Cryptocurrencies have evolved from a niche interest to a legitimate form of investment over the 15 years since its inception. Bitcoin’s recent rally past $100,000 marked a pivotal moment for crypto, propelling the total market capitalization for the asset class to $3.7 trillion, roughly one-fifth the total value of gold.
While crypto is often perceived solely through the lens of Bitcoin, it is blockchain — the underlying technology enabling crypto — that represents the transformational technology that could shift how virtual and real assets are represented, owned, and transferred. The term “crypto” encompasses a diverse set of concepts, technologies, and trends within financial services.
Crypto’s four dimensions reshaping financial services
We focus on four of these dimensions in our analysis of the development of crypto:
Crypto as an asset class
Cryptocurrencies (including Bitcoin, Ethereum, and Avalanche) represent an emerging investment class, with a volatile returns profile but the potential to deliver outsized and uncorrelated returns.
Blockchain as a transformative technology for payments
Blockchain technology facilitates 24/7, fast, secure, and low-cost payment transactions (via platforms like Tether, USD Coin, and PayPal USD) without the need for intermediaries.
Blockchain as a transformative technology for real world assets
Blockchain technology enables the tokenization of assets, including funds, bonds, and commodities, that provide enhanced liquidity and transparency, lower costs, and global access.
Blockchain natives as a client segment
A population of businesses with crypto- and blockchain-centric business models (such as Coinbase, Riot Blockchain, and Consensys) have the potential to mature into a proper client segment for a broad range of traditional financial services.
Crossing the chasm — the crypto and blockchain adoption lifecycle
We believe crypto and blockchain are advancing along a well-established technology adoption lifecycle, with each dimension moving at a different rate along the curve. These dimensions aren’t independent of one another, progress on one creates the conditions to accelerate the growth of others. This produces a powerful flywheel effect and charts out an approximate trajectory for crypto and blockchain.
We believe crypto is poised to cross the chasm from early adoption to broader acceptance across all four dimensions, driven by strong support from the new administration in the US. By the end of the Trump administration, we expect crypto will be normalized as an asset class, with mainstream adoption across individual and institutional investors.
The next frontier is stablecoins, which are emerging as a critical battleground for the next stage of adoption along the lifecycle (blockchain as a transformative technology for payments). Stablecoins have the potential to redefine payments and cross-border value transfer, while also serving as a gateway to the crypto market and US dollar exposure in emerging economies. With demand for dollar-backed stability surging in volatile markets, stablecoins could reshape financial intermediation, challenging incumbent banks in payments, treasury management, and more. The US is in pole position, commanding roughly 99% of stablecoin value and enjoying strong support from the new administration.
We believe these shifts will provide momentum for the broader adoption of DeFi technologies across the rails of the traditional financial services ecosystem, specifically the tokenization of real world assets. Eventually this will support the development of a true blockchain native client segment for diversified financial services. This is our base case.
Key surprises that could shake up crypto and blockchain
Surprises in the crypto industry have never been in short supply, and while the overall trajectory has been up, it hasn’t been linear. We are closely watching four potential developments that could alter the course one way or another in the years ahead.
1. Trump adopts a radical pro-crypto agenda
The new administration could go beyond normalizing crypto, with implicit and explicit subsidies for investment in the asset class, which could speed up momentum. The possibilities include establishing a national Bitcoin reserve and eliminating capital gains taxes on crypto.
2. Blockchain natives go on an acquisition spree
Leading blockchain natives could use their significant purchasing power to acquire traditional financial institutions, securing regulatory licenses, established customer bases, and workforces to drive expansion through the backdoor.
3. Big tech launches native stablecoins
Similar to PayPal, a major retailer or tech giant like Apple or Amazon could issue its own stablecoin, bypassing banks and card networks entirely to create a closed-loop payment ecosystem for billions of users. This would fast-track crypto as a payment mechanism.
4. An FTX-style collapse
Another high-profile collapse of a crypto native firm would erode confidence in crypto and its underlying technologies, leading to increased scrutiny from policymakers and regulators, and a broader reassessment of the sector’s trajectory.
The uncertain outlook presents a challenge for traditional financial institutions, which must prepare for a crypto future while operating in a regulatory framework that has historically been deeply skeptical of crypto. However, a wait-and-see stance would clearly leave these institutions too far behind to catch up with those that getting prepared today.
This article is part of our Known Unknowns report highlighting the debates that will shape the future of financial services