Has Cryptocurrency Gone Mainstream?
And if it has, who is there to protect the masses?
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The latest news that PayPal is entering the cryptocurrency arena was another endorsement for the future of cryptocurrency. Many of the headlines read, ‘Cryptocurrency is going Mainstream’. You might be thinking to yourself, they have been saying this for years. And you are correct ‘they’ have. But considering Bitcoin is only 12 years old they can’t have been saying it for too long! In fact, we contend in this article that cryptocurrency is already mainstream. Let us explain why…
The first question we have to ask is what does mainstream actually mean?
‘It describes what’s viewed by most people in society as ‘normal’. Something that is mainstream is conventional.’ — Vocabulary.com
Is it Normal to own Cryptocurrency?
Perhaps that isn’t the correct question. Maybe it is not ownership that is important, it is awareness. Apparently, 90% of the US have heard of bitcoin, whilst that number is 93% in the UK and 66% in Europe. If awareness is the measure of an asset going mainstream then bitcoin has arrived.
Some say however that it is not awareness or ownership that matters, what is important is regular usage or as some call it, adoption.
Let us turn our attention to stocks for a moment. I don’t think it can be argued that stock as an asset class is not a mainstream asset since over 52% of all Americans own stock in some shape or form.
The actual percentage of American’s that own cryptocurrency, or more specifically bitcoin, is a lot harder to predict. The figure varies from 6.2% to 14.4% in various surveys. We think a figure of around 10% is more likely. Obviously, that is way off compared to stock ownership.
Those are the percentages although they are crude estimations, let’s now look at the number of users which I warn you are even cruder estimations!
Although blockchains are transparent the figures they report do not help our cause. Take bitcoin for example. Many wallets hold zero or de minimis amounts of bitcoin. Also, many people hold multiple wallets. To muddy the waters further it is estimated that 23% of bitcoin are ‘lost’. That means that many of the figures we see banded around as to the number of bitcoin owners is misleading, to say the least.
Two figures which seem common among many commentators is a figure of over 54m blockchain wallets as at September 2020 with just over 30.4m addresses with a balance. Estimates of ownership are hugely variable, from 13m to 27m. However, these figures are also fundamentally flawed as they disregard the people who don’t have a bitcoin or other cryptocurrency wallet. They bought their cryptocurrency through an exchange that maintains their coins for them in a central wallet. This is when the number of owners starts to expand quickly from these initial estimates.
Let us put these numbers in perspective. Coinbase and Binance, two of the largest exchanges, have 45m users between them (Coinbase 30m and Binance 15m). Estimates are that including wallets held centrally there are around 100m bitcoin owners.
Another interesting fact which is relevant here. Did you know that 55.4% of bitcoin owners also invested in another cryptocurrency? That would suggest that the majority of altcoins are owned by people who already hold bitcoin.
On this basis, a figure of over 100m owners of cryptocurrency is a reasonable estimate with the US being the country with the highest cryptocurrency ownership.
Okay, so that deals with the number of owners of cryptocurrency, albeit in an unsatisfactory way. How about active users? This is another possible metric to measure whether cryptocurrency has already gone mainstream.
There are around 300–500k people using bitcoin every day. Blockchain.info estimates that there are on average 550k active addresses. A number of surveys reveal that only 8% of owners of bitcoin hold the e currency as a payment instrument. These surveys demonstrate that the majority of owners of bitcoin and other cryptocurrencies are long term holders who are possibly buying for ‘fear of missing out’. That isn’t a good case for mainstream adoption but it is a good case for cryptocurrency and more specifically bitcoin having reached the point of becoming a mainstream investment. To prove that point. It is estimated that 11% of the American adult population own gold as an investment compared to a figure of up 14% holding bitcoin.
Has Cryptocurrency gone Mainstream or Not?
From our analysis of all the conflicting data and spurious estimates, we would conclude that bitcoin, in particular, is now a mainstream investment with similar ownership numbers as gold bullion which is a core component of most diversified investment portfolios.
The majority of bitcoin has been purchased through exchanges and is held in a central wallet ultimately controlled by the exchange. This is the perfect solution to overcoming the major obstacle to the mainstream ownership and adoption of cryptocurrency — security and custody. Although it is important that investors buy through regulated and bonded exchanges rather through the many fly by night operations that litter this space.
The Near Future
What is interesting is that whilst adoption has been slow it is only going to increase with PayPal moving into the market and tapping into its 350 million customers. However, PayPal is joining the likes of Cash App with its 30m customers making waves in the market, eToro with a similar number of customers, and Revolut and Robinhood Crypto with over 13m customers each, all offering cryptocurrency to consumers. PayPal however will make the biggest impact on the adoption of cryptocurrency by allowing people to use their crypto holdings to purchase goods and services.
In addition, Coinbase next year will introduce a crypto Visa debit card. Now owners have an easy way to utilize their holdings of cryptocurrency to make day to day transactions. It does look like mainstream adoption for bitcoin and a few of the other major altcoins (Ethereum, Bitcoin Cash, and Litecoin are accepted on the PayPal platform) is on their way.
A future driver for adoption is women. Currently only one in ten own cryptocurrencies. However, women are behind 70% of retail spending. As women start to feel comfortable using cryptocurrency in their day to day lives then adoption is really going to take off.
