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20 Blockchain Predictions for 2020

• Blockchain is entering a pivotal year in 2020, a period that will decide not just the future of cryptocurrency, but blockchain and the very idea of decentralization.

By Andrew Keys January 7, 2020

As a Managing Partner at Digital Asset Risk Management Advisors (DARMA Capital), and former Head of Global Business Development at blockchain software powerhouse ConsenSys, I’ve had an inside look at the rapid development of blockchain technology, the extreme volatility of crypto markets, and the emerging ecosystem and culture of decentralization. And let me tell you: Blockchain is entering a pivotal year in 2020, a period that will decide not just the future of cryptocurrency, but blockchain and the very idea of decentralization.

Buckle up, because it’s going to be quite the ride. Here are 20 predictions for blockchain in 2020.

1. Ethereum right now is like dial-up internet in 1996—14.4kbps. Soon it will be the equivalent of broadband.

Remember the days of dial-up internet? Let me take you back to 1996: although AOL was quickly becoming a household name, getting online for most required swapping tangled wired connections and clogging up phone lines to access a limited range of products at a snail’s pace. With a 14.4kpbs connection, intrepid retail consumers could browse the world wide web while transferring data at 1.8kbs per second. To download a megabyte of data took over 9 minutes. All of the content was text-based and bare bones, but it worked! Casual observers could see that this technology would be useful, but few predicted the wholesale societal and economic transformation the internet would bring to the world within a matter of years.

Sound familiar? It’s directly analogous to where we’re currently at with blockchain. 2020 in blockchain years is the equivalent of 1996 in the internet era. Much like the internet, blockchain progress will kick into overdrive with Moore’s Law, and Ethereum 2.0 will be the big red button that launches us off of dial up and into broadband. (Disclosure: I’ve owned Ethereum for several years.) The signs are all there. Almost every sector and leading enterprise is looking into blockchain implementation, governments are terrified of being left behind and are scrambling to catch up, while the infrastructural elements are now in place for developers to build, deploy, and scale products. In 2020 we will begin to see what a decentralized future actually looks like.

2. Bitcoin and blockchain will finally break up

Bitcoin should be revered as the patriarch of digital assets. Bitcoin confluenced cryptography, peer-to-peer networking, a virtual machine, and a consensus formation algorithm to solve “the double spend” and “the Byzantine general’s problem” elegantly. That said, time moves on. The Bitcoin maximalists that believe Bitcoin is where this decentralizing technology might be are in for a rude awakening.

As blockchain reaches a scaling watershed, there’s one key differentiation that the world will come to acknowledge, one that enthusiasts are likely already very familiar with—the difference between Bitcoin, Ethereum and other decentralizing technologies. Bitcoin’s ascension to digital gold has been astounding, and has signaled the beginning of a whole new techno-economic era. But digital gold is just that—a beginning.

The current market capitalization of gold is $8 trillion dollars. That’s an eye-popping number, sure, but it represents a potential ceiling market opportunity for Bitcoin’s “digital gold.” Smart contract-enabled blockchains like Ethereum will digitize the global economy and unlock value in the whole spectrum of assets and processes. In turn, decentralized networks will reach into the farthest corners of every industry on the planet (and beyond). We will be able to digitally represent fiat, gold, software licenses, equity, debt, derivatives, loyalty points, reputation ratings, and much much more that we can’t even conceive of yet. That’s a market opportunity estimated at well over $80 trillion dollars. Bitcoin is a singular use case. Comparatively, Ethereum has infinite use cases.

3. The potential for global economic recession looms, fiat currencies be warned!

Economic uncertainty has been looming over the globe for years. It’s not so much a matter of if, but when the house of cards tumbles with major worldwide implications. Europe will likely be the first to hit recession. One look at the five biggest economies in the region and it’s clear. Germany’s Deutschebank is on life support. The United Kingdom has been eating itself with Brexit for years. France is in a state of constant protest. The Spanish and Italian economies are drowning. The European Union is by now only nominally a union, and growing divisions will leave many nations especially vulnerable.

With respect to the USA, let me paint two realities for you: In 2020, China and the U.S. finally reach a real trade deal. The economy gets a tailwind into 2021 and Donald Trump is re-elected. There’s another leg to this stock market blow-off phase. The house of cards lives another day. If there is no trade deal or no re-election and the global economy is further challenged, the bottom could fall out of Quantitative Easing Mania, and the value of many national currencies around the world will be challenged like never before. The value of fiat currencies could endure a precipitous drop in value via extreme inflation.

Digital assets have exiguous properties similar to gold and oil in that they are provenly scarce. If and when this crisis lands, the digital asset class will be the hedge to traditional central banking systems that resort to printing—and thus depreciating—currencies in times of crisis.

4. The U.S. will have to play catch-up after China’s big play in crypto and blockchain

In January 2020, a new suite of regulation will come into effect that represents a sharp about turn by the Chinese government towards a pro-blockchain and cryptocurrency stance. With new legislation towards mining, state news channels praising Bitcoin, and Chinese President Xi Jinping announced governmental support for blockchain technology in October, it’s clear that China is making its move. China’s central bank will soon test its own digital currency in the cities of Shenzhen and Suzhou with four state-owned commercial banks. Countries like the United States that may have been sluggish to take a leading role in supporting blockchain development will be left with little choice but to play catch-up, and the result will be a huge net positive for the industry.

5. We march onwards to Ethereum 2.0

The long-awaited Istanbul hard fork—the final hard fork of Ethereum 1.0—has successfully deployed. The Muir Glacier difficulty bomb delay update was the cherry on top. Vitalik Buterin has already released a block explorer for the Proof of Stake Beacon Chain, and the march towards Ethereum 2.0 is proceeding at a rapid clip. Proof of Stake Ethereum exists. It’s alive! The roadmap to Serenity is in full effect. 2020 will see Ethereum move stridently beyond Phase 0 of Ethereum 2.0, onto Phase 1 and the launch of shard chains. Then, it’s game on.

