Blockchain technology has come a long way since Satoshi Nakamoto published their Bitcoin whitepaper in October 2008, outlining the principles of a peer-to-peer electronic money system that was designed to disrupt traditional financial systems.
By some measures, digital assets have already sparked transformation. Regulators around the world are developing frameworks to govern on-chain transactions, traditional financial institutions have formed divisions to explore ways to harness this technology, and there’s immense appetite among investors for products backed by digital assets. Despite dips in the market, the outlook for cryptocurrency looks bright.
2023 was crucial for the convergence of Web3 and traditional finance. It was a year when government entities and major institutions laid the foundation for applying blockchain technology in existing financial frameworks. As we enter a new year, it’s worth looking back at the last 12 months to see how far crypto has come — and how quickly we’re moving ahead. With these transformations still unfolding, digital asset platforms such as BTSE will be an even more important portal for the crypto-curious who are exploring new ways to build personal wealth.
Major Banks Become Blockchain Maxis
While regulators have been conservative in their pace to define rules for the crypto space, private players have already made up their minds about committing resources to develop Web3 capabilities. This isn’t limited to offering crypto-based investment products to their clients; rather, institutions such as JPMorgan and Citi are aiming to tokenize assets and use blockchain technology to speed up transactions.
For instance, the two firms have the goal of using blockchain technology to take Wall Street’s current two-day settlement period down to seconds or minutes. Other forms of transactions could also become more efficient. Aside from the drastically improved speed, there’s immense volume to address: in June, an analyst note released by Bernstein said as much as US$5 trillion worth of real-world assets could be tokenized for on-chain transactions over the next five years.
This isn’t a theoretical exercise. Both financial service providers have put their money where their mouth is. In October, JPMorgan executed its first live blockchain collateral settlement transaction using its proprietary, Ethereum-based Onyx blockchain. This was performed in conjunction with BlackRock and Barclays, and involved tokenizing shares of a BlackRock money market fund, then transferring them to Barclays as collateral for an over-the-counter derivatives trade. The entire process took just minutes, with the transfer being nearly instantaneous. There’s another boon: JPMorgan expects to save US$20 million by the end of 2024 after implementing blockchain technology that enables rapid and efficient transactions.
Meanwhile, Citigroup debuted its Citi Token Services, which will facilitate rapid cross-border money transfers for institutional clientele by using blockchain technology, including smart contracts. It will offer 24/7 automated trade finance solutions, also reducing transaction times from days to minutes. In particular, this arm will enable the digitization of bank guarantees and letters of credit, making large transactions in the trade finance sphere more efficient. Citi Token Services has already conducted a pilot program with Maersk, the multinational logistics company, to demonstrate how it can simplify the shipping industry’s complex transaction processes.
These and other cases were important demonstrations of how Web3 technology can remove frictions that exist in the current financial landscape, and highlighted the way traditional institutions are about to make a quantum leap.
Bitcoin Heading for Prime Time
For much of the second half of 2023, there was optimism about the United States Securities and Exchange Commission (SEC) potentially giving the green light to launch spot bitcoin exchange-traded funds (ETFs). This elation led to rallies for Bitcoin throughout the year, at one point reaching a 17-month peak above US$35,000, in turn leading other cryptocurrencies to appreciate too.
There’s a definite appetite for spot bitcoin ETFs. NYDIG, a US-based crypto firm, said demand is already worth around US$30 billion. Spot ETFs are preferred over the futures ETFs that are currently on the market, as they would track the price of bitcoin in real time and give investors direct exposure to bitcoin without requiring them to personally own the cryptocurrency.
In October, BlackRock CEO Larry Fink said the firm’s clients around the world speak of “the need for crypto” and that he sees the rising price of Bitcoin as a “flight to quality.” A cluster of major names in traditional finance all await their spot in bitcoin ETFs to receive approval from the SEC: BlackRock, Bitwise, WisdomTree, Galaxy Digital and Invesco, Valkyrie Investments, ARK Invest, VanEck, and Fidelity.
It will soon be clear whether a spot Bitcoin ETF will be able to launch in the US. ARK Invest will be the first to receive approval or rejection. The SEC comment period for the firm’s application will end on January 10, 2024. Crypto investors have pointed to one case to justify their positive sentiment: in August, the SEC did not appeal a court ruling that said the regulator was wrong to reject Grayscale Investments’ application to convert its bitcoin trust into a spot bitcoin ETF.
This is an important space to watch, as developments in early 2024 will have immense impact on the value of Bitcoin and other major cryptocurrencies.
Stablecoins in the Spotlight
In the volatile crypto landscape, stablecoins are a safe harbor. Pegged 1:1 to another currency (often the US dollar), commodity, or financial instrument, they’re a trusted asset for investors to escape price swings and are an integral part of mature portfolios.
This year, stablecoins became a subject of interest in traditional financial contexts. PayPal launched its own stablecoin, PayPal USD (PYUSD), backed by US dollar deposits, short-term US Treasurys, and cash equivalents. The company said PYUSD was being developed as an important part of its payment infrastructure. PayPal president and CEO Dan Schulman recognizes a general shift toward digital currencies by consumers, and that it was necessary to have “a stable instrument that is both digitally native and easily connected to fiat currency like the US dollar.”
Notably, both Tether and Circle — the issuers of the two stablecoins with the highest market capitalization (USDT with US$83 billion and USDC with US$24 billion) — supported PYUSD’s launch, stating that PayPal’s entry into this space is positive for the entire crypto sector.
Now, regulations on the ownership and usage of stablecoins are becoming clearer around the world. There is a strong indication that they will become an important part of daily financial transactions, straddling the space between on-chain assets and existing financial systems.
Centralized Exchanges as a Focal Point
Platforms such as BTSE are making it convenient for any crypto-curious individual to invest in cryptocurrencies. Major exchanges have user-friendly terminals that are easy to grasp and familiar to anyone who has experience with trading and investing. These platforms are important destinations where investors can acquire cryptocurrency using bank transfers or credit card payments, utilize copy trading features, earn yield by making deposits, and continually learn about the crypto space and its many advantages.
Blockchain technology is living up to its original purpose of disrupting traditional finance. 2023 was a year where there were major strides, especially when it comes to acceptance by large financial institutions. Even so, the next year holds even more promise as use cases mature and crypto becomes more accessible to mainstream investors around the world.
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