The Other side of the Cryptocurrency Equation
The argument we have been discussing whether cryptocurrency is mainstream or not only takes into account a small segment of the cryptocurrency ecosystem. We have been exploring its ability to store value and as a medium of exchange. But there are other areas of the cryptocurrency market which we have not examined such as the fast-expanding area of decentralized finance or DeFi where decentralized apps offer various cryptocurrency borrowing and lending opportunities and automated exchanges.
Also, there are other DApps that offer gaming, betting and file storage, etc. These DApps are in the early stages of adoption with average daily users of under 7,000 in the DeFi space and 80,000 average daily users for all DApps. Whilst many of these DApps offer exciting albeit risky opportunities they are a long way from going mainstream although we believe they will get there in the end. The direct ownership of cryptocurrency will also become mainstream in years to come but currently, it is still too confusing for the average investor, and the thought of losing all his money because the dog ate his password would put off the most risk-seeking investor.
Risks to Mainstream Adoption
Everyone talks about scalability as being the main impediment to mainstream adoption. And it is to a certain extent. But with PayPal’s work around it really doesn’t matter anymore if Ethereum or Bitcoin can only process a dozen or so transactions a second compared to Visa’s 56,000. The major risk for adoption is still its volatility. Volatility won’t discourage speculators or holders but it will deter people who are using it to pay the bills and buy a coffee. However, in reality, the more people who use cryptocurrency or in this case bitcoin the less volatile the price will become. Long term we don’t believe volatility is going to affect bitcoin’s adoption.
Other Interesting Developments
- Bitcoin ETF
The number of American’s owning bitcoin could rise dramatically if the Securities Exchange Commission approves a bitcoin-backed Exchange Traded Fund. Although they have rejected all applications to date on the grounds that none of the proposals have demonstrated that ‘the bitcoin market is sufficiently resistant to market manipulation’. That day will come. Although the launch of a bitcoin ETF won’t affect adoption it will significantly increase the number of people who hold bitcoin as part of their investment portfolio.
- Institutions getting in on the act
Paul Tudor Jones the billionaire hedge fund manager recently described Bitcoin as the ‘fastest horse in the race’ and he purchased around $180m in bitcoin or 2% of his funds value (estimated at $9bn). This massive purchase was followed by the revelation that Microstrategy, the listed enterprise software company, now holds over $500m of bitcoin. It won’t be long before there is a massive inflow of institutional money into bitcoin.
- Facebook’s Libra
Back in 2019, a lifetime ago in crypto, Facebook announced its own stable coin called Libra. It caused such an uproar that they have quietly continued with the project but without the ballyhoo. Facebook has stated that they will not launch Libra until all necessary approvals have been received. They can’t afford their normal approach of ‘fail fast’ with this hot potato. The introduction of Libra will further broaden the cryptocurrency market and offer an alternative to the other stable coins, the main one being the very slippery Tether. However despite Facebook’s 2.7bn users that doesn’t guarantee success. Many exciting projects usually go up in a puff of smoke, Libra could be destined for the same fate.
Exposing the Bitcoin Myth
It is a generally held view among novice cryptocurrency investors that because bitcoin has a limited supply of only 21 million coins as demand grows supply will be so constrained the price is sure to increase significantly. What these same novice investors fail to realize is that yes there are 21 million bitcoins but these are divisible to 8 decimal points. That means that there are actually 100,000,000 Satoshis in a bitcoin (compare that to 100 cents in a dollar!). On that basis, if one Satoshi was worth say 1 cent a bitcoin would be worth $1m giving a market cap of $18.4tn. That compares to $1.2tn of US currency in circulation. That long-winded explanation should help you understand that 21 million is an ample supply of bitcoins for many lifetimes.
Who Protects the Interest of the Novice Investor?
Finally, we have to ask one more question. With all these companies entering the cryptocurrency arena with one objective, to sell as much cryptocurrency as possible, who is going to protect the interests of the consumer?
Taking the purchase of stock as an example — stock is sold mainly on an execution-only basis (i.e. no advice). Stockbrokers are regulated by the SEC which means if they are negligent the consumer is protected. There is no such protection in the case of buying cryptocurrency. Whilst the same risk warnings apply with cryptocurrency as it does with stocks there are significantly more complexities in the cryptocurrency market. Including rampant price manipulation, pump and dump schemes and inflated volumes reported by exchanges. Why do you think the SEC hasn’t approved a bitcoin ETF yet?
So, who is there to inform the consumer on the risks, complexities and technicalities of buying cryptocurrency? Or does anyone need to? Can the consumer look out for himself?
These questions will receive different answers depending on who you ask. We believe that the consumer should as a bare minimum do his own research. The many price predictions are from people with a vested interest. The big exchanges are always trying to promote their other range of high risk products. Who can the consumer trust to receive unbiased and up to date information?
A Breath of Fresh Air
A new service recently launched which we think is worth a close look for the beginner to the cryptocurrency market. It is called CryptoQuestion — www.cryptoquestion.tech. The platform is totally independent of any exchange, holds no cryptocurrency, and has therefore only one motive, to look out for the interest of the consumer. To help achieve this noble cause they provide a question and answer service manned by crypto experts not bots where they commit to responding to questions within an hour on anything cryptocurrency-related. Although they are careful not to offer financial advice. They also provide a range of free resources for those wanting to learn more about cryptocurrency. These free resources include online courses, reports, research, and ebooks. CryptoQuestion is a breath of fresh air from the many platforms out there looking to make a fast buck from the uninitiated.
No Financial Advice
This article does not constitute financial advice in any way. This article should be treated as supplementary information to add to your existing knowledge base.
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