Ethereum developers have already proven their ability to work wonders, and that this decentralized team is now in the stride of hitting ambitious roadmap targets is the best indicator in all of blockchain for future success. To daily observers, this upgrading process may seem long and winding, but the extra time it takes to develop the network properly will benefit the entirety of humanity. While Web2 was defined by philosophies like ‘Move Fast, Break Things,’ Web3 should be guided by mantras like ‘Do it the Right Way This Time.’

6. Layer two scaling solutions will turbocharge Ethereum

Ogres, like onions—and like blockchain networks—are all about layers. With the rollout of the Istanbul hard fork, Ethereum is on its way towards 2.0 levels of scalability at layer one. Joe Lubin stated last year at SXSW that Ethereum will process millions of transactions a second. How it achieves this is a combination of steady upgrades to the layer one network and integration of layer two scaling implementations.

Poon and Buterik’s solution of Plasma’s “blockchains on blockchains” was not just brilliant and prescient, it was the inception of a whole sector of Layer Two development. Sharded chains may occupy much of the debate at the moment, but state channels being developed by Celer, Connext, and Counterfactual will be the massive mycelial data network underground that unleashes the main chain to operate unencumbered by state weight. Sidechains will transact the bulk of lower-risk transactions rapidly. Payment channels like Raiden will enable instantaneous token transfers, while ZK-Snarks will keep all of your data private amidst all the transactional action. The stack is all there, and 2020 will see 2.0 come to life.

In the meantime, innovations like Plasma’s Optimistic Virtual Rollup means that projects don’t have to wait for the transactional throughput they need to flourish. That’s huge. There was a time when blockchain scaling was driven by theory and hope. No longer! The incredible, global, decentralized dev teams working on Ethereum will change the world with this technology, and we are all eternally grateful.

7. Layers of the Web3.0 stack go live

A decentralized environment is about more than just shards and nodes, and we’ll see that manifest in in 2020. Web3.0 will be defined by mesh networks connecting smart contracts, file storage, messaging, payment channels, side chains, oracles—the list goes on. 2020 will see many essential infrastructural elements of Web3.0 go live.

What is Web3.0? Here’s a quick breakdown:

The digitization of all assets: Stocks, bonds, fiat currencies, electrons, loyalty points, software licenses, Beyonce concert tickets, insurance policies, derivatives and other assets previously inconceivable, will become natively digital.

The automation of agreements: Microsoft Word legal documents will turn into digitalIf > Then > Else lines of computer code that will move the aforementioned digital assets trustlessly, creating completely new business models like an employment agreement that gets paid by the minute, a piece of art that can pay a royalty to an artist every time it is sold from one owner to the next, a piece of real estate that can pay its investors automatically every time rent comes in, the ability to divide income amongst band members every time a song is played, or routing an electron efficiently to various parts of a micro-grid.

Self-Sovereign Identity: Instead of logging into Airbnb, Facebook, Uber, et al, you will log into your own self-sovereign browser, and will have the same ability to rent a hotel room, use social media or hail a car, but instead of the legacy application providers the same service will occur peer-to-peer, rather than through a thin layer of rent-seeking intermediation. You’ll get paid $1 dollar a day to look at advertising when on social media instead of Zuckerberg and your ride and home shares will be 2/3rd of the current cost.

Some examples: The Interplanetary File System has already showed the nature of data file storage on the decentralized web. Protocol Labs’ Filecoin builds on IPFS to rent users’ hard drive space for crypto. The platform is on schedule to launch in March, with the testnet just launched very recently.

Helium is a mesh network where stakeholders purchase nodes under $500 to provide low bandwidth for Internet of Things devices. Tom Shaughnessy of Delphi Digital recently noted, “Since going live on August 1, 2019, over 2,130 nodes are live on the network covering 90% of U.S. states across 425+ cities. At Verizon’s IoT costs (600KB/year for $12), Helium is underpricing Verizon by 99.9988% ($0.00001 for 24 bytes or 0.024 KB). This type of price consolidation we should expect from the next generation of cell phone service providers, data storers, and truly any intermediary via a decentralized world wide web.

Kyle Samani, and the team at Multicoin Capital have done a great job of mapping a potential Web3.0 software stack with examples of companies attempting to provide solutions. Although it remains the very early days and we’ll see tremendous competition for a hegemonic position for all layers of the Web3.0 stack, the Web3.0 stack will likely look a little something like this:

Credit: Multicoin Capital

8. Expect a radically altered blockchain landscape by 2021

By the turn of 2021, we will have a much clearer picture of whether newfangled layer one blockchain networks like Near, Polkadot, Dfinity, and Nervos will be able to contribute substantially to the blockchain ecosystem. Competition is good and I remind everyone that the goal is global disintermediation, decentralization, and the commoditization of trust, rather than a brand of protocol winning. That said, this sprint to layer one supremacy has only spurred on the development of Ethereum 2.0, and the many competing elements are experimenting with new ways to develop the best blockchain product. The answer to who will succeed lies with developers and users.

