Cryptocurrency is Not as Big as You Think . . . Yet
Bitcoin's price hit a new all-time high and seems like this big, huge thing. It's not.
With bitcoin hitting all-time highs for the first time in years, you may think it’s getting big. Huge, even.
Wall Street luminaries like Paul Tudor Jones and Jamie Dimon are telling people to buy it. Long-time skeptics like Nouriel Roubini begrudgingly admit it’s a “partial store value.”
S&P Dow Jones announced it will create crypto indices in 2021. Former bitcoin-basher JP Morgan is now building a book of business among Crypto companies. Goldman Sachs formed a digital assets group. Fidelity has had one for almost two years.
You ain’t seen nothing yet.
A thimble’s worth of water in an ocean full of wealth
Sometimes we look at crypto and see big numbers.
For example, $300 billion in bitcoin, $16 billion in stablecoins, $6 billion in Graystone Bitcoin Trust, $13 billion assets on DeFi lending platforms, 75 million bitcoin wallets, 15 million active daily users of Brave browser, and so on.
Once you start talking about millions and billions, it seems like the market is huge.
For us, maybe. For the world, it’s not. Look at the numbers:
- More than $19 trillion in cash, savings, and money market accounts for U.S. households alone. When you include savings from people in other countries, that amount goes much higher.
- Over $26 trillion in U.S.-registered investment funds.
- More than $100 trillion in government debt.
- Over $200 trillion in corporate and household debt.
- At least $400 trillion in financial products like derivatives and collateralized loan obligations.
- Hundreds of trillions of dollars in real assets like property, cars, and collectibles.
In total, over $1 quadrillion worth of “stuff” that can get recorded on a blockchain and exchanged using cryptocurrency.
If a $20,000 bitcoin seems crazy and all these altcoins seem overpriced, consider the bigger picture.
So many ways to capture wealth
Blockchain technology continues to scale and innovate. Some governments have already moved to digital currencies. Banks have quietly pocketed hundreds of blockchain patents.
As everything moves to a natively digital environment, something will capture its value—even if only as stablecoins, synthetic representations of real-world currencies.
Developers have already developed protocols that give users all the benefits of traditional finance with no commissions and a share of the platform’s success.
As a result, they’re quietly building decentralized margin accounts, insurance funds, staking rewards, synthetic assets, and liquidity pools for exchange assets and derivatives—with almost all of the benefits going to those who use the platform, rather than a broker, custodian, or investment firm.
Over the long run, which service will win: the one that costs almost nothing and returns the benefits to users, or the one users have to pay for and keeps all the benefits for itself?
In this inevitable future, traditional commerce can’t compete with these global, open, permissionless financial networks that record and track the movements of things with mathematical precision and no middlemen. “Value,” as measured in money, will have to move out of the traditional financial system and into cryptocurrency.
Think about token sets and PIES, which offer non-custodial access to diversified investment portfolios. Rather than pay somebody for access to investment funds, you buy a stake in a protocol that does all the work for you.
Or, consider applications that maximize yield by moving unlimited amounts of money at virtually no cost.
The catch: in order to do these things, you need some way to capture that value in a form that people can freely exchange with each other. In other words, you need cryptocurrency.
When you anticipate everything will run on a blockchain within a few decades, a $500 billion cryptocurrency market doesn’t seem like much.
Not just decentralized finance
Decentralized finance, aka DeFi, will revolutionize financial markets.
What about non-financial markets? Cryptocurrency will revolutionize them, too.
For example, the world wastes a lot of energy. Some places produce more than they need while other places face chronic shortages.
Once you tokenize energy consumption as a cryptocurrency, you can create secondary markets and new distribution channels. You can embed carbon emissions credits, rebates, and incentives into the tokens. Power plants and distributors can mint their own tokens when they create energy and burn those tokens as people consume it.
What about decentralized autonomous organizations for corporate and community assets? Security tokens for real estate development?
With cryptocurrency, you have seemingly infinite ways to capture wealth. It’s just a matter of building the right platforms.
Fortunately, we have a lot of people building those platforms. They toil in the shadow of bitcoin and DeFi, but their work will get its proper recognition. They’ve barely scratched the surface of what they can do.
Slowly, then all at once
If that seems like the pipe dream of some distant future, it’s a dream that’s getting built today. Once it’s ready, you’ll be surprised by how quickly it becomes a reality.
Until June, you probably hadn’t heard about DeFi. Now, it’s a big deal.
Did you know that some of these DeFi projects spent three or more years in development?
When I started working on Consensusland, I consulted with a few projects, including Aave. At that time, they called themselves ETHLend. They had barely gotten started.
Who would have known they’d emerge as a top DeFi project two years later?
It takes a long time to become an overnight sensation. Once it happens, everything changes.
Despite bitcoin hitting its previous all-time high, crypto is still a very small market. How big could it grow?
The moon’s the limit.
Mark Helfman publishes the Crypto is Easy newsletter. He is also a top writer on Medium and Hacker Noon for bitcoin. His books, Consensusland and Bitcoin or Bust: Wall Street’s Entry Into Cryptocurrency, explore the social, cultural, and business challenges of cryptocurrency. Learn more about him in his bio.
Originally published on Voice.com.
I help normal people make the most of crypto markets. Writer of Crypto is Easy, a Top 10 newsletter on Substack. Also the author of three books and a top bitcoin writer on Medium and Hacker Noon.