layer, the Lightning Network, holds crucial importance to the future growth of the industry. We see accordingly many blockchain developers from a variety of different cryptocurrencies now working on similar projects.
Though still in a developmental stage, this partial solution to the scalability problem has generated much intrigue and positivity towards the possibilities for implementation. Some, including steadfast Bitcoin supporter Tim Draper, have gone as far as to predict that this new feature will cause the coin’s price to soar to the six-digits by 2022. Therefore, with its continued testing and the increasingly game-changing ideas generated by blockchain developers, 2020 is sure to experience even greater growth.
The Libra Effect
As previously observed, one of the most important events of last year was Facebook’s announcement of its development of the Libra stablecoin. Shortly after the release of its whitepaper on June 18th, prices immediately soared. At present, despite the many setbacks, the project continues to be managed by the Libra Association, a not-for-profit organization whose membership includes many global companies including Spotify, Lyft, Uber and Coinbase, who will act as the validator nodes of the Libra network once launched. This launch persists to be planned for some time in 2020.
Though initially greeted with positive interest, it wasn’t long before the groundbreaking potential of a global coin issued by the world’s largest social media company began to raise fears among regulators and politicians worldwide. Common concerns raised have included the assurance of AML (Anti Money Laundering) compliance and the increased risk of tax evasion. Others, factoring Libra’s global nature in the matter of cross border payments, which would allow its users to circumvent traditional financial structures and institutions, have witnessed countries express concern for the sanctity of their monetary sovereignty, China being first and foremost. Overall, the project has had to weather a storm of criticism, more so considering Facebook’s reputation which remains fraught with controversial following the 2018 Cambridge Analytica scandal and the company’s reputed treatment of its users’ data.
Yet perhaps the most pronounced consequence of the announcement has been the triggering of an international race by countries attempting to launch their own Central Bank Digital Currencies (CBDC), at the head of which is China. Indeed, in the case of the economic giant, China remains concerned over its national economic reliance on the U.S. Dollar, which would unlikely improved with the successful launch of a U.S.-based firm’s global stablecoin. Furthermore, as one of the world’s most important quasi-cashless societies, not only does adoption not seem far-fetched, but most crucial it would diminish the country’s central bank’s reach over its population’s finances. Thus, though spearheading the development of a centralized digital currency for the past six years, it was the Libra announcement that truly became a catalyst for its acceleration, with the country now planning to role out its CBDC in 2020.
In the United States and in many European countries, the announcement was not greeted with greater enthusiasm. While France attempts to compete with China in the CBDC race, the remainder of Europe is cautiously evaluating the consequences of introducing a stablecoin into their economies. In fact, high-ranking officials from the European Union have repeatedly stated that they will not allow the launch of any stablecoin on their territories until they understand the full spectrum of benefits and drawbacks that such a move would entail. To the Libra management, who have committed themselves to full compliance by promising to acquire all necessary permissions before launching, this has proven a difficult obstacle to overcome. At worse, it is one which can threaten to kill the project altogether. These disputes continue to this day, spilling over into 2020, and we can certainly expect more resistance on this front.
Paradoxically, should Libra succeed or fail in the face of its legal battles, the flurry of attention it has drawn has in-and-of-itself been positive to the industry as a whole, even accounting for countries that remain hostile towards it. The present interest in developing a digital currency is a bell that cannot be un-rung, and has notably prompted regulators worldwide to step up their efforts in clarifying national stances, ensuring the industry no longer remains ignored.
Indeed, the year 2019 was marked with greater legislative attention, with a hoard of new laws being drafted, issued and otherwise worked on, such as pertaining to KYC/AML. Although not all of these find their origin with Libra’s announcement, the existing lack of regulatory clarity has nonetheless been a longstanding impediment to the growth of the industry. Accordingly, the sense of urgency generated by Libra has and will continue to contribute to greater action and quicker legislation on digital assets worldwide, thus playing a key role in the determination of the future digital asset landscape.
It is in this climate that the world started the new year, which promises to be pivotal for both the direction for the industry and for global financial structures. In continuing from 2019, 2020 will see the result of the CBDC race, the fate of Libra, the evolution of Bitcoin’s scalability solutions, as well as being a key year for the King Coin with its next halving event scheduled for the upcoming May. In a broad conclusion, sentiment remains positive and hopeful to see greater efforts in mainstreaming the digital asset industry in the near future and growing institutional interest, the latter having begun to blossom in 2019.
Reflections: Transitioning to the Blockchain 20s was originally published in Data Driven Investor on Medium, where people are continuing the conversation by highlighting and responding to this story.