There is a reason why the more people read up on crypto, the more they believe in it and it is not a fluke.
There is a thought that the people involved in cryptocurrencies are out of their depth and will lose their money because it is not trustworthy. That might be the feeling of someone who believes everything will remain the same as it is now, but for others, it is clear to see that there is a change about to happen. Let’s take a look at some factors that will play a part in the markets going forward.
Bitcoin is becoming more standardized
It is evident that something is happening in the Bitcoin network, and I doubt that the recent price action has passed by anyone. However, for the readers that might not be familiar with what the fuss is about bitcoin except for its volatile price, it is an electronic cash system that is built on blockchain and doesn’t need a third-party involved to transfer funds between peers. To explain it shortly, you can basically send money to another person swiftly with low transactional cost while you won’t have to wait 2–3 bank days. Instead, it is as quick as an email. Bill Gates did not call it a “Techno Tour de Force” for nothing.
There are clear examples of this that people have not paid attention to, first of all, hundreds of corporations are accepting bitcoin as a payment and this includes corporations such as Microsoft, Shopify, Pizza Hut, etc. Meanwhile, large corporations such as Blackrock and Grayscale hold Bitcoin in their portfolio, and this will only grow in scale as time goes on.
The banking system is not as safe as you would like to believe
How can your money not be safe in a bank account if you just save your money there, you might ask. Well, the banking crisis in the Republic of Cyprus would beg to differ, which is what I believe is a big reason why cryptocurrencies are growing as quickly as they are currently doing.
If you’re not familiar with the Cypriot financial crisis, people basically woke up one day with bank accounts raided by the Cypriot banks due to them overleveraging themselves to local property companies. If you were wealthier, your account was raided more, so for a standard account, they took $1 for every $16 dollar, and for a wealthier account, it could be as much as $1 in $10, which is absurd.
However, I am not going to say that the banking system is doomed for failure since that would be premature and the last thing I will do is participate in fearmongering. The point here is that there was a clamor for Decentralized Finance (De-Fi) fueled by this.
The promising projects in the cryptocurrency space
Cryptocurrency is more about Bitcoin being digital gold and becoming the new Global Reserve Currency. There are countless promising projects taking place in the cryptocurrency space, and if I would name all of them, there would be no end to this article.
To name a few to provide some context, there are exciting projects like Ethereum that sets itself apart from Bitcoin because it is more convenient to build open for other types of De-Fi projects. De-Fi, which we mentioned before, is Decentralized Finance, and most of it is built on the Ethereum blockchain network. Now what is special about this, well so much is run on Ethereum, and is also one of the most promising segments in the crypto space. De-Fi utilizes smart contracts, which are enforceable agreements that are automated and don’t need intermediary parties such as banks and use blockchain technology instead. Most of the De-Fi apps are run on Ethereum, and more than 25 billion dollars in assets are locked in De-Fi, and as it grows this is only going to increase even more. Thus, will make this a question of supply and demand, which I like to emphasize since it is economics 101.
However, that is not to say that a project like Ethereum is flawless because the transaction cost related to this is a problem. Although this might be solved with Ethereum 2.0. Though, that is a topic for another article.
Photo from defipulse.com
Chainlink is another interesting project in the cryptocurrency space. It is the most used oracle network in order to power up universally connected smart contracts that enable the possibility of any blockchain to get access to real-world data and this is fundamental for the future of blockchain. Chainlink makes this possible with their oracle solution, and it is something that is very promising and has gone under the radar of most people. It is clear that blockchain needs to be implemented in the real world, and Chainlink will play a big part in this.
What makes these two project and many other projects in the cryptocurrency space exciting as well is that you can apply Metcalfe’s Law to this. Metcalfe’s Law simply states that the value of a network is proportional to the square number of nodes in the network. To clarify, the more the projects get adopted and grow in the cryptocurrency space, the more valuable they will become.
The high demand in mining while deep-pockets are stocking up
Considering that the cryptocurrency space is in a bull market, it is no surprise that there is a high demand for mining. Bitmain, which is the industry’s largest mining rig facturer in the industry, has sold out all of their inventory and won’t have anything available until August. This has led to a ridiculous increase in the price of 45%. This is because large mining companies have prepared accordingly for the bull market and stocked up.
Not only that, but I mentioned in my other article that the liquid supply of bitcoin has been steadily decreasing. Data from Glassnode indicated that Bitcoin wallets have shed as much as 270 000 BTC in the month of January compared to 175 000 BTC in December. The data shows that it has been dropping at a steady rate, and it does not look like it this will change anytime soon.
Photo from Glassnode that explains the change in BTC by liquidity class.
To wrap it up, cryptocurrencies’ impact on the financial sector has only just begun. Being able to drive down middle hands and transaction costs while exciting projects are growing will be interesting to follow in the coming years. It is still at an early adoption, and everyone involved now is early adopters that most likely will be grateful for that in the future. The banking system is basically where the velocity of money dies, and even though I don’t think that they will become obsolete, I do believe that people will realize that they have more power than before and come to utilize that. The evolution of the cryptocurrency space with no sovereignty is attractive, and the limits are endless.
I want to clarify that even though I am a finance professional, this is not financial advice, and this article is only meant to bring light to the current market situation. I advise everybody to do their own research, I only want to help you to find what you are looking for.