It’s been a disappointing year for Blade Runner fans, distinctly lacking the flying cars and replicants promised in the sci-fi epic. There were, however, more than enough other technological advances to keep us going – particularly in the development and adoption of cryptocurrencies.
2019 was a big year for crypto. Facebook’s Libra dominated the conversation, but there were developments aplenty elsewhere, as governments, startups, established global players and everyone in between made moves in the space.
So what will 2020 bring? The Luno Team and I have taken a look at the events of last year and what’s coming up to provide our top picks for what to watch out for.
The Bitcoin Halving sends demand soaring?
The Bitcoin halving is a recurring event in which the number of Bitcoins rewarded to miners are cut by half. They are programmed to take place once every 210,000 blocks, roughly every four years, until the year 2140 when it’s estimated that all 21 million Bitcoin will have been mined. These four years are now almost up, with the next halving set to take place in May 2020.
This halving will see the block rewards fall from 12.5 to 6.25 Bitcoin. Experts believe that this increases demand for the cryptocurrency by further restricting supply. Furthermore, the difficulty goes up so miners have to spend more to mine each Bitcoin, which means they have to raise the prices to make it worth their while. And past experience suggests this is true, with the last Bitcoin halving in July 2016 preceding Bitcoin’s epic 2017 bull run.
However, the cryptocurrency space has matured since then, with the traditional financial industry and some of the world’s biggest technology companies taking an interest in Bitcoin. That makes this halving more unpredictable than ever, with no guarantee that there will be another bull run as in 2017.
It could have an impact in a number of other ways too. If we do see another bull run, will we see another altcoin season? How would this impact the top 3 coins (Bitcoin, Ethereum and Ripple)? Will we see some new entrants?
Retail adoption on the rise
A charge long-levelled against Bitcoin and other cryptocurrencies is the lack of opportunity to actually use them. Throughout 2019, we saw this change rapidly, with new startups such as Flexa introducing slick crypto-payments platforms for retailers. More importantly, there was a diverse array of retailers both big and small, willing to integrate their services. Among them were Whole Foods Market, Office Depot and Nordstrom, to name but a few.
In 2020, we expect this trend to continue. Starbucks, for one, has announced that they’ll be integrating Bakkt’s crypto-payment service in the first half of 2020. Starbucks owns almost 30,000 outlets across the world. Will such a major player integrating Bitcoin motivate other retailers to go for the process?
Traditional financial players to add crypto as investment option
The rise of FinTechs and challenger banks has been rapid over the last few years. They move fast, operate with a digital-first mindset, and know what consumers want. This has seen them lead the way in offering crypto as an asset class, with the likes of Revolut having integrated it into their platform since 2017. But could 2020 be the year that more traditional players catch up?
Banking today moves faster than ever before, and the need to innovate and differentiate yourself from the competition is vital. Banks are always looking for additional revenue streams. Given these factors and the evident demand for crypto as an investment, it makes sense that we will begin to see more traditional banks and other more traditional financial players offer crypto as an investment opportunity to their customers.
That demand for crypto is so high among the elusive and in-demand millennials (age 25 – 39 years old) should particularly appeal to banks. Investment management firm, Charles Schwab recently reported that in the third quarter this year, millennials invested more in Bitcoin than stocks in companies like Disney or Netflix.
Acceleration of regulatory efforts…
With the crypto space maturing rapidly, regulators around the world are already accelerating their efforts. This escalation in pace was evident throughout 2019, likely motivated by Facebook entering the space with its Libra project.
In 2020, we expect to see this continue. We will also see a number of guidelines planned for next year come into effect. In October, the G7 group of nations outlined the need for stablecoin regulation, implying that guidelines or laws may be produced next year. Japan also passed a bill in May that will reinforce its existing cryptocurrency laws, coming into force in April of next year.
One major regulatory development to watch out for next year is the introduction of the EU’s 5th Anti-Money Laundering Directive (5AMLD). For firms buying and selling crypto-assets, the 5AMLD will require them to register with national financial regulators. It also states minimum requirements for AML processes, similar to those we see with traditional asset classes.
The specifics of how these regulations will impact the space are hard to predict. There will, however, be lessons to learn for best regulatory practices that other regions can emulate if successful.
…And it’s emerging markets leading the way
Interestingly, it is actually emerging markets such as Malaysia who are leading the way in crypto regulation – a trend we expect to see carry on into 2020.
In some ways, this reflects what we see with FinTechs and traditional banks. The need to innovate and differentiate from more established financial players drives the need for a more progressive mindset. The relative youth of their financial system also provides them with an advantage, in that they are not so heavily tied to established ideas and ways of working.