Ethereum still retains the most robust developer engagement by far. Some view this race as a winner-takes-all, but with so much to be gained from developing this new technology, coopetition will raise the tide for all. There could also be fit-for-purpose blockchains, that satisfy particular niches. New competitors to the layer 1 space will have to deal with Matteo Leibovitz’s “distribution quadrilemma,” which states criteria that new networks must simultaneously satisfy at launch to engender monetary premium. They are:

1. wide/equitable distribution
2. revenue generation
3. potential for upside
4. regulatorily compliant

The biggest challenge is requirement #4. If a VC or multiple whales own a large amount of a network’s tokens—a ubiquitous occurrence with layer one “Ethereum Killers” — it will be incredibly difficult to sway the SEC that the token isn’t a security, which means all those big investments and will disrupt nothing but VC piggy banks.

9. The tribulations of Libra will continue…

Facebook’s Libra will not go live in 2020 in any form of scale. The “decentralized wolf in sheep’s clothing” has already done much to bring blockchain to the forefront of global discourse—for better, and at times, for worse. But the company is learning fast that consensus and deployment do not always adhere to the best laid plans of even billionaires. When it does go live, Libra will undoubtedly be a force of education and adoption for billions of people. Farmville with crypto? I can’t wait! Before it gets to that point, however, expect Chinese organizations like WeChat, Alipay, and Alibaba to aggressively pursue first mover status in the space given the recently relaxed regime in the country. Trust in Facebook stagnates still as we enter another election year in the US. If social media has proven so earth-shakingly problematic, we can only guess what ills Facebook’s version of ‘social banking’ may hold within.

10. Trillion dollar companies signal the climax and end of the 3rd industrial revolution

Apple. Microsoft. PetroChina. Saudi Aramco. When the next behemoth rises over a trillion dollar valuation—it will stay there. That same company probably won’t pay a single dollar in U.S. taxes. This is a prime example of vast inequality in the value capture of our economic systems, and it’s only getting worse. Legacy Web2.0 companies are making billions for the shareholder capital class by using the individual as the product. They’re spilling personal data into the clutches of nefarious actors with alarming regularity. As more and more companies pass the trillion dollar mark, it will signal the blow-off phase of late capitalism. After the inevitable crash, we’ll be faced with a once-in-an-epoch opportunity for more equitable, democratized, and sustainable business models to proliferate. Will you be ready?

11. Self Sovereignty on the web will become a human right

With hacks and breaches in both Web2.0 and Web3.0 environments a daily occurrence, it’s clear that change is a necessity. Projects like the Decentralized Identity Foundation have taken major strides in establishing open source standards that will furnish the whole blockchain ecosystem with digital identity components that are trustworthy and decentralized. Blockchain IDs and zero-trust datastores like those created by uPort and 3box will rapidly replace the creaky walled databases we rely on now. Establishing this web of trust may be amongst the most important pieces of the blockchain puzzle in 2020.

Web2.0 stalwarts like IBM and Microsoft are well aware of the urgency of the issue, and they’ve allocated substantial resources to iterating digital identity in their own image. But self-sovereignty must be just that—owned by our selves—before the internet can be truly democratized. Ownership and privacy of data will soon be seen as a human right, and self sovereignty is the solution to attaining it.

12. Say it with me…CME Ether futures

After Bitcoin futures options in January, I have a feeling that it’ll be Ethereum’s turn. CME Ether Futures will be announced in 2020 and will go live in 2020. The CME has an almost 125 year history of innovation in financial instruments, birthing both new asset classes and digitizing the process of exchange along the way. With Bitcoin and Ethereum, the CME will continue this tradition of innovation, in turn catalyzing legitimacy for digital assets and opening access doors for mainstream investors and institutions to kickstart the next round of market growth for digital assets. Futures & options create forward demand curves that are a necessary precursor to a regulated ETF market. Our once child-like asset class is growing up.

13. A billion dollar DeFi ecosystem is a matter of months away

Decentralized Finance will continue to lead the industry in the first quarter of 2020. Over $600 million dollars are currently locked up in decentralized finance platforms. That number will cross one billion before summer. Organizations like a16z have bet big on platforms MKR and Compound, while projects like Synthetix, Uniswap, dYdX, and InstaDapp are furnishing a feverishly active sector of the blockchain ecosystem, one that isn’t immediately contingent upon scaling timelines. That said, DeFi organizations will probably have to spend some big legal dollars in compliance and lobbying. Just one example: in all 50 states, a company needs a specific license to lend to retail clients. When DeFi inevitably gets too big to ignore, regulators will roll out the red tape carpet.

14. The sleeping giant of blockchain awakens — supply chain

Counterfeit goods represent a market of over $1.8 billion dollars annually, with some estimates seeing that number rising over 10% as production and online distribution methods improve. Household names like Louis Vuitton and Levi’s have been quietly perfecting proof of concept trials with leading blockchain companies to ensure provenance and protect consumers on a global scale. Treum has already shown the value of blockchain-ensured supply chain processes on items ranging from salsa to tuna to skincare products. Now, major box retailers like Walmart and international food corporations Nestle and Dole are diving in head first. A recent report stated that companies in Western Europe alone are set to save $450 billion dollars in the next fifteen years with blockchain based supply chain solutions, with operating costs reduced almost 1% across the board. That’s a whole lotta tuna!

15. Art and music will take a lead in consumer-interfacing blockchain applications

Blockchain’s impact on art, music, and the creative space will be profound. In a 2014 report, The Fine Arts Expert Institute (FAEI) in Geneva stated that over 50% of artworks it had examined were either forged or not attributed to the correct artist. Blockchain can fix this now, and I’ve experienced it myself. This year, I purchased a work of art titled “The Human Way” by Vladimir Kush. The payment, certificate of authenticity, and ownership history were irrevocably recorded on the Ethereum blockchain with Treum. By this time next year, this process will be far more commonplace. And it’s not just provenance that makes the arts a prime field for blockchain implementation. Tokenized ownership and the establishment of equitable business models not beholden to gatekeepers have the attention of the art world already. Watch this space.

