Deutsche Bank just released a new report on the future of cryptocurrency. Although the bank’s researchers say cash will be around for a long time, they cite a number of factors that may push crypto to the forefront of a digital economic transformation, including adoption by tech-savvy Millennials.
According to the report, entitled, “Part III. Digital Currencies: the Ultimate Hard Power Tool”, China and India are driving the global economic shift as they roll out new peer-to-peer strategies for digital payments. At risk: the US dollar.
“As China (and India) develop electronic, crypto, and peer-to-peer strategies, the epicentre of global economic power could shift. China is working on a digital currency backed by its central bank that could be used as a soft- or hard-power tool. In fact, if companies doing business in China are forced to adopt a digital yuan, it will certainly erode the dollar’s primacy in the global financial market.”
For investors, researchers say crypto could offer distinct advantages, such as low or negative correlation with financial assets, the ability to create composite assets for better returns, asset divisibility through fractional shares and more accessible investments.
“Cryptocurrencies have been around for about a decade, but it was not until 2017, when bitcoin’s price surged to nearly $20,000, that they grabbed significant global attention. If we connect the dots between the dematerialisation of payments and the rise of cryptocurrencies, we can envision a near future in which cryptocurrencies gain broad acceptance. This view is supported by trends among young generations who readily accept digital currencies and payments.”
Deutsche Bank surveyed 3,600 customers in China, France, Germany, Italy, the UK and the US. Researchers confirm that Millennials expect to see the emergence of a digital economy powered by a purely digital currency.
“A large majority of millennials believe cryptocurrencies will be good for the economy and said they have already bought and sold a cryptocurrency. More than a third of millennials believe that cryptocurrencies are already replacing cash.”
Crypto is still lagging in terms of adoption despite “well-known benefits” such as “security, speed, minimal transaction fees, ease of storage, and relevance in the digital era.”
“Overall, though, relatively few people have bought and sold cryptocurrencies. They are largely seen as a supplementary means of financial transactions rather than as necessary or advantageous substitutes for mainstream methods.”
The researchers anticipate, however, that today’s levels of adoption will change, particularly if a tech giant with an massive user base makes crypto easy to send, spend and receive.
“If the Chinese government, along with Google, Amazon, Facebook, or Apple (the so-called GAFA group), or a Chinese company like Tencent can overcome some of the barriers to cryptocurrencies, then cryptocurrencies could become more appealing. This will hasten their adoption and give them the potential to replace cash.”
The report argues that key barriers to adoption are older people and regulators. Older generations are afraid of crypto, finding them hard to understand. This core demographic also believes that crypto is apt to set off a dotcom-style bubble. As for regulators, they sound the alarm bells by highlighting risks related to cryptocurrencies, such as liquidity, custody, anti-money laundering (AML) and security.
As for central banks and their role in the emerging crypto economy, they could pivot and embrace the technology to build their own “cryptocurrencies”, the researchers speculate.
“A central bank cryptocurrency would provide an official form of money backed by the government and the capacity to exchange peer-to-peer without intermediaries (commercial banks).
“The retail form of a central bank cryptocurrency would play the same role as any currency in circulation today, whereas the wholesale form would be like the reserves held by banks and other financial institutions. As with a traditional currency, it would be decentralised in transaction and centralised in supply.”
Such instruments would not be true cryptocurrencies which are digital assets that are not centralized, issued or controlled by any central authority, company, government or consortium. Central banks could, however, spark a seismic change in the evolution of money by building centralized digital currencies, known as “CBDCs” or central bank digital currencies, that shift habits, support new infrastructure and promote more education of cryptocurrencies, effectively building a bridge to fully decentralized digital assets such as Bitcoin and Ethereum.
You can check out the full report here.
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