This year, the South African Reserve Bank (SARB) has taken a particularly progressive approach to the regulation of cryptocurrencies – specifically in clamping down on its unscrupulous use. It is expected to announce new crypto policy proposals in the first quarter of 2020.
Meanwhile, the Securities Commission in Malaysia has now approved three firms to establish and operate a digital asset exchange – including Luno. They’ve taken a proactive approach and have been intelligent in the regulation of cryptocurrencies and their underlying blockchain technologies, which should yield a great deal of new innovation next year. Their success could serve as a catalyst to others in the region.
Is Libra going to launch (successfully)?
The cryptocurrency headlines in 2019 were dominated by one name – Facebook. Or, to be more precise, Libra.
The Libra project has attracted a good deal of attention from governments across the world, with regulators lining up to grill Facebook CEO Mark Zuckerberg and Libra CEO David Marcus. Despite the bashing, they have persevered. In October, 21 organisations officially signed the Libra Association charter at the project’s inaugural meeting in Geneva – Andreessen Horowitz, Vodafone, and Uber, PayU among the many big names.
The project is developing rapidly. Forty wallets, tools, and block explorers, plus 1,700 GitHub commits, have now been built on its blockchain testnet. The testnet has seen 51,000 mock transactions in the past two months and is on track to deploy its mainnet in 2020 as planned – regulatory concerns permitting.
With Libra planning to sign up to 80 more members to the project, its potential impact is tremendous. It’s really a question of ‘when’ rather than ‘if’. We will be watching eagerly.
Asia warming up to crypto
The last quarter of 2019 was all about Asia. We saw Malaysia welcome crypto companies back into the region (including Luno), while South Korea and Thailand also began to implement new regulation that should pave the way for the advancement of crypto.
It was China that really dominated the headlines though, as the government appeared to warm up to the idea of blockchain technology – if not strictly speaking cryptocurrency itself. First, President Xi noted in a speech that “We must take blockchain as an important breakthrough for independent innovation of core technologies.” Chinese censors then began to remove online posts claiming that blockchain technology is a scam and allowing promotional posts. With rumours circulating that the country is looking to introduce its own digital currency, 2020 could see China make some big moves in the space.
Another giant market that has been even more cautious than China so far is India. However, they too seem to be coming round to its benefits. In November, Sanjay Dhotre, Minister of State for Electronics and Information Technology in the government of India, claimed that that a “National Level Blockchain Framework is being prepared” considering the technology’s potential and different use cases. The minister added that blockchain is “one of the important research areas”, with potential applications in areas such as governance, banking, finance, and cybersecurity.
To put this into context, in April 2018, the Reserve Bank of India, the country’s central bank, initiated a major crackdown on the trade and purchase of cryptocurrencies such as Bitcoin within its borders. RBI Deputy Governor, Bibhu Kanungo declared that all RBI-regulated entities are to “stop having business relationships with entities dealing with virtual currencies forthwith and unwind the existing relationships in a period of three months time.”
Is this set to end? Will this spark confidence for other players to move in next year? Is it an indication that attitudes in the country are changing?
Boom or bust for ICO projects?
The ICO boom of 2017 saw startups of all sizes hit the jackpot. The number of these who are still solvent, however, is dwindling rapidly. The space increasingly resembles an elephants’ graveyard of nice ideas and jazzy whitepapers – and 2019 was another year of both delay and dismay.
On the delay front, Filecoin (one of the five biggest ICOs of 2017) was slated to launch its testnet in Spring 2019, and its mainnet by the end of the year. This is now expected in Q1 of next year. Hdac, another of the five biggest ICOs of 2017, are also now planning to launch next year, having missed their 2019 deadline. Another member of that top 5, Sirin Labs did manage to launch this year, but ended up axing 25% of its staff after disappointing sales of its Finney smartphone.
However, all eyes will again be on Telegram, as the messaging platform looks to fulfil the promise of its 2018 $1.7 billion ICO. Arguably the most interesting project and certainly most ambitious ICO project, Telegram has hit a number of regulatory snags along the road and is currently under investigation by the SEC, but still expects to launch next year.
We will hopefully see the likes of Telegram, Filecoin and Hdac launch successfully next year as planned. For those with less capital who are still yet to launch, 2020 could be a make-or-break year as their runway begins to run out. Blockchain is still a nascent technology, and life as a startup is hard enough anyway, with the odds stacked against survival.