16. Proof of Work is dying while killing Earth. Long live Proof of Stake.

Retro gaming may be in vogue, but by the end of 2020, Proof of Work will be considered the Atari while we’re all getting used to the controls on the Proof of Stake Playstation. Vitalik Buterin and Ethereum were early adopters of the concept of Proof of Stake, and now there’s a whole industry of projects utilizing stake-based validators to uphold blockchain networks. The reason why is clear: Not only does it unlock the scalability trilemma in terms of speed and security, it is far less taxing on the Earth—y’know, the thing we’re trying to change with this whole decentralization movement anyway. Proof of Work is inherently wasteful, and what’s the point of revolutionizing economic systems if it means contributing to the destruction of the environment? It’s time to move forward.

17. Regulators gonna regulate

While the expectations of the blockchain and larger tech world may move fast, regulators and governments were built to move slowly. Digital assets have now moved out of a phase of distrust by legislative and regulatory institutions, and policy at both the agency and legislative level is aligning to unshackle the technology and streamline regulation. The most recent guidance from the IRS in October suggests that the US government acknowledges that virtual currencies will play a big part in the economy to come. Further, it is well known that the CFTC does not see Ether as a security. Wyoming’s leadership in this regard—with a total of 13 pro-blockchain laws—is behooving other states to catch up. And if there’s one thing that will provide an impetus for the federal government to move forward on the issue, it’s not being left behind by China. 2020 will see positive guidance on blockchain introduced at the state, national, and international level.

18. The unbanked remain unbanked — For now

Decentralized Finance is a remarkable phenomenon with major implications for both blockchain and global economies, but for the time being it will continue to fall short of the oft-repeated mantra and goal of ‘banking the unbanked’ via providing access to financial services to billions of people around the world who need it most. Why? As it stands, the lending community is insular, and issues around ‘reputation’ mean that those who need it most can’t access it. These will surely be ironed out over time, but for the duration of 2020, Decentralized Finance will continue to steadily grow in an enlarging, but closed circle. And that’s not a bad thing. Look at it this way: The sector is already approaching the billion dollar mark, and we’re still effectively in beta mode.

19. User Experience Will Have To Be Better Than Web2.0

Apple’s iPhone is the best selling phone ever because it’s simple and it works. That’s all the consumer needs to know. While many of us tech nerds get our jollies tinkering around the various layers of the Web3.0 stack, everything will need to be abstracted away for the typical Web3.0 user experience to appeal to the general populous. That’s why masterfully artistic UI/UX designers are as important to this industry right now as low layer distributed systems computer scientists.

But UX/UI isn’t just about clean lines and minimal design. From standards to libraries, toolkits, scaling solutions, onboarding, custody and wallet integration, there’s so much that has to be optimized beneath the screen to present that level of functional simplicity. Rimble is an example of an open-source library for creating improved user experiences for Web3.0 decentralized applications. Expect this to be a prime sector for development in 2020. While the first wave of decentralized consumer apps put blockchain front and center, the next will be led by projects that are more subtle and nuanced in the method of blockchain integration.

20. “If you’re going through hell… keep going” – Winston Churchill

The bubble and burst of cryptocurrency in 2017 was like an excessive frat house rager that led to a helluva hangover in 2018 and 2019. There are two types of bubbles, though. Some — like the housing crash of 2008 — leave behind debt encumbrances and waste, while others — like the dot.com bubble — establish foundational infrastructure and crystallize key organizations which go on to become a backbone of the industry. The crypto bubble is akin to the latter, and will lead to the real blockchain boom, one driven by utility, not speculation.

In the wake of crypto markets’ irrational exuberance in 2017 and equally irrational despondency in 2018, the core blockchain community of developers and technologists got to work, heads down, and focused on building infrastructure. Their labor is now bearing fruit. We’re at the crossroads of the next industrial revolution, and it begins in 2020. This progress towards global decentralization and automation will lead to the most prosperous society we’ve ever had.

Here’s to the roaring 20’s!

Andrew Keys is a managing partner of Digital Asset Risk Management Advisors (DARMA Capital), a digital asset investment fund. Previously, Andrew was head of global business development of ConsenSys, the largest software engineering firm in the world solely focused on creating blockchain solutions to build the future of the Internet. Jemayel Khawaja, Editorial Director at ConsenSys, aided in the research and writing of these predictions. This article is not intended as investment advice or solicitation. These are Andrew’s personal views and not that of DARMA Capital or ConsenSys.

Source: https://money.com/ethereum-bitcoin-blockchain-predictions/

SPONSOR: ThreeD Capital Inc. (IDK:CSE) Led by legendary financier, Sheldon Inwentash, ThreeD is a Canadian-based venture capital firm that only invests in best of breed small-cap companies which are both defensible and mass scalable. More than just lip service, Inwentash has financed many of Canada’s biggest small-cap exits. Click Here For More Information.

Bitcoin 2020: The Bottom is In and Prices are About to Surge, Several Analysts Claim

• Bitcoin corrected by over 50% from the 2019 high of $13,880.
• With the retracement in the last six months, some analysts believe that the bottom is in.
• The number one crypto is flashing accumulation signals convincing popular traders that the cryptocurrency has turned bullish in 2020.

Bitcoin may have started 2019 strong but ever since it posted a high of $13,880 in June, the top cryptocurrency has been correcting. It dropped to as low as $6,425 in December. At that point, bearish calls for a revisit to $5,000 levels were strong.

One analyst expecting bitcoin to drop to $5,000. | Source: Twitter

Those who have been waiting to buy below $6,000 have been left out. The digital gold is now trading above $7,000 and analysts are expecting bitcoin to leave this price area soon. Many see a base being formed, which can propel the number one cryptocurrency to greater heights early this year.

