Cryptocurrency: soon a means of daily payment?

 While virtual currencies are multiplying, and traditional currencies are going through a period of crisis, the democratization of cryptocurrencies is starting to be confirmed on an economic scale. The next few years could mark an intensification of the diffusion of cryptocurrencies observed in recent years. From then on, the spread of this new form of currency in everyday life could lead to particularly interesting economic and financial reactions.

Discover in this article the different factors that lead us to believe that virtual money will soon be part of our daily means of payment and our thoughts on how the individual investor can benefit from this major turning point in the history of money.

Virtual currency: the multiplication of flows and global users

The multiplication of cryptocurrency flows in recent years

In 2018, the number of cryptocurrency users was estimated at 35 million worldwide. Today, according to a study by the University of Cambridge, there would be nearly 100 million crypto holders in the world in the first half of 2020, an increase of nearly 185% despite the fall in the prices of the main cryptocurrencies over this period.

These numbers are reflected in the capitalization of the major cryptocurrencies. Bitcoin represented a total of $15Bn in December 2016 compared to $290Bn currently. If we have to compare this valuation with the GDP to give an order of magnitude, Bitcoin represented 0.6% of the French GDP at the end of 2016 versus more than 13% today. In other words, the capitalization of Bitcoin is now greater than that of companies like LVMH in France or Bank of America in the United States.

Increasing demand for cryptos from users

The resulting increase in global flows can be explained by two comparative advantages of cryptocurrencies:

  • Recently, financial institutions have been showing a real interest in cryptocurrencies. These players are betting on cryptos out of repulsion to traditional currencies (or out of interest in the face of the recent drop in financial stress). For their part, major institutions like PayPal are also opening up to cryptos.
  • We also see the emergence of a distinction between usage and savings currencies as well as the emergence of a need for decentralization. Negative rates have the effect of accentuating the difference between usage and saving money; and above all, implicitly increasing the risk-taking of agents. This favors the use of cryptocurrencies: both because of their independence from central banks and because of their global and decentralized nature (where the law of each state does not apply directly).

The giant Paypal allows using cryptocurrencies to pay for its purchases

In a statement via Reuters, PayPal announced that it is "joining the cryptocurrency market [...] by allowing customers to buy, sell and hold bitcoin and other digital assets, using the company's online wallet accounts." This new option on the PayPal platform is expected to go live in the first half of 2021. This option will be handled at the regulatory, technological, and liquidity levels by the broker Paxos Crypto Brokerage.

In addition, PayPal intends to eventually distribute the main cryptocurrencies for its 346 million active PayPal accounts (accounts that exchanged for more than $220bn in transactions in the second quarter of 2020). This means that eventually, the potential number of cryptocurrency users will be up to 3 times the current number of users with PayPal's decision alone.

PayPal CEO Dan Schulman has also made no secret of his ambitions for cryptocurrencies. He intends to work with the Central Banks to find the maximum means for PayPal to impose itself in this field. PayPal's decision to consider this new form of currency as an opportunity has created a real euphoria behind the scenes of the markets, and many institutions have immediately reviewed their positioning.

Facebook should soon allow paying with its own cryptocurrency

After the announcement of the Libra project in June 2019, the regulatory wills of many states and the abandonment of supporters like PayPal or Visa pushed for the project to be revised. Bloomberg announced in early December that the Libra project was being renamed, Diem. This one would have 27 participants, far from the 100 initially announced. This stablecoin, Diem, which should be launched in early 2021 according to the Financial Times, would also be indexed to the Dollar at first.

Even if this cryptocurrency remains linked to traditional currencies, it should not be forgotten that Facebook has over 2 billion users. Here again, the potential for democratization is disproportionate, although less than that initially projected by Facebook.

Central banks trouble their very own tokens

The 21st century will most certainly mark monetary history. In the past, we have already seen the appearance of underground currencies in reaction to abusive monetary degradation. But this time, the scope of this historical figure seems more concrete and paradoxically supported by some Central Banks.

The multiplication of private crypto-currencies, in a digital world where the free choice of one's own currency would become the norm, is prompting Central Banks (and States in terms of regulation) to enter the game to avoid being caught in the trap. Many Central Banks are considering creating their own digital currencies: the MNBC (Central Bank Digital Currencies) also known as CBDC (Central Bank Digital Currency).

The reduction of cash exchanges and the multiplication of exchanges in private currencies is pushing institutions like the Bank of France to launch their own tokens. For example, in December 2019, the Bank of France announced the creation of a digital currency first tested in the context of financial institutions.

How to take advantage of the democratization of virtual currencies?

The increase in users leads to a rise in cryptocurrency prices

In light of our 21st-century economy, and thus the growing need for decentralization and international monetary freedom, we can legitimately expect the democratization of recent years to intensify for cryptocurrencies.

The democratization of crypto-currencies is undeniably a bullish price factor on currencies like Bitcoin, which has a limited amount of units in circulation. It is therefore obvious that a direct impact of the massive democratization of cryptocurrencies is the increase in futures prices. In fact, this is what played as a trigger, in addition to the fall of financial stress, to the rally in the prices of BTC or ETH (Ethereum) in recent months.

Although the rise in the last few weeks is due to more fundamental reasons, the fact remains that democratization directly reinforces the long-term bullish potential of cryptocurrencies (compared to previous years).

The cryptocurrency ecosystem is doing well

Another indirect effect of the democratization of cryptocurrencies is the development of real industry in the field. We will mainly mention the emergence of Decentralized Finance (Defi) of which ChainLink, Wrapped Bitcoin, Dai, or Aave are the main players.

In addition, there are also positive effects for all platforms that allow investments in cryptos. The fact that cryptos are democratizing at the level of transactions should systematically translate into democratization at the level of savings or similar. We will mention here players like Binance, CoinBase, or even platforms in the making like SwissBorg which are seeing their number of users grow.

In any case, just as traditional currencies are linked to the banking industry, virtual currencies are linked to the crypto industry. It is therefore particularly appropriate to look at the companies with the greatest potential in the face of the massification of cryptos. Well beyond the future of the industry, cryptocurrencies have the advantage of being able to develop a fast and usable payment system in a very large part of the countries of the world, which does not allow a traditional national currency that remains, in comparison, a brake on global trade.

The health crisis: a major turning point in the democratization of crypto-currencies?

The Covid-19 crisis will have been a real opportunity for cryptocurrencies. The democratization of the last few years has convinced many institutions to take the plunge, such as Facebook, some Central Banks, and more recently PayPal. This context opens for the next few years a very important democratization potential, most certainly higher than it has been in recent years. Cryptocurrencies, after having imposed themselves in the financial landscape in recent years, should now make their entry into the economic landscape. Cryptos appear as a means of payment (or even investment/savings) in everyday life.

All our records are, with the aid of using natural, generic. It does now no longer don't forget your private state of affairs and does now no longer represent in any manner customized hints for the conclusion of transactions and can not be assimilated to a monetary funding recommendation service, nor to any incitement to shop for or promote monetary instruments. The reader is solely responsible for the use of the information provided, without any recourse against the publishing company of being possible. The publishing company of cannot be held responsible for any error, omission, or inappropriate investment.

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