Last year was a positive one for the cryptocurrency space: prices and activity grew while businesses innovated to make cryptocurrencies more user-friendly and bring them one step closer to mainstream adoption.
Looking ahead, it’s possible to tell what’s shaping the cryptocurrency space this year and some of the crypto trends for 2020 are all about actual use cases that may drive up demand while further legitimizing cryptos as an asset class.
It’s now possible, using decentralized protocols and blockchain technology, to save up for retirement, to trade on highly advanced platforms using technical orders and systems, and to diversify a portfolio to gain exposure to cryptoassets without having to manage any private keys.
These trends are creating real use cases for cryptoassets. While these may be mostly associated with the financial sector, the immutability of the Bitcoin and Ethereum blockchains are set to keep attracting new users over time.
Decentralized Finance (DeFi)
Decentralized Finance – DeFi for short – refers to the ecosystem of financial applications being developed on top of decentralized blockchain. It promotes the use of smart contracts and open source software in financial services and products via decentralized, permissionless applications.
Most decentralized finance applications are currently on top of the Ethereum blockchain. These have so far launched a number of services:
· Monetary banking services: stablecoin issuance, collateralized loans
· Advanced financial instruments: tokenization platforms, prediction markets
· Peer-to-peer lending and borrowing services.
As the decentralized financial space keeps growing this year, DeFi DApps will be used to help bank the unbanked via these services and others, which could include funding protocols, index construction, subscription payment protocols, and more.
Staking and Lending
Staking and lending aren’t just services offered via decentralized financial applications anymore: they’re being offered by exchanges and wallet operators to attract users as competition keeps growing.
As the U.S. Federal Reserve prints money to help the economy survive the shelter-in-place policies governments have adopted to fight the coronavirus outbreak, interest rates remain low with bond yields in the U.S. only going up to 1.17%, not even enough to keep up with inflation.
German government bonds are now all in negative territory. Lending the German government money that will only be repaid in 30 years fields -0.088%. As people throughout the world deal with economic activity grinding to a halt, a potential stock market crash, and low-interest rates, compounding earnings on currencies like Bitcoin – with a limited supply and stable issuance – may be a sound strategy.
Tokenization can be defined as the process of turning things into digital assets. If an individual owns a property and wants to sell it, thanks to the immutability of blockchain like that of Ethereum and to tokenization, it will be able to turn the property into a token and sell without the need for a third-party, via a smart contract.
This is, of course, a bit far into the future. For now, it’s possible to have a modern take on securitization – the process of pooling various types of contractual debt obligations and selling their cash flows to investors as securities – by using the blockchain. Tokenization is, as such, a more transparent, secure form of securitization.
Cryptocurrencies are known for being volatile, unpredictable, and uncorrelated. These features create an ever-growing demand for derivatives – futures, forwards, swaps, and options – as traders try to take advantage of the drastic price swings in crypto.
Most platforms letting users trade crypto derivatives are cryptocurrency exchanges that added futures, options, and swaps to their offerings. OKEx, Binance, and other trading platforms now let traders leverage their positions to bet on the future price of a cryptoassets. There are, however traditional exchanges offering both cash-settled and physically-settled, as is the case with the CBOE and Bakkt.
ETPs and ETFs
Exchange-traded products (ETPs) and exchange-traded funds (ETF) are a missing piece of the puzzle when it comes to cryptocurrencies as an asset class. These products track underlying securities or indexes and trade similarly to stocks on exchanges. There are crypto ETPs out there already, tracking the price of BTC, LTC, ETH, BNB, and others. These give investors exposure to the cryptoassets, without them having to actually manage any private keys or wallets.
An exchange-traded fund (ETF) hasn’t been launched yet, as the U.S. Securities and Exchange Commission has been rejecting every proposed Bitcoin ETF so far. The situation has seen Commissioner Hester Peirce file a dissenting statement disapproving of the SEC’s rejections and accusing it of having “ever-shifting standards” when it comes to Bitcoin-related products.
ETFs are much better understood in the investment world than cryptocurrencies, and a bitcoin ETF could boost the cryptocurrency space’s liquidity to unprecedented levels.
Staying on top
As you can probably tell, there are a lot of moving pieces in the cryptosphere and trends change rapidly. To stay competitive and to ensure your brand is too, you may need help to stay on top of these trends as your marketing strategy should take them into account. Paradox Group has been in the space for 2 years and can help you reach your target audience while staying on top of the key market trends in the industry. Get started on your campaign today.