Analysts Claim Bitcoin Has Bottomed Out

After a weak second half of 2019, it appears that the worst is behind for the most dominant cryptocurrency. A number of widely-followed analysts on Twitter say that bitcoin is carving a bottom.

For instance, Faisal Sohail believes that the cryptocurrency has already tapped the bottom when it dropped to $6,475 in December. He believes that the digital asset will trade between $7,000 and $12,000 before the halving. ” alt=”” aria-hidden=”true” /> Bitcoin to start climbing before the May 2020 halving. | Source: Twitter

User Bitcoin Macro supports Faisal’s view. In an emphatic tweet, Bitcoin Macro exclaims that the bottom is already in. He also tells his followers not to get shaken out.

Majin, Crypto Twitter’s biggest bull, has also turned bullish after months of uncertainty. The liquidity game theorist believes bitcoin will take off and leave $7,000 behind.

Accumulation Pattern to Send Bitcoin Above $11,600

BTC has been range trading between $6,700 and $7,600 since November 20, 2019. That’s a $900 range over 45 days. To many analysts, this is a sign that a new base is being built to prepare bitcoin for the next leg up, hence, the call for a bottom.

Charles Edwards, head of digital investment firm Capriole, sees a potential accumulation pattern forming. More importantly, he believes that the bottom is already in. According to Edwards, his bias would be confirmed once bitcoin trades above $8,000.

Charles Edwards sees a Wyckoff accumulation pattern developing in bitcoin. | Source: Twitter

Edwards is not alone in seeing a pattern indicating that whales and other smart money investors are accumulating the largest cryptocurrency. Trader CryptoWolf also sees an accumulation pattern developing. His bias will be confirmed once the price goes above $8,090. A move above that level would also trigger the breakout from a large falling wedge.

CryptoWolf’s initial target is $9,550 and then $11,600.

Bitcoin needs to take out $8,090 to gain bullish momentum. | Source: Twitter

Traders Starting to Have a Rosy Outlook

With these signals, other traders are expressing their optimism on the prospects of the top cryptocurrency. The popular trader The Crypto Dog tweeted that he’s bullish on bitcoin.

It is not everyday that The Crypto Dog posts bullish tweets on bitcoin | Source: Twitter

The widely-followed Crypto Rand shares The Crypto Dog’s upbeat outlook on the dominant cryptocurrency. The Crypto Rand is also bullish on bitcoin | Source: Twitter

Is it a coincidence that the top analysts are tweeting bullish statements on bitcoin as the top cryptocurrency prints an accumulation pattern? Probably not. It’s very likely that these analysts are also seeing the bottom or base-building signals on the number one coin. If they’re right, then strap in. Bitcoin’s 2020 price action might start off with fireworks.

Source: https://www.ccn.com/bitcoin-2020-bottom-prices-about-to-surge/

SPONSOR: ThreeD Capital Inc. (IDK:CSE) Led by legendary financier, Sheldon Inwentash, ThreeD is a Canadian-based venture capital firm that only invests in best of breed small-cap companies which are both defensible and mass scalable. More than just lip service, Inwentash has financed many of Canada’s biggest small-cap exits. Click Here For More Information.

Why 2020 will be a big year for crypto

• 2020 is going to be a big year for crypto. 

• The “Crypto Winter” of 2018/2019 flushed out much (but certainly not all) of the nonsense, and the market has significantly matured over the last few years.

In 2020, I expect accelerating crypto asset adoption, and key building blocks will come into place for crypto to achieve its long-term potential of revolutionizing how value is stored and transferred around the world. 

I think my 85 theses from ~7 months ago have aged pretty well. Here, I’ll focus on the 15 most impactful developments I expect to see in 2020.   

Institutional Investing 

• The Global Macro Investors Come In

Ray Dalio clearly laid out the global macro thesis for crypto when he said:

“So, the big question worth pondering at this time is which investments will perform well in a reflationary environment accompanied by large liabilities coming due and with significant internal conflict between capitalists and socialists, as well as external conflicts. It is also a good time to ask what will be the next-best currency or storehold of wealth to have when most reserve currency central bankers want to devalue their currencies in a fiat currency system.”

Ray’s conclusion was to buy gold. In 2020, I believe large global macro hedge fund investors (potentially even Ray) will publicly take the position that bitcoin is a logical asset to hold if you believe this narrative.

• Traditional Asset Managers Continue to Trickle In

I am very encouraged by the State Street survey indicating 94% of their clients hold digital assets or related products, and a survey of endowment funds in which 94% of them stated that they invested in crypto assets over the last year.

I expect these types of traditional asset managers to continue to show strong interest in crypto in 2020, but do not expect massive inflows from this segment. 

The primary reason for this is that portfolio manager incentives are not conducive to encouraging large crypto allocations.  Currently, crypto is still a non-consensus investment. If a portfolio manager gets behind investing in crypto, and it does well, they probably get a nice bonus (but not the types of payouts available to those investing their own money or 2/20 hedge funds); however, if it does poorly (or they lose money in an operational issue like an exchange hack), they get fired for losing client funds in “magical internet money.”

The portfolio manager who sticks with the consensus position of not taking a meaningful bet on crypto keeps their cushy job. Eventually, I believe the consensus will shift to the position that crypto has a role to play in a diversified portfolio, but not this year.  

Retail Investing 

• Bitcoin Derivatives Trading Grows, Altcoin Trading Shrinks

For active retail traders looking for quick gains, long-tail altcoin trading was once the place to find the volatility and potential they sought.

Now, with altcoins down 90%+ from highs, active traders are increasingly moving to leveraged bitcoin derivatives trading, which offers the volatility they seek, in an asset that is not on its way to zero. 

I expect volumes on U.S. regulated crypto derivatives exchanges (e.g., CME, Bakkt) to grow strongly, but the center of activity this space will continue to come from exchanges that cater to non-U.S. retail traders (BitMEX and the like).

• Stats Get Stacked (and Earn Interest)

While derivatives are great for active traders, the more important developments for those accumulating crypto are those that enable them to easily grow their holdings.

In 2020, this will happen in two ways: 1) The ability to earn crypto for retail activity will accelerate as more ecommerce and payment companies integrate this into their offerings, and 2) Crypto holdings will increasingly migrate to places where they earn interest, such as BlockFi, Celsius, and Voyager. 

• Automated Tax-Loss Harvesting Becomes Available

Crypto taxes are a disaster not only due to the horrendous reporting from many exchanges but also because investors are missing out on the ability to significantly reduce their taxes via automated tax-loss harvesting.

Personal Capital and robo-advisors made tax-loss harvesting mainstream for traditional assets, and in 2020, this will finally come to crypto (along with better tax reporting).  

Market Structure

• Fewer Exchanges, More Brokerages

The number of crypto exchanges exploded over the last few years. In 2020, I expect this to rationalize. Exchanges are inherently network effect businesses (liquidity begets liquidity), and smaller players will fall behind, and either be acquired, fold, or pivot their business models.

I expect those that excel at acquiring and servicing customers will become brokerages and source their liquidity from other exchanges or large liquidity providers.  

• Use of Third-Party Custodians Increases

Exchanges and brokerages will increasingly use third-party custodians as they focus on their core competencies. This will make the market safer (as assets are custodied with best-in-class providers) and will eventually increase capital efficiency, as assets held at major custodians will provide buying power across multiple exchanges.  

The emergence of instant crypto settlement solutions (think Silvergate Exchange Network for crypto) from large crypto custodians will also be a major development in 2020, and further increase the utility of market participants holding their assets with these custodians.

• Crypto Friendly Banks Scale 

Obtaining fiat banking accounts and payment services has been, and will continue to be, one of the biggest issues for crypto companies. Around the world, large risk adverse banks will continue to shy away from banking the crypto industry, providing an opening for new entrants and smaller players to fill the gap as technology-driven intermediaries, or full-stack de novo banks. In 2020, I expect some new entrants to run into significant issues with regulators, while those that are able to navigate regulatory pressures will scale impressively.    

• Lending Market Grows

The crypto lending/borrowing market flourished in 2019, let by companies such as Genesis, BlockFi, and Celsius.

I expect volumes will continue to significantly expand in 2020 across several vectors: 1) Traders borrowing crypto to short and overcome capital inefficiencies, 2) Investors borrowing dollars using their crypto as collateral (much more tax efficient then selling), and 3) Crypto companies becoming de facto banks by taking stablecoin deposits and making stablecoin loans. 

• Counterparty Risk Flares Up

The counterparty risks from holding assets with exchanges (e.g., hacks) and payment processors (e.g., Bitfinex / Crypto Capital debacle) have been the most notable to date.

This year, counterparty risk from defaults by uncollateralized crypto borrowers and from direct counterparties failing to deliver on trades (i.e., Herstatt Risk) could also come to light if we see significant downside volatility. 

These are likely to be smaller flare-ups vs. systematic blow-ups and will help the market mature as market participants become more discerning in selecting counterparties and using solutions to minimize these risks. 

Stablecoins

• USD Stablecoin Market Cap and Volumes Accelerate

Tether’s remarkable resilience has demonstrated insatiable demand by market participants not directly served by U.S. banks to have USD denominated accounts to settle trades and store value. Despite significant regulatory uncertainty, I expect Tether’s market cap to continue to continue to grow in 2020. 

The regulated fiat-backed USD stablecoin market (USDC, TUSD, PAX) will experience huge growth rates (off a relatively small base) as they become the money transfer rail for use cases the need a solution that 1) is regulated and 2) runs on a open network (anyone with a crypto wallet can send/receive).

This will be a compelling position that sits between the Silvergate Exchange Network (regulated + closed network) and Tether (unregulated + open network).

• International Stablecoins Grow

I expect stablecoins for many other major currencies will also start to gain traction as a regulated, open money movement rail for those currencies. 

Longer term, things get really interesting as liquid markets develop between stablecoins of various currencies and provide a 24/7, global, highly efficient FX market that is accessible to everyone (and sidesteps the correspondent banking system). Eventually, I expect the market cap of stablecoins will surpass that of bitcoin. 

• Central Bank Digital Currencies (CBDCs) Remain Mostly Conceptual

Most contemplated CBDCs are significantly different than stablecoins such as USDC. With CBDCs, the recordkeeping of the value owned by individuals and businesses is centralized with a central bank. There are only a few situations where a central bank / government is likely to take over this recordkeeping function (e.g., China).

I do not expect any major CBDCs to be launched in 2020 (other than small scale PoCs) but do expect significant developments in 2021 and beyond. 

Emerging Markets Usage

• Emerging Market Adoption Continues to Grow

The adoption of crypto assets in markets with hyperinflation has grown significantly and will continue to do so. The interesting question will be if bitcoin or stablecoins emerge as the primary winner in these regions.

My heart hopes that it’s bitcoin, but my head says it will be stablecoins. 

DeFi

• Impressive Innovation, Little Adoption

The most innovative developments in crypto continue to be in DeFi (decentralized lending, derivatives, exchange, prediction markets, etc.), but 2020 breakout growth in this area is highly unlikely.

Currently, these solutions simply do not solve problems better than centralized options, and each of the smart contract platforms have issues that will complicate adoption (with ETH it is the complexity of their development roadmap).

