As we head into the fourth quarter of 2021, things are looking bright for Bitcoin and the entire crypto ecosystem. After a crypto ban in the United States is apparently ruled out in the near term, the Bank of America’s digital asset snapshot further invites investors to join the emerging tokenized economy.
Bank of America’s Latest Report – A Bullish Crypto Approval
Bank of America (BoA), the world’s second-largest bank after JP Morgan Chase, has released a new report on the crypto space. The first was published on March 17, 2021, titled “Bitcoin’s dirty little secrets”. The latest, titled “Digital Asset Primer in Brief: Only the first inning” by Alkesh Shah, examines cryptocurrencies and places them in the context of other assets, such as stocks and commodities.
As the BoA sees Bitcoin as the driving force behind the digital asset ecosystem, accounting for almost half of its $ 2,000 billion worth, it sees the future in dApps powered by smart contracts. When things go well, dApps are able to replicate the bank’s basic business model of borrowing, lending, swapping, and insurance.
To show the growing interest of companies in blockchain technology, BoA has partnered with its predictive analytics team to use natural language processing (NLP). The results revealed 161,322 instances of digital assets in obtaining call transcripts from Q1 2009 to Q3 2021, with explosive growth seen during this year.
Speaking of keywords, the 141-page report contains 7 instances of “bullish.” The caveat is that in the short term there may be regulatory hurdles creating FUDs and volatility. However, in the long run, BoA appears to be convinced that the digital asset ecosystem is “too big for institutional investors to ignore“, Further noting that”it is not a fad.
The reason for the BoA’s optimism in prompting investors to embrace crypto can be explained by two charts. One describes the technology adoption curve, when it comes to cryptography.
By the end of the decade, half of the world’s population is expected to participate in the blockchain ecosystem and own some sort of digital asset. The reason is simple. Barring aggressive regulation, the financial system, as we know it today, can be fully tokenized and accessed through smartphone apps. In turn, those who get into crypto early will benefit the most.
Bitcoin performance ranked
Although Bitcoin could exceed $ 1 million per BTC in the second half of the 2020s, based on the stock-to-flow model, latecomers will have less earnings compared to early adopters. More importantly, the BoA report is quite honest about the main driver of decentralized digital assets.
“The nature of a decentralized blockchain network is that it is trustless; you don’t need to trust or even know other network participants for the network to work properly. Our current monetary system requires us to trust banks, credit card companies and the Fed to keep the system going. “
Here are some other notable information that the BoA report brings to the table.
Being the first tends to create a powerful network effect. Social media companies, such as Twitter and YouTube, know this all too well. Bitcoin is no exception. It has acquired a larger market capitalization than Tesla, but less than the giants Big Tech and Gold, which remains number one with an 11 times larger market capitalization.
In terms of performance, Bitcoin is the second best efficient YTD asset (year to date) at 63%, versus 10 other assets in the same market capitalization range.
Additionally, BoA notes that Bitcoin’s volatility has decreased over time as ownership and adoption increases. It rates the annualized volatility of BTC at 70%, which is a significant improvement over the 300% in 2013. Of course, crypto investors know that Bitcoin’s volatility is a double-edged sword. The positive side – higher earnings – will diminish over time as more investors join the Bitcoin network.
Regarding Bitcoin’s fourth quarter 2021 period, the report considers BTC supply and demand dynamics and the ETF’s approval timeline as critical for its price movements. We’ve covered both in detail this week. In particular, how a Bitcoin ETF based on futures could temporarily cause a collapse in prices and the impending supply shock effect on the price of Bitcoin.
Altcoins and NFT
While Bitcoin has spearheaded digital assets as a concept and as a deflationary store of wealth, altcoins are becoming increasingly popular. On social media, interest in Bitcoin is waning as smart contract platforms – Ethereum, Solana, Cardano, Polkadot – become more and more popular. As a memetic coin that arguably relied on Elon Musk’s tweets over the past few months, Dogecoin has taken a large chunk of digital asset mentions.
The tokenist previously challenged Dogecoin due to its poor technical basis compared to superior alternatives for daily crypto payments – Litecoin (LTC) and Bitcoin Cash (BCH). However, the memetic potential of DOGE foreshadowed the resurgence of non-fungible tokens (NFTs).
BoA notes that NFT sales grew 1,100%, from $ 250 million in all of 2020 to more than $ 3 billion in August 2021 alone. Topping the list is Axie Infinity, the spearhead of blockchain gaming with 6500% revenue growth. .
Nonetheless, the NFT volume is still far behind the volumes seen in crypto trading. Given that NFTs represent speculative digital art collectibles – around 90% of the market – this is to be expected. However, NFTs create a secondary resale market, in which NFTs fetch higher prices on average.
BoA suggests further adoption of NFT by large corporations both as a branding tool and as an authentication method, noting Nike’s U.S. patent to create collectible sneakers used as tradable digital assets. We recently noticed this trend with TikTok NFTs, comparing the already high demand for digital assets in non-blockchain games like Fortnite.
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Risks associated with digital assets
Perhaps the most valuable information in the BoA report is comparing digital assets based on their inherent risk levels. