It is believed that 2020 will have a major influence on what will become the future of the cryptocurrency industry. Speculation is brewing at the center of the crypto market. Price speculation exists across all asset markets. Nonetheless, most thriving cryptocurrencies have survived majorly due to speculation surrounding their anticipated applications and promised potential.
The crypto market feeds on volatility but scammers and shady token schemes have also clouded the nascent industry. Interestingly, the new contract or blockchain technology is undelivered or overhyped while the financial markets struggle to determine what crypto means for them. A combination of all these factors causes massive abrupt spikes and dips that the market is famously known for.
2020 will not calm the ‘wild’ market down since it is scheduled to deliver several important developments that will enable the new asset mature. It will also offer a sense of how digital currencies might become an integral feature in the future of finance.
According to the current and upcoming trends in the crypto sector and through conversations with the co-founder of cryptocurrency tracking and tax Software Company who is also an industry veteran, Accointing Alex Lindenmeyer, Benzinga compiled the top notable crypto events of 2020.
Turmoil seems to have become a characteristic feature as one goes lower on the crypto food chain. Although the market seemed to flatten out in 2018 as Bitcoin plunged, the number of cryptos in the market rose above 4900 in 2019.
Sadly, less than 35% of the active coins trade more than $100,000 of daily volume. In the meantime, more than 40% of them are valued at less than a tenth of a penny. Thus, there are more tokens in the crypto market currently than ever before. However, the cumulative amount of capital has flat-lined all through 2019.
Although a probable surge in crypto interest from mainstream finance may result in a significant increase of capital, it is highly unlikely to trickle down to the smallest coins. Also, more regulatory burdens and increased transparency among the bigger operators will dump those trying to make a quick coin.
The market may have already reached its saturation point and the number of coins may not grow that much in 2020.
The bitcoin halving scheduled for May 2020 appears to be the most important event that will take place next year. The halving will reduce the bitcoins rewarded for successfully mining a block by half in the digital ledger. The reward will reduce from 12.5 to 6.25 BTC. It might sound quite dramatic this time but it is for a reason. The halving happened twice before and that was followed by some interesting price actions.
In the 2012 halving, the BTC price surged from below $10 to above $100. In the 2016 halving, the currency surged from $400 to more than twice that by the end of the same year. Halving introduces new scarcity to the market and traders are already expecting similar supply-side price growth as it happened in the past two halving events.
Nonetheless, traders must remember that demand is also important in driving prices. The number of miners competing for a block will drop just like the hash rate needed for mining until equilibrium is attained as the mining process becomes less profitable. Expectations might be all that is needed to see an impact. According to one commentator:
“There are arguments for and against a price increase, the main argument against it being that the majority of people are expecting it. What I know for certain is that there will be a lot of volatility due to speculation.”
Halving is done to stabilize the supply of BTC as it nears full saturation where no more bitcoins will be available for mining. After saturation is reached, bitcoin is expected to become rarer and significantly more valuable than gold. Maybe if Satoshi Nakamoto creates more bitcoins available for mining, the coin’s price may continue to remain moderate.
Some commentators think that BTC may lose value to the more practical or abundant virtual currencies like Bitcoin Cash. BCH forked off from BTC in 2017 for that purpose. Eventually, the world’s flagship crypto still requires determining whether its scarcity alone will be the major determinant of its value in the future.
The Libra Factor
On the other hand, Facebook’s Libra comes in as an asset-backed stablecoin. This global stablecoin was announced in June 2019 even though it will not be available in the market until late in the summer of 2020. It will launch if and when it clears all the necessary regulatory hiccups.
In any case, many uncertainties remain about Facebook’s stablecoin project that has backing from Coinbase, Vodafone, Uber, and also a member of the Kushner family. Some of these uncertainties made other interested parties like PayPal, eBay, and MasterCard abandon the project altogether.
Nevertheless, the main certainty surrounding Libra is that it will have a probable user base of almost 170 million in the US alone. Due to Facebook’s global presence, adoption of Libra and the Calibra wallet means that users who in the past had no interaction with crypto may suddenly have the ability to pay their Uber drivers using the token.
Accointing’s co-founder sees the issue as a matter of introducing an air of legitimacy to crypto adding:
“Stablecoins are hugely important to the space. For adoption, it is important to be able to easily switch between a store of value and a stable currency you can use daily. Furthermore [libra] will broaden the understanding that money doesn’t have to come from countries. Alone, the discussion around libra this year just got people thinking about cryptocurrencies.”
Libra may mark the point where crypto goes mainstream subject to how well its model is adopted and how it tackles the massive scrutiny from regulators throughout the world. If it manages to break into the global economic sphere, other tech and finance companies will most probably follow.
The Feds Influence
Government scrutiny is a major missing piece in the crypto puzzle. 2019 showed a growing awareness by the federal agencies that technology like crypto is gradually becoming less a component of the current society and more of the core element of it. Just recently, the Federal Reserve said that the US central bank is considering a potential digital analogue for the dollar.
In the meantime, the IRS (Internal Revenue Service) has become stricter in its guidance on reporting crypto transactions for the next tax season. Now with Facebook getting into the crypto game, the entire cryptocurrency space will probably experience local and international governments paying closer attention to the tokens for good or ill.
Alex thinks that the current outlook on regulations and guidance in crypto as mostly benign. He added:
“If you look at tax rulings overall, they haven’t been terribly against crypto […] they are being extremely progressive, with countries like Singapore, Switzerland, and Portugal making great strides for crypto. Their policy is undefined, but the government still wants us to pay taxes. I am just hopeful that next year we will get a lot more clear guidance, specifically on airdrops, and staking.”
Although most of the current legislation has been quite encouraging, the continuing experiments may go both ways for the general cryptocurrency market. Supportive regulations may encourage growth and enhance throughout the industry. On the contrary, excessively restrictive regulations like the ones rising from China could result in excessive challenges for digital assets.
Crypto and Fintech Integration
The general factor that arises from all these trends is that crypto is growing up. It is getting into the mainstream global economy and will eventually find real use cases adding on to the hypothetical ones. With the coming of Libra, the problem is now not explaining why crypto will be valuable and essential soon but making it valuable and necessary now.
There are issues about how transactions will get implemented across various ledgers or how anonymized transactions may be regulated. Part of it will arise from the consolidation of the nascent industry and the constant strive for interoperability between ledgers and wallets.
These questions may be answered by whoever dives in first and currently the financial technology companies seem to be by far the most eager to fill the role. One commentator said bluntly:
“Honestly, the answer is quite simple: there was a need for it and the current tools didn’t cut it for us. The crypto ecosystem needed a platform that can be an investor’s backend system — tracking, management and taxes all in one.”
The need for innovation has been quite evident in major sectors of the crypto market. Libra was stacked with members of different fintech companies. In the meantime, fintech unicorns like Chime and Plaid have reached their valuations mainly from different investments by firms in the finance sector like Goldman Sachs Group and Visa.
These companies seem to be curious about digital assets but they are terrified of the uncertainty that surrounds them. Hence, it seems like 2020 will be a put-up-or-shut-up moment for cryptocurrency. Coins must start to prove their merit or they will disappear.