As Cryptocurrencies multiply, and traditional currencies go through a period of crisis, the democratization of cryptocurrencies is beginning to take hold on an economic scale. The next few years could mark an intensification of the diffusion of cryptocurrencies observed in recent years. Therefore, the spread of this new form of money in everyday life could lead to particularly interesting economic and financial reactions.
In this article, discover the different factors that suggest that virtual currency will soon be part of our daily means of payment and our thoughts on ways for the individual investor to take advantage of this major turning point in the history of money.
Virtual Currency: The Multiplication Of Global Flows And 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 worldwide in the first half of 2020, an increase of almost 185% despite the fall in the prices of the main cryptocurrencies over this period.
These figures are found in the capitalization of the main cryptocurrencies. Bitcoin represented a total of $15 billion in December 2016 against $ 290 billion currently. In other words, the capitalization of Bitcoin is now higher than that of huge companies or Bank of America for the United States.
More and more crypto-demanding users
The resulting multiplication of global flows can be explained by two comparative advantages of crypto currencies:
Recently, financial institutions have shown a real interest in cryptocurrencies. These players are betting on cryptos out of aversion to traditional currencies (or out of interest in the face of the recent fall in financial stress). For their part, major institutions like PayPal are also opening up to cryptos.
There is also the emergence of a distinction between usage and savings currency as well as the emergence of a need for decentralization. Negative rates have the effect of accentuating the difference between currency of use and currency of savings; and above all to implicitly increase the risk-taking of the agents. This promotes the use of cryptocurrencies: both because of independence from central banks but also for the global and decentralized nature (where the law of each state does not apply directly).
Paypal Allows The Use Of Cryptocurrencies To Pay For Purchases
In a statement via Reuters, PayPal announced “to join the cryptocurrency market […] by allowing customers to buy, sell and hold bitcoin and other digital assets, using the online wallet accounts of the company ". This new option on the PayPal platform should come into effect in the first half of 2021. This option will be dealt with at the regulatory, technological and liquidity level 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 have traded for more than $ 220 billion 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 number of current users with PayPal's decision alone.
PayPal CEO Dan Schulman has also made no secret of his cryptocurrency ambitions. He intends to work with the central banks in order to find the maximum means so that PayPal can impose itself in this matter. PayPal's decision to view this new form of currency as an opportunity created a euphoria behind the scenes in the markets, and many institutions immediately revised their positioning.
Facebook Should Soon Allow To Pay With Its Own Cryptocurrency
After the announcement of the Libra project in June 2019, the regulatory wills of many states and the abandonment of supports such as PayPal or Visa, prompted the project to be reviewed. Bloomberg announced in early December that the Libra project was renamed Diem. It would have 27 participants, far from the 100 initially announced. This stablecoin, Diem, which is expected to be launched in early 2021 according to the Financial Times, would also be pegged to the Dollar at first.
Even if this cryptocurrency remains linked to traditional currencies, we must not forget that Facebook has more than 2 billion users. Here again, the potential for democratization is disproportionate, although less than that initially projected by Facebook.
Central Banks Issue Their Own Tokens
The 21st century will certainly mark monetary history. In history, we have already seen the emergence of underground currencies in reaction to excessive currency degradation. But this time around, the scale of this historical figure seems more concrete and paradoxically supported by some central banks.
The proliferation of private cryptocurrencies, in a digital world where the free choice of one's own currency would become the norm, encourages central banks (and States in terms of regulation) to get into the game so as not to get caught in the trap. Many central banks are considering creating their own cryptocurrencies: MNBCs (Central Bank Digital Currency) also known as CBDC (Central Bank Digital Currency).
The reduction in cash exchanges and the increase in private currency exchanges are pushing institutions to launch their own tokens.
How To Take Advantage Of The Democratization Of Virtual Currencies?
Growing users lead to higher cryptocurrency prices
In view of our 21st century economy, and therefore in view of 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 cryptocurrencies is undeniably a bullish price factor on currencies like Bitcoin, which has a limited amount of units in circulation. It is therefore evident that a direct impact of the massive democratization of cryptocurrencies is the rise in futures prices. This is what triggered, in addition to the drop in financial stress, the rally in the prices of BTC or ETH (ethereum) in recent months.
While the rise in recent weeks is due to more fundamental reasons, it is nonetheless that democratization is directly strengthening the long-term upside 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 a real industry in the field. We will mainly cite 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 crypto investments. The fact that cryptos are democratizing at the transaction level should systematically translate into democratization at the level of savings or the like. We will mention here players like Binance, CoinBase or even emerging platforms 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 focus on companies with the greatest potential to become in the face of the massification of cryptos. Well beyond the future of the industry, crypto currencies have the advantage of being able to develop a fast payment system that can be used in a very large part of the countries of the world, which is not possible with a traditional national currency which remains, in comparison, a brake on world trade.
The health crisis: A major turning point in the democratization of cryptocurrencies?
The Covid-19 crisis will have been a real opportunity for cryptocurrencies. The democratization of recent years has convinced many institutions to take the plunge, such as Facebook, certain central banks, and more recently PayPal. This context opens up a very significant potential for democratization for the next few years, certainly greater than it has been in recent years. Cryptocurrencies after having established themselves in the financial landscape in recent years, are now expected to enter the economic landscape. Cryptos therefore appear as an everyday means of payment (or even investment / savings).