Are your skis ready? If not, clip in and try to have fun, as this will be the final crypto winter we have. Depending on how you count, we’ve had two or three, and this one has undoubtedly been the worst and most annoying. Fortunately, it’s going to be the last one, and here’s why: Blockchain and cryptocurrency are about to transition into regular, regulated enterprises. I see three significant positive trends for the future, despite the fact that it is always very challenging to distinguish signals from noise.
Global blockchain leader at EY and CoinDesk writer Paul Brody.
Increased use of force by law enforcement
Starry-eyed do-gooders (of which I am one) and unscrupulous opportunists trying to use that message to sell whatever they have created have always had a tense relationship in the realm of cryptocurrency and blockchain. The failure of some crypto and blockchain assets to live up to the warnings we and others have issued about their risky, speculative, and outright ludicrous nature has been one of the things that has been most irritating over the years. Initial coin offers (ICO) have a terrible track record, and we (EY) warned about it in 2018 and again in 2019, and we weren’t the only ones to voice our worries. Warnings and social media flame battles are significantly less successful than enforcement actions.
Public policies that be inconsistent and contradictory
Many nations, most notably the United States, have intricate and dispersed regulatory frameworks. We shouldn’t be shocked that regulators are not entirely and instantly in accord if we can’t get everyone in the blockchain community to agree on what policies should be. It is helpful that the legal system is required to make sense of how the law is applied in a consistent manner. Regulators are required to provide a distinct and consistent interpretation of the law in those situations. It will take some time for this clarity to become apparent, but it will.
Developing product and industry leadership
The tech boom-and-bust cycle typically occurs when enthusiasm and expectations considerably exceed a company’s ability to produce goods and generate profits. Before the world had discovered the appropriate applications to spur enterprise adoption, this occurred in technology in the early 1980s, when personal computers and video gaming consoles first appeared on the scene. In the late 1990s, as network technology and the internet produced a lot of excitement but little in the way of income or profits, a second, much greater boom cycle formed.
The dot-com bubble saw businesses go public or raise hundreds of millions of dollars without significant revenue streams, and occasionally even without well-structured business strategies. This is analogous to many blockchain and cryptocurrency business models in 2018–2022.
It’s important to keep in mind the similarities with the dot-com bubble and subsequent recession. Both industries experienced significant increases in investment and values based on improbable predictions of future capacity. About $350 billion in digital online transactions took place in 1999, the majority of which involved B2B legacy technologies like Electronic Data Interchange (EDI) rather than consumer e-commerce conducted through a web browser. Everything is done online.
Major investment banks, scholars, and forecasting agencies made audacious estimates at the height of the dot-com bubble that by 2005, there would be between $4 trillion and $6 trillion in annual internet trade. This turned out to be absurd. In fact, consumer online browsing-related e-commerce as a whole surpassed $105 billion in 2005. It is not surprising that several of the well supported enterprises engaged went bankrupt and market valuations plummeted. Nearly $1.75 trillion in market value for technology vanished in only the year 2000. For those of you keeping track at home, that will be greater than the market cap of the entire blockchain ecosystem in 2023 and will amount to around $3 trillion.
The story then takes an unusual turn at this point: E-commerce and online business are now everything that was promised to us back in 1999. In 2022, it is predicted that worldwide e-commerce spending would be very close to $5 trillion. In 2022, it reached $1 trillion in the US alone. The top 10 technological businesses in the world collectively have a market valuation of roughly $7 trillion. The U.S. stock market is more heavily weighted toward technology equities than the combined finance and oil sectors. There have been ups and downs, but since 2000 there hasn’t been a single technology bust. The explanation is straightforward: Technology has developed into a mainstream business where valuations are determined by revenue and profit growth rather than rosy projections of the future.
Additionally, there are beginning to be indicators of developing blockchain and cryptocurrency products and enterprises. Even though it’s still early, non-fungible tokens (NFT) appear to have established a long-term presence in the user and business ecosystems as collectibles, digital prizes, tickets, and proofs of participation or attendance. NFTs are now so simple and straightforward to produce that anyone can sell them. Would you like my monthly NFT for myself? Take it now. As industrial organizations adopt blockchain for use cases unrelated to financial engineering, “boring” sectors like supply chain management, product traceability, and emissions tracking are all expanding at EY.
