Ten predictions for the development of the U.S. crypto-digital financial market in 2021
Crypto digital finance in the US saw rapid growth in the 4th quarter of 2020. The most representative trend in this regard is the significant buying of bitcoin by U.S. institutions. Also in December, the Diem Association announced that it had applied to FINMA in Switzerland and is now awaiting FINMA’s approval decision. It is possible to be the first to issue a dollar-based Diem stablecoin as early as January 2021. In the US, the banking industry is also seeing a rapid convergence of crypto-digital finance with traditional finance in 2020. Based on the current trends, we can predict the following trends in the U.S. crypto-digital finance market in 2021.
First, Bitcoin will maintain sustained price growth. Bitcoin is now recognized by U.S. institutional investors. Financial institutions are also continuing to provide related infrastructure services, including digital stablecoins, custody, trading and settlement services. Given the demand for bitcoin, it is expected that demand in the U.S. market will further drive bitcoin price growth in 2021.
Second, more digital dollar-based stablecoins will emerge. In the last month of 2020, the President’s Working Group on Financial Markets (PWG) issued a statement on a number of key regulatory and oversight issues for stablecoins and the subject was to highlight the regulation of stablecoins.
The PWG is comprised of the Secretary of the Treasury, the Chairman of the Federal Reserve, the Chairman of the SEC, the Chairman of the CFTC or their representatives. In addition, the PWG also seeks and considers the views of the Acting Director of OCC, which oversees the U.S. banking industry.
The PWG also solicited and considered the views of the Acting Director of the Office of the Comptroller of the Currency (OCC), which oversees the U.S. banking industry.
So the PWG’s view is essentially the view of U.S. financial regulation. This statement from the PWG is a further endorsement of digital stablecoins while emphasizing the need for such coins to be compliant. Given the advantages of stablecoins over existing payment systems, it is expected that more stablecoins will emerge in the U.S. market as a result.
Among the various USD stablecoins in the current market, the launch of Diem digital USD stablecoin is a high probability event. In the US market, it will be the first to be used in the cross-border applications, including cross-border transfers, e-commerce shopping, cryptocurrency transactions and retail applications like taxi rides. In addition, the growth of Diem membership is expected to accelerate after Diem is approved by FINAM in Switzerland. Accordingly, this will further promote the application of Diem digital dollar stablecoin as well as expand the application of Diem underlying blockchain.
Third, there will be U.S. commercial banks that will start offering cryptocurrency trading services. In the U.S. market, Kraken, a provider of cryptocurrency trading services, has already received a banking license. In the international market, Singapore’s largest commercial bank, DBS Bank, has also started offering cryptocurrency trading services. In the banking sector, traditional banking services have begun to merge with crypto-digital finance. So it is likely that commercial banks in the US will also start offering cryptocurrency trading services. Among the cryptocurrencies that are already regulated in the US, there are currently only two types of cryptocurrencies, Bitcoin and Ether. But digital assets based on a distributed approach will definitely not be limited to just two. There will be many more such digital assets that will require corresponding trading services. Therefore, for U.S. commercial banks, the cryptocurrency trading business is likely to become a permanent fixture.
Fourth, it is likely that a payment bank license will be introduced. The U.S. Office of the Comptroller of the Currency is now planning to launch a new type of payment bank license. If this license is launched, then companies like Coinbase and PayPal are likely to apply. As a result, there will be more payment services based on US dollar stablecoins. Moreover, this will lead to the emergence of another payment clearing and settlement system in addition to the existing U.S. bank clearing system. This could bring about a paradigm shift in the U.S. banking industry.
Fifth, U.S. financial regulation is likely to initiate several regulatory actions at the level of Ripple. Among the various cryptocurrencies currently in the market, U.S. financial regulation only recognizes bitcoin and Ether as non-securities based products. Ripple, which previously ranked third behind Bitcoin and Ether in terms of market capitalization, is now being sued by the SEC.
It is expected that U.S. financial regulation will characterize the various cryptocurrencies in the market on a case-by-case basis, either by initiating litigation or by settling out of court as it did with EOS. In addition, the potential for manipulation of Bitcoin’s market price has not been fundamentally addressed, and U.S. financial regulation will certainly take steps in this direction. Until this issue is resolved, it will be difficult for a bitcoin-based ETF to be approved by the SEC.
Sixth, applications for bitcoin-based ETFs will be filed again. Bitcoin’s recent high price has exceeded $28,000. Such a price hardly makes it a tradable product for the average investor to buy. Now that there is a strong demand for bitcoin in the market, there is a need for a suitable trading product for the average investor to hold bitcoin. The most suitable product for this purpose is an ETF, which can be traded on the major US stock exchanges and purchased and held by the average investor. Therefore, there have been several attempts to create a bitcoin-based ETF in the U.S. market, but they have all been rejected by the SEC, mainly because the ETF applicant cannot guarantee that the price of bitcoin will not be manipulated by the market, and there is no proper custody mechanism for bitcoin. Now that the custody mechanism in the U.S. market is starting to be robust, the probability of a bitcoin ETF application being approved is higher than before.
Seventh, bitcoin options products will see significant growth in trading volume. Looking at the development of equity options products, there will be significant growth in options product trading volume. And both trading volume and positions in bitcoin options products are currently beginning to show significant growth. In 2021, Bitcoin options products will likewise maintain continued growth.
Eighth, it is likely that there will be national applications for digital asset exchanges. BSTX, the Boston-based securities-based token exchange that is currently in the process of being established, has been delayed by the SEC in its decision. I believe that part of the reason for the SEC’s delay in making a decision is the design of BSTX, which does not take full advantage of the advantages offered by blockchain technology.
In contrast, the newly established Swiss digital asset exchange SDX is making the right decisions in terms of both technology and business. That’s why SDX has the support of the Swiss financial industry. It is expected that in 2021, a more reasonable digital asset exchange design will be available in the U.S. market and an application will be made to the SEC to set up a digital asset exchange at the national level.
Ninth, DeFi will remain restricted to the crypto-digital currency space. In its purest form, DeFi supports direct transactions between anonymous users. However, such transactions are unlikely to be applied to actual currencies and assets. To apply DeFi to actual currencies and assets, the most basic requirement is to operate on top of a permission chain or distributed bookkeeping technology support. The other two basic requirements are digital currencies and digital assets.
Digital stablecoins are now available, but there is no universally adopted distributed bookkeeping technology in the market yet, let alone digital assets generated on top of it. These basic requirements do not appear to be realized in 2021, so the scope of DeFi’s application will remain in the crypto-digital currency space.
Tenth, the USD CBDC will definitely not be launched. Not only will the USD CBDC not be launched in 2021, but it is also unlikely to be launched in the next two or three years.
Article from Gu Yanxi, Founder of Liyan Consulting
Translated by Yang(Mengyan Finance)