Bullish on DeFi long-term, but not this year.

Source: https://www.theblockcrypto.com/post/51876/why-2020-will-be-a-big-year-for-crypto

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Institutional Investment in Crypto: Top 10 Takeaways of 2019

By: Scott Army

This post is part of CoinDesk’s 2019 Year in Review, a collection of 100+ op-eds, interviews and takes on the state of blockchain and the world. Scott Army is the founder and CEO of digital asset manager Vision Hill Group. The following is a summary of the report: “An Institutional Take on the 2019/2020 Digital Asset Market”.

No. 1: There’s bitcoin, and then there’s everything else.

The industry is currently segmented into two main categories: Bitcoin and everything else. “Everything else” includes: Web3 innovation, Decentralized Finance (“DeFi”), Decentralized Autonomous Organizations, smart contract platforms, security tokens, digital identity, data privacy, gaming, enterprise blockchain or distributed ledger technology, and much more.

Non-crypto natives are seldom aware that there are multiple blockchains. Bitcoin, by virtue of it being the first blockchain network brought into the mainstream and by being the largest digital asset by market capitalization, is often the first stop for many newcomers and likely will continue to be for the foreseeable future.

No. 2: Bitcoin is perhaps market beta, for now.

In traditional equity markets, beta is defined as a measure of volatility, or unsystematic risk an individual stock possesses relative to the systematic risk of the market as a whole.  The difficulty in defining “market beta” in a space like digital assets is that there is no consensus for a market proxy like the S&P 500 or Dow Jones.  Since the space is still very early in its development, and bitcoin has dominant market share (~68 percent at the time of writing), bitcoin is often viewed as the obvious choice for beta, despite the drawbacks of defining “market beta” as a single asset with idiosyncratic tendencies.

Bitcoin’s size and its institutionalization (futures, options, custody, and clear regulatory status as a commodity), have enabled it to be an attractive first step for allocators looking to get exposure (both long and short) to the digital asset market, suggesting that bitcoin is perhaps positioned to be digital asset market beta, for now.

No. 3: Despite slow conversion, substantial progress was made on growing institutional investor interest in 2019.

Education, education, education.  Blockchain technology and digital assets represent an extraordinarily complex asset class – one that requires a non-trivial time commitment to undergo a proper learning curve. While handfuls of institutions have already started to invest in the space, a very small amount of institutional capital has actually made it in (relative to the broader institutional landscape), gauged by the size of the asset class and the public market trading volumes. This has led many to repeatedly ask: “when will the herd actually come?”

The reality is that institutional investors are still learning – slowly getting comfortable – and this process will continue to take time.  Despite educational progress through 2019, some institutions are wondering if it’s too early to be investing in this space, and whether they can potentially get involved in investing in digital assets in the future and still generate positive returns, but in ways that are de-risked relative to today.

Despite a few other challenges imposed on larger institutional allocators with respect to investing in digital assets, true believers inside these large organizations are emerging, and the processes for forming a digital asset strategy are either getting started or already underway. 

No. 4: Long simplicity, short complexity

Another trend we observed emerge this year was a shift away from complexity and toward simplicity. We saw significant growth in simple, passive, low-cost structures to capture beta. With the lowest-friction investor adoption focused on the largest liquid asset in the space – bitcoin – the proliferation of single asset vehicles has increased.  These private vehicles are a result of delayed approval of an official bitcoin ETF by the SEC.

In addition to the Grayscale Bitcoin Trust, other bitcoin-focused products this year include the launch of Bakkt, the launch of Galaxy Digital’s two new bitcoin funds, Fidelity’s bitcoin product rollout, TD Ameritrade’s bitcoin trading service on Nasdaq via its brokerage platform, 3iQ’s recent favorable ruling for a bitcoin fund and Stone Ridge Asset Management’s recent SEC approval for its NYDIG Bitcoin Strategy Fund, based on cash-settled bitcoin futures. 

We also observed a growing institutional appetite for simpler hedge fund and venture fund structures. For the last several years, many fundamental-focused crypto-native hedge funds operated hybrid structures with the use of side-pockets that enabled a barbell strategy approach to investing in both the public and private digital asset markets.  These hedge funds tend to have longer lock-up periods – typically two or three years – and low liquidity. While this may be attractive from an opportunistic perspective, the reality is it’s quite complicated from an institutional perspective for reporting purposes. 

No. 5: Active management’s been challenged, but differentiated sources of alpha are emerging.

For the year-to-date period ended Q3 2019, active managers were collectively up 30 percent on an absolute return basis according to our tracking of approximately 50 institutional-quality funds, compared to bitcoin being up 122 percent over the same time period. 

Bitcoin’s performance this year, particularly in Q2 2019, has made it clear that its parabolic ascents challenge the ability of active managers to outperform bitcoin during the windows they occur. Active managers generally need to justify the fees they charge investors by outperforming their benchmark(s), which are often beta proxies, yet at the same time they need to avoid imprudent risk behavior that can potentially have swift and sizable negative effects on their portfolios. 

Interestingly, active management performance from the beginning of 2018 consistently outperformed passively holding bitcoin (with the exception of “opportunistic” managers who also take advantage of yield and staking opportunities, as of May 2019). This is largely due to various risk management techniques used to mitigate the negative performance drawdowns experienced throughout the extended market sell-off in 2018.

Source: Vision Hill Group

Although 2019 has challenged the large-scale success of these alpha strategies, they are nonetheless in the process of proving themselves out through various market cycles, and we expect this to be a growing theme in 2020.

