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It's been a harsh crypto winter. What comes next?
When I co-founded Engiven in 2018, my business partners and I had to make some audacious predictions about cryptocurrency and how it might be adopted in the years to come. Humans love to make predictions. We do it daily on small things without giving it a second thought. We can also labor over the future, trying to determine with precise detail how to achieve our desired outcomes. But as technology entrepreneurs, we have to bet on our beliefs and instincts, often while most others disagree with us. And predicting correctly with your startup can mean the difference between spectacular success or failure.
Being “right” about the future requires both the what and the when. What will users want and when will they want it? When Steve Jobs announced the first iPhone in 2007, he said, “Every once in a while a revolutionary product comes along that changes everything.” Steve Ballmer, then CEO of Microsoft, responded by saying, “There’s no chance that the iPhone is going to get any significant market share. No chance.” Both Steves were incredibly smart and informed innovators. Jobs saw something Ballmer didn’t, and took the risk. iPhone sales made up approximately 49% of Apple's total revenue in the third quarter of the company's fiscal year 2022. We know who won that battle.
I bought my first Bitcoins in early 2013 after passing on the opportunity to buy it at five cents and then again at five bucks. When I finally jumped in, I was doubtful that I’d get my money back. I saw the potential, but great technologies don’t always survive. By 2017, I was a crypto believer, but the path to crypto’s massive growth has been choppy, and at times, terrifying. If you’ve participated in or followed the crypto markets this year, you’re well aware that these are trying times. Anyone who’s bullish on crypto or crypto tech has faced a major gut check.
That said, most in the crypto space are planning for a brighter day, and planning is, after all, simply a way to strategically predict our desired futures. These are challenging economic times, a time when predictions matter a lot. So here’s my crypto prediction…
Consumer Adoption
Consumer adoption of cryptocurrency has been growing annually, especially among the younger demographics, with 35% of Millenials and 33% of GenZs reporting to own crypto in 2021. As these younger demographics age, crypto will become more normative in our daily lives. In fact, the latest Global State of Crypto report by Gemini showed that 14% of US adults already own crypto. In practical terms, this means that the US could have 100 million crypto users by the end of 2024.
According to the U.S. Crypto Consumer Report (a PYMNTS and BitPay collaboration), 55% of crypto owners view their holdings as an investment. In terms of crypto as a purchasing tool, 18% of those surveyed own it as a replacement for traditional banking services.
As of January, 2022, 70% of the US GDP is attributed to consumer spending. Could crypto “spending” become additive to the US economic system? If so, crypto would be a major catalyst for growth. And let’s not underestimate the grass roots effectiveness of apps like Venmo, PayPal, Cash App and Robinhood who are making access to crypto easy. The functionality may be limited at present, but baby steps are underfoot. We’ve barely scratched the surface of what a motivated user base could create in terms of spending, saving, speculating, and giving (more on giving shortly).
Institutional Adoption
Those of us who provide crypto-based financial solutions have been waiting a long time for institutions to adopt cryptocurrency. I'm talking about organizations like banks, lenders, hedge funds, conventional equity exchanges, donor-advised funds, and money managers––these have all traditionally been slow to adopt emerging technologies and digital transformation. I don’t like to paint with a broad brush, but for the most part, institutions have shied away from crypto due to the perceived murky regulatory landscape and the obvious security concerns around crypto custody.
I believe we are at the beginning of a sea change with institutional crypto adoption. Here are a few notable inflection points:
- Dozens of financial institutions such as Morgan Stanley, Citibank, BNY Mellon and Silvergate (of course), known for their traditional banking services, have begun investing in and/or providing services around crypto
- Major players in finance such as Fidelity and Goldman Sachs now offer crypto trading services and managed accounts that allow crypto investments.
- The CME now supports Bitcoin and Ethereum futures contracts.
- Many companies have become SOC 2 compliant (including Engiven)
- Gemini Trust, the largest provider of crypto custody services, has more than $30 billion under management
- According to a report by Galaxy Digital, venture capitalists invested $33 billion in crypto and blockchain startups in 2021––more than all prior years combined
It may not be long before your crypto holdings will be sitting alongside the cash and stock holdings in your brokerage account. Crypto is slowly weaving itself through the world’s banking networks and it’s only a matter of time before it’s accepted as a trusted asset class that can be traded, loaned, margined, optioned, transferred and custodied. Institutional adoption matters because it demonstrates that this new asset class is safe enough, regulated enough, and in demand enough for major banks to service it and charge fees for their expertise in the matter. When an asset class is adopted by financial institutions en masse, it rarely goes away.
