Which coins will rise in price and which ones will fall? What else in the legal and regulatory framework will regulators come up with? How will 5G create a level playing field for traders anywhere in the world, and what more will 2021 bring beyond vaccines to end the pandemic?
It is always exciting to predict the crypto industry’s trajectory, because it is developing simultaneously thanks to, and as opposed to, the traditional financial system. On the one hand, the introduction of requirements for the identification of crypto users, the growing interest in government digital currencies, the crypto service from PayPal and the upcoming launch of the stablecoin, Diem (ex-Libra), from Facebook, and many other events confirm that digital assets are becoming more understandable and more mainstream at long last.
On the other hand, the speed of cryptocurrency distribution directly depends on how quickly operations with their various brands and flavors become available and accepted in each traditional bank or payment system. The mass use of digital assets is both what the world is striving for, and what it fears. It is the attempt to maintain a balance between profit and risk in the use of cryptocurrencies that will determine the trends of 2021.
Trend One: Crypto will see tax regulation
The main topic for the near future is the tax regulation of cryptocurrencies. Today, crypto taxation is still an obscure thing – an ideal picture far from reality. Crypto taxes are not yet widespread, and while they are unwelcome to some, they have begun appearing in some countries as those markets mature and governments see their revenue raising potential outweighing previous crypto uncertainties.
However, the introduction of mandatory user identification through know your customer (KYC) procedures, the development of protocols that allow tracking transactions, and the adoption of legislation on digital assets, clearly indicates that things are changing, and doing so faster than some might expect.
We also see monitoring tools being actively developed, along with governments exchanging information on the owners of cryptocurrencies, and the transactions they are making. Therefore, in 2021, the world is likely to face the first bitcoin tax evasion lawsuits.
Trend two: “Silent crypto harbours” are on the way
Since there is an anti-trend for every trend, the introduction of crypto taxes will increase the attractiveness of jurisdictions that will resist this practice and allow users to legally minimise the costs of owning digital assets. To put it simply, the so-called “offshore crypto havens” will develop more actively. This role will most likely be played by countries where IT and the financial market are both well developed, such as in Singapore, Korea, Japan and, of course, Switzerland.
Trend three: The first crypto crisis is coming
The maturing crypto world is not only becoming more transparent, regulated, and secure, but it is also beginning to be subjected to a range of economic challenges and tests. We are already seeing the harbingers of the first crisis that has nothing to do with cybercrime or fraud.
In December, the cost of Bitcoin (BTC) set a new record, breaking the $34,000 mark. However, the reason was not only the growing demand for BTC, but also an oversupply in the market of stablecoins Tether (USDT), which are used to conduct 70% of the trading on crypto exchanges.
In order to increase the capitalisation of its coins, Tether, which is registered in the British Virgin Islands, is constantly increasing their emission. At the same time, market players have serious doubts that USDT stablecoins are really backed by fiat assets, i.e., US dollars. In addition, Tether is owned by the company iFinex, against which investors filed a class action lawsuit for $1.4 trillion on charges of market manipulation in 2017-2018.
As a result, what we see on crypto exchanges today is roughly what happens when governments start up the printing presses in the traditional economy: an excess of fiat money supply in the market leads to an inflation of dollars and thus their devaluation. We see the depreciation of money, which in the world of crypto is currently USDT, which leads to a rise in the cost of goods, which, in the crypto world, is BTC. Therefore, current trends may lead to further depreciation of altcoins and an increase in the price of bitcoin, the emission of which is well known to be limited.
Trend four: Risk assessment models will improve
Against the background of the rise in the value of bitcoin, there is an urgent need for the emergence of a high-quality risk assessment model, since it is increasingly difficult for users to objectively assess the possible result of crypto investments, without succumbing to the general rush. Services that offer a working solution, and not just “digital fortune-telling on the coffee grounds”, will be able to quickly conquer the hearts, minds and wallets of both — beginners and experienced participants in the cryptocurrency market.
According to CoinMarketCap, there are over 8,000 different cryptocurrencies in the world today. More than 90% of them are fraudulent schemes, or ‘scams’, as they are called in the industry. However, out of the remaining 10%, many show growth rates no worse, and sometimes even better, than Bitcoin.
At the same time, those who are going to invest in crypto need to consider a variety of risks that can raise or collapse the value of a particular coin:
- organisational: for example, which country the issuing company and the crypto exchange operates in, and what legislative changes are taking place in that country, in favor of, or against, digital assets;
- technical: errors in the code, weak information security and weak data protection, all of which can be used by cybercriminals to steal cryptocurrency;
- price risks: this type of risk is still the most difficult to assess. However, thanks to the ubiquitous KYC (user identification) and KYT (transaction identification) rules, analysts are able to track the movement of significant volumes of cryptocurrencies, determine who owns them and observe actions related to their sale. Based on the data obtained, it is possible to make predictions about changes in the value of the cryptocurrency depending on the goals, time and other characteristics of such sales. The increase in the market size also makes it less dependent on individual speculation.
Today, in the crypto world, there is less uncertainty, and there are more opportunities for developing analytical tools. However, it is still difficult for novice investors to understand the intricacies of alternative finance.
Services that offer a working solution, and not just “digital fortune-telling on the tea leaves and coffee grounds”, will be able to quickly conquer the hearts, minds and wallets of both beginners and experienced participants in the cryptocurrency market.
Trend five: The cost of transactions will change
This trend is interesting, in that it will be multidirectional. Ether transactions will become cheaper due to technology upgrades, or Bitcoin transactions will continue to rise in price.
Changes in the cost of operations can affect the interest in cryptocurrencies by players in the e-commerce industry. Today, acquiring crypto attracts online stores by the fact that it is much cheaper to deal with than fiat currencies. Whether it is possible to maintain this advantage in the long term will largely determine the speed of the crypto’s spread as a means of payment.
Trend six: 5G will reinvent a lot and be transformative
The 5G standard is a new paradigm in data transmission, which is still underestimated by many. Its implementation will lead to the emergence of new concepts and types of services, and will affect how the mining is built, what DeFi applications will be in development, and more.
With 5G, transaction management capabilities will no longer be limited to network data speeds. For example, 5G can significantly change the high-frequency trading segment when the investment decisions are made by computers, especially with the ultra-low latency that 5G offers.
Today, traders struggle to place their server as close to the crypto exchange as possible because the length of the wire affects how quickly they can place or withdraw an order. 5G will help overcome this barrier: all systems will have a level playing field for transactions regardless of where the crypto exchange is located.
What is happening before our eyes is what skeptics, until recently, believed was impossible: the world of finance has become multipolar. Regulators, traditional financial institutions and crypto companies are increasingly collaborating to make the most of the benefits that crypto technology has brought to the world. Although not all important issues have been resolved today, I am sure we will find answers to many of them in 2021. As crypto continues maturing towards global worldwide acceptance — a positive outcome is utterly inevitable.