No. 6: Token value accrual: Transitioning from subjective to objective

At the end of Q3 2019, according to dapp.com, there were 1,721 decentralized applications built on top of ethereum, with 604 of them actively used – more than any other blockchain. Ethereum also had 1.8 million total unique users, with just under 400,000 of them active – also more than any other blockchain. Yet, despite all this growing network activity, the value of ETH has remained largely flat throughout most of 2019 and is on track to end the year down approximately 10 percent at the time of writing (by comparison, BTC has nearly doubled in value over the same period). This begs the question: is ETH adequately capturing the economic value of the ethereum network’s activity, and DeFi in particular?

A new fundamental metric was introduced earlier this year by Chris Burniske – the Network Value to Token Value (“NVTV”) ratio – to ascertain whether the value of all assets anchored into a platform can be greater than the value of the base platform’s asset.

The ETH NVTV ratio has steadily declined throughout the last few years. There are likely to be several reasons for this, but I think one theory summarizes it best: most applications and tokens built and issued atop ethereum may be parasitic. ETH token holders are paying for the security of all these applications and tokens, via the inflation rate that is currently given to the miners – dilution for ETH holders, but not for holders of ethereum-based tokens.

This is not a bullish or bearish statement on ETH; rather it is an observation of early signs of network stack value capture in the space.

No. 7: Money or not, software-powered collateral economies are here

Another trend we observed this year is a larger migration away from “cryptocurrencies” in an ideological currency (e.g., money/payment and a means of exchange) sense, and toward digital assets for financial applications and economic utility.  A form of economic utility that took the stage this year is the notion of software-powered collateral economies. People generally want to hold assets with disinflationary or deflationary supply curves, because part of their promise is that they should store value well.  Smart contracts enable us to program the characteristics of any asset, thus it is not irrational to assume that it’s only a matter of time until traditional collateral assets get digitized and put to economic use on blockchain networks. 

The benefit of digital collateral is that it can be liquid and economically productive in its nature while at the same time serving its primary purpose (to collateralize another asset), yet without possessing the risks of traditional rehypothecation. If assets can be allocated for multiple purposes simultaneously, with the risks appropriately managed, we should see more liquidity, lower cost of borrowing, and more effective allocation of capital in ways the traditional world may not be able to compete with. 

No. 8: Network lifecycles: An established supply side meets a quiet but emerging demand side.

Supply side services in digital asset networks are services provided by a third party to a decentralized network in exchange for compensation allocated by that network. Examples include mining, staking, validation, bonding, curation, node operation and more, done to help bootstrap and grow these networks. Incentivizing the supply side is important in digital assets to facilitate their growth early in their lifecycles, from initial fundraising and distribution through the bootstrapping phase to eventual mainnet launches.

While there has been significant growth of this supply side of the equation in 2019 from funds, companies, and developers, the open question is how and when demand for these services will pick up. Our view is that as developer infrastructure continues to mature and activity begins to move “up the stack” toward the application layer, more obvious manifestations of product-market fit are likely to emerge with cleaner and simpler interfaces that will attract high volumes of users in the process. In essence, it is important to build the necessary infrastructure first (the supply side) to enable buy-in from the end users of those services (the demand side).

No. 9:  We are in the late innings of the smart contract wars.

While ethereum leads the space on adoption and moves closer to executing on its scalability initiatives, dozens of smart contract competitors fundraised in the market throughout 2018 and 2019 in an attempt to dethrone ethereum.   A handful have formally launched their chains and operate in mainnet as of the end of 2019, while many others remain in testnet or have stalled in development.

What’s been particularly interesting to observe is the accelerative pace of innovation – not just technologically, but economically (incentive mechanisms) and socially (community building) as well.  We expect many more smart contract competitors operating privately as of Q4 2019 to launch their mainnets in 2020. Thus, given the incoming magnitude of publicly observable experimentations throughout 2020, if a smart contract platform does not launch in 2020, it is likely to become disadvantageously positioned relative to the rest of the landscape as it relates to capturing substantial developer mindshare and future users and creating defensible network effects.

No. 10: Product-market fit is coming, if not already here

We don’t think human and financial capital would have continued pouring into the digital asset space in such great magnitude over the last several years if there wasn’t a focus on solving at least one very clear problem. The questionable sustainability of modern monetary theory is one of them, and Ray Dalio of Bridgerwater Associates has been quite vocal about it. Big Tech centralization is another. There are also growing global concerns related to data privacy and identity. And let’s not forget cybersecurity. The list goes on. We are at the tip of the iceberg as it relates to the products and applications blockchain technology enables, and mainstream users will come with growing manifestations of product-market fit. As more time and attention gets spent on diagnosing problems and working on solutions, the industry will begin to achieve its full potential. Facebook’s Libra and Twitter’s Bluesky initiative confirm that as an industry we are heading in the right direction.  

A 2020 look ahead

We see 2020 shaping up to be one of the brightest years on record for the digital asset industry. To be clear, this is not a price forecast; if we exclusively measured the health of the industry from a fundamental progress perspective, by various accounts and measures we should have been in a raging bull market for the last two years, and that has not been the case. Rather, we expect 2020 to be a year of accelerated industry maturation.

Source: Vision Hill Group

Digital assets are still an emerging asset class with many quickly evolving narratives, trends, and investment strategies.  It is important to note, that not all strategies are suitable for all investors. The size of allocations to each category will and should vary depending on the specific allocator’s type, risk tolerance, return expectations, liquidity needs, time horizon and other factors. What is encouraging is that as the asset class continues to grow and mature, the opacity slowly dissipates and clearly defined frameworks for evaluation will continue to emerge. This will hopefully lead to more informed investment decisions across the space. The future is bright for 2020 and beyond.

Source: https://www.coindesk.com/institutional-investment-in-crypto-top-10-takeaways-of-2019