Don’t give up on Cryptocurrencies just yet. They have a bright future despite recent volatility. 

The cryptocurrency market will undoubtedly take some time to recover its lost value. Our European survey shows while awareness of cryptocurrencies has risen, confidence has fallen. But the crypto winter does not constitute the end by any means. Peering into the long term, we predict that crypto will recover, perhaps gradually, and confidence will unquestionably return because of these three trends:

  1. There will be fewer currencies leading to less volatility
  2. Greater regulation will increase market stability
  3. Increase in interactions in the metaverse will drive greater usage 

1. Fewer currencies, but less volatility

The first of these is the coming consolidation phase. 10,000 active cryptocurrencies is way more than the market needs, and many of them are in the process of disappearing into obscurity. We expect overall investment to consolidate further than it is at present, around those currencies that have shown significant and persistent usability and potential for growth in the last few years. By 2025, we expect to see a much smaller number of cryptocurrencies being traded or used at volume, but still a number that permits diversity and market innovation.

2. Regulation will bring greater market stability

The second agent of change that will impact the cryptocurrency market as a whole will be regulation. Up to this point, there has been no internationally coordinated regulation of cryptocurrencies. Instead, international financial bodies have been adopting a ‘watch and learn’ approach before putting in place new policies.

The era of crypto regulation is, however, under way. In March 2022, President Biden signed the Executive Order on Ensuring Responsible Development of Digital Assets, which is an explicit call for collaboration across all US government departments to create a regulatory framework for cryptocurrencies.

The goals of crypto regulation will be to protect consumers, prevent illicit financing, protect the integrity of the market as a whole and continue to promote (or at the very least, not hinder) innovation. However, a framework of regulation will need to be heavily internationally coordinated. Out of this period of regulation, we expect that the crypto market will stabilise, and both investors and consumers will regain their confidence in the future of the market.

3. The emergent metaverse will increase usage

Thinking further into the future, there is one more pivotal reason why we expect crypto to continue to grow and attain maturity.

The metaverse is already with us, but within 10 years it will be ubiquitous, not just as a place to live and work, but as a new arena for financial exchange. Commerce on the internet is of course still happening using digital versions of fiat currencies. The metaverse, however, is increasingly using blockchain-based cryptocurrency as a way of creating instantaneous, permission-free interactions between users.

The metaverse, already an US$800 billion industry, will rely on cryptocurrencies to function. Individual iterations (or ‘islands’) of the metaverse will begin to imitate countries with their own dedicated cryptocurrencies. Furthermore, supply of these currencies will be limited, so their value overall should increase in time. 

BearingPoint recently completed a survey in four European markets (Germany, Austria, Switzerland and France) that took an in-depth look at how private individuals regard these new currencies.

90%

of respondents said they had heard of cryptocurrency.

Awareness and interest – In 2017, we saw a huge surge in awareness and interest in cryptocurrencies across Europe. Over 70% of respondents said they had heard of cryptocurrency, compared to just 6% in the year before. In the years that have followed, that number now stands at around 90%, although the trajectory has flattened. Nonetheless, it’s apparent that in the public mind at least, cryptocurrency is a well-established phenomenon.

Use of cryptocurrency – In 2016, this figure stood at around 5%. It spiked in the following year to almost 11%, but then, intriguingly, has dropped off. In 2018 it had returned to 5%, and has only marginally recovered since then, with 8% of respondents in 2022 saying they had used in cryptocurrency.

Consider as a suitable investment – We asked our respondents again this year whether they considered cryptocurrency to be a suitable form of investment, in comparison to both gold and fiat currencies. In 2022, the figure for crypto actually fell to its lowest level in six years, at just 20%. Over the same period, we’ve seen interest in investing in gold increase to well over 80%, and the same figure for fiat currencies holding steady at around the 60% mark.

Confidence in price stability – we asked whether respondents have comparative confidence in the price stability of crypto. This figure has now fallen from its peak in 2017 of 32% to 21% in 2022, though has marginally improved in the last two years. This figure is well below the equivalents for gold (82%) and fiat (65%).

Crypto to replace state currencies – we asked respondents whether they thought there was a likelihood of crypto replacing state currencies as a means of transaction. In 2017, this figure peaked at 35%, at a time when clearly a large number believed that crypto would be the future of money. In 2022, this figure is down to 19%.

Would you like more information?

If you want to get more information about this insight please get in touch with our experts who would be pleased to hear from you.

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