What does the fast-moving world of crypto have in store for us in 2024? After a year of high-profile failures like the one at FTX and the specter of encroaching regulation, many positive developments remain on the horizon.
James Wester and Joel Hugentobler, cryptocurrency analysts at Javelin Strategy & Research, gave PaymentsJournal a preview of their new report, 2024 Trends & Predictions: Digital Assets & Crypto. Among the topics they were most excited about were the growth of stablecoins, central bank digital currencies, and the tokenization of assets.
Stablecoins
The increasing volume of stablecoin transaction settlements last year has given Javelin a bullish stance on stablecoins going into 2024.
“There will be greater partnerships and collaborations between financial institutions and existing stablecoin providers,” Wester said. “At the top end of the market, you’ll start seeing a shrinking of the number of stablecoins that are being used. But you’ll also see financial institutions start using stablecoins more and more for certain types of use cases.”
Cross-border payments are one of those use cases, as well as a convenient way to store liquidity and access the crypto economy.
Although this factor is often overlooked, stablecoins are also a driver of dollar demand not only in the United States but also throughout the world. Many emerging markets have highly debased currencies and issues with maintaining their value. A stablecoin is a dollar-denominated asset that is going to be more stable than what consumers have access to in those markets.
“When I have conversations with people who are not as familiar with digital assets or crypto, I hear bitcoin is only used for, you know, drugs and guns and bad stuff,” Wester said. “But there’s a very large and growing market for stablecoins, which fill a niche within traditional finance as well as within decentralized financial services.”
Central Bank Digital Currencies
Central bank digital currencies (CBDCs) are in the midst of shifting from “this might happen someday” to “this is actually going on right now.” A digital currency is now on the drawing board or in a pilot phase in many countries, many markets, and many organizations within the global financial system.
“It shows just how far the concept of a currency that doesn’t have a physical proxy has developed,” Wester said. “Just a few years ago, the very idea of a digital currency like bitcoin was science fiction to most people. We’re getting to the point where central banks around the world, as well as organizations like Bank of International Settlements, are not just discussing it but have a plan for actually introducing it.”
On the other hand, CBDCs may still be further away than some people think. Very few developed markets are looking at introducing one in 2024. There are still many questions about CBDCs. What’s going to be behind it? How will it be designed? Those are all questions that remain open for most central banks, organizations, markets, and non-governmental organizations.
Tokenized Assets
The idea of tokenizing assets—whether a financial contract or something like a deposit or a balance—has the capacity to grow very quickly.
“We’ve talked about it for a very long time in the digital asset space, but a lot of these financial institutions see the technology of peer-to-peer and getting rid of the intermediaries as a threat,” Hugentobler said.
After pushing it back as long as they can, organizations are starting to realize how the technology can be a benefit by adding efficiencies to the middle and back offices and creating additional revenue streams.
“They’re learning that they can incorporate tokenization while leveraging the technology from their company and still remain in control,” Hugentobler said. “We’ll be seeing a lot more of that in the coming year.”
Regulatory Concerns
Wester and Hugentobler agree that the most important issue right now is regulation across the entire crypto space. This can affect the way an average investor buys, sells, and holds a cryptocurrency like bitcoin and how smaller meme coins are governed.
“Whether it’s retail, institutional, or capital markets, the push by regulators and legislators trying to control what’s going on in digital assets in digital currencies and cryptocurrencies is where everybody needs to be paying attention,” Wester said.
Because cryptocurrency is so poorly understood by legislators and regulators, Wester sees great potential for overreach and for crafting legislation that hurts innovation. New legislation that limits the potential for cryptocurrency and digital assets would be a net negative for the United States in terms of being a center for development and innovation for cryptocurrency and digital assets.
“It would push the centers to overseas markets that do understand the power and the benefit of digital assets and crypto,” Wester said. “Decide in haste, regret it at your leisure.
“There is a point where it becomes imperative for those of us who are within the industry to educate legislators and regulators, because a lot of the arguments are being put forward by those who would like to see cryptocurrency, digital assets, blockchain and other technologies squelched. It’s the same bad-faith arguments they’ve been putting forward over the past 10 years, and they’re all misguided. It is well past time that those of us who are operating in good faith, even those who might be skeptical, need to start educating those who are operating in bad faith.”