The last two years should have seen these projects learn lessons and work hard to build a product that’s ready for release and matches the promise that got them investment in the first place. Those who have done that are well positioned to succeed. For those who haven’t, next year could be the end of the line. We’ve heard many pundits in the past proclaim the end is nigh for ICOs, but will 2020 be the year it happens? Or will a couple of big hitters getting off the ground serve as a catalyst for others?
The end of privacy coins – or the beginning?
The public mood is increasingly geared towards anonymity online, following a number of scandals over the past few years surrounding how our supposedly-private data is used. The Cambridge Analytica revelations have exposed people previously more than happy to scatter their details across the web have realised that this might not be the best approach.
This has had an impact in crypto. The chatter around privacy coins grew rapidly throughout 2019, with the likes of Monero, Zcash and Dash making headlines. Even Litecoin has been making noises that it will integrate privacy protocol, Mimblewimble.
This growing popularity is also attracting regulatory attention. Where stable coins were the main bugbear for regulators in 2019, their gaze is likely to shift towards privacy coins in 2020. Privacy coins are a particularly tricky concept for governments to reconcile with, offering a level of anonymity that many are reticent to accept. Such cryptocurrencies can obfuscate transactions, making it harder for exchanges and custodians to comply with fresh international guidelines to prevent illicit financing. We are already seeing exchanges such as BitBay and Coinbase drop privacy coins in certain regions to comply with local regulations, and with 5AMLD coming in next year, this could escalate further.
If privacy coins can navigate a tricky regulatory period, could there be a bright future? And will other coins such as Litecoin look to integrate privacy protocols?
Ethereum 2.0 provides a boost to decentralised finance?
The long-awaited Ethereum 2.0, codenamed Berlin, drops next year. Ethereum 2.0 is intended to be Ethereum’s final network upgrade and is poised to shift its current Proof-of-Work consensus algorithm to Proof-of-Stake, passing block validation function from miners to special network validators. The first stage of the Ethereum’s transition to Ethereum 2.0 is expected to take place on 3 January 2020.
Ethereum is the home of more than half of all altcoins, and it has been constantly evolving since its launch in 2016, implementing new strategies and creating new possibilities for its users, ranging from decentralised applications (dApps) to smart contracts. The benefits for scalability and transaction speed from Ethereum’s upgrade that will reportedly occur should inspire greater progress in all of these.
Decentralised Finance (DeFi), in particular, could be in for a windfall. This sub-sector has already experienced gains in 2019, growing into a $600 million ecosystem. Ethereum 2.0 could spark new and interesting financial models for borrowing and lending, new staking mechanisms and incentives that could see new DeFi projects form, and see existing projects take off. The upgrade is much-hyped and has been long-awaited by the community. But will it have the impact many believe?
Institutional investors enter the space
In 2020, we should see institutional investors – banks, hedge funds, pension funds, endowments, etc. – show more interest in cryptocurrencies themselves, or at least in Bitcoin. They are increasingly looking to diversify their portfolios and finally have the professional machinery to do so.
Bakkt is probably the most popular example of this. They got off to a slow start when they launched their Bitcoin futures exchange in September. Since then though, they’ve witnessed steady gains, trading a record 2,469 futures contracts on 22 November. This growth should continue into 2020, potentially inspiring similar projects and competitors to offer a similar product. It also provides more options to institutional investors and traders.
Brave browser changing advertising model for web giants
Advertising fuels the modern internet, allowing websites and digital creatives to monetise their content without charging users. However, advertising trackers have a negative impact on both user experience and privacy. This is something crypto startups are looking to solve – and 2020 could see it enter the mainstream.
One crypto startup trying to solve the problem is Brave browser, which has an almost pathological focus on user privacy. Its key objective is to ensure that users retain control of their own personal data. Users also get paid in the company’s own BAT token for watching adverts. This doesn’t just hold advantages for consumers, but also marketers who are seeing far better click through rates on their ads.
In 2019, Brave reached 8 million users. With its popularity growing so rapidly, will we see the features that have made it so popular adopted by larger, established search engines such as Google and Yahoo?
Finally… how many times will Bitcoin die this year?
According to 99bitcoins’ Bitcoin Obituary, which documents every instance a major press publication calls Bitcoin or crypto as being ‘dead’, Bitcoin has now ‘died’ 378 times since 2010! Yet it’s still here, alive and kicking.
How many times will it ‘die’ in 2020? We’re going with a conservative 15.
What do you think will happen in 2020? Do you think our predictions will hold weight? Will the Winklevoss twins continue their quest to buy all the crypto startups run by identical twins? Are STOs set to take off? Will Justin Sun finally take Warren Buffet for lunch?