Regulation
I’m often asked if the US Government’s regulation of crypto is going to “kill” the crypto market. The answer is "no."
While the genesis of crypto was based on the concept of decentralized, anonymous, anti-establishment ideology, in practicality, we want to participate in the crypto ecosystem without getting scammed.
Strategic and thoughtful crypto regulation will help make sure that crypto is safer for everyone. Those of us who have been holding crypto for many years know that the original intentions of crypto are still very much intact despite the now common use of banking-esque tools such as KYC (which stands for Know Your Customer, and is a mandatory process of verifying the client's identity) when setting up an exchange account in the US. I’ll be honest, handing over my social security number to Coinbase was never part of my long term crypto plan. But I like using Coinbase, along with Metmask, Gemini, my Trezor, etc. Coinbase has regulatory oversight, and as a result, so do my trades on their platform. The government can’t really keep tabs on chains, but they can make sure the top exchanges keep tabs on me. And such is the world we live in at present.
That said, some crypto products need more oversight:
- Stablecoins: They should be regulated, period. That would enable conservative savers to leverage crypto and make above average returns through staking and diversifying. Imagine if your grandmother could convert her fiat cash reserves into a stablecoin that generated a reasonable rate of return and was insured? Game changer.
- DeFi lending protocols: Most of them should be regulated. Companies like Voyager and Celsius demonstrated that regardless of our collective desire to “unbank” ourselves, some folks will still take advantage of those who believe crypto is about something bigger than finance. We’re all going to be a little smarter about how we store and transfer our crypto going forward, and regulation that places greater transparency and fiscal accountability on institutions that hold our assets is not a bad thing.
But regulation needs to be reasonable, and not stifle the development of better and broader consumer products. The dark side of regulation occurs when regulators don’t understand new technologies and seek first to eliminate them. But not this time. I don’t see regulation pushing crypto back into the shadows.
Utility
Assuming crypto innovation is allowed to grow and thrive as I predict, the crypto universe needs a killer app that provides life-changing utility. The Internet is a historic invention, but without email and the web browser, it would have been far less important. It gave us instant access to global information and communications. Crypto needs an awesome app where the underlying functionality of [ token + smart contract + blockchain ] meets truly impactful utility for most people. Then crypto will become a necessity. When will that app arrive?
Generosity
As I mentioned earlier, I started Engiven because I envisioned a future where crypto was a major participant in culture and generosity. I also owned some appreciated Bitcoin that I wanted to donate… but I found that charities were not particularly interested. I saw an opportunity, so I made a bet that there would be others like myself who believed in the power of giving, especially with their most appreciated assets.
Nearly four years into this adventure, I’ve seen incredible generosity and life-changing impact due to crypto giving. It’s now the fastest growing segment of philanthropy. There are thousands of charities and ministries leveraging crypto for their missions. It’s not slowing down, and while the massive price swings in crypto markets impact crypto giving, the hearts of crypto givers have not changed. They are still giving generously. Just this week we processed a $15 million dollar crypto donation for one of our clients. The generosity of the crypto community blows me away.
I believe that within three to five years, crypto giving will be a meaningful percentage of the $450B annual gifts made by individuals in the US. Perhaps $10-$20 billion a year.
So what does all of this mean for your crypto portfolio that was once a shining beacon of your investing prowess, but you haven’t looked at in a few months? Discussions about Bitcoin halving cycles, crypto winters, and technical trading levels… they all point to a prolonged crypto winter continuing well into 2023 with some major upside coming perhaps in late 2023 and 2024. But that’s still speculation.
What I can say with confidence is that when new technologies are adopted by consumers and institutions, they expand. That expansion suggests that certain crypto assets will be on the rise… once again. Don’t bet against Bitcoin in the long-term and, now that Ethereum has merged, I think its adoption can only grow. My prediction? Crypto as an asset will be more useful and valuable in the years to come. And, it will impact us in ways we have yet to conceive.
I’m betting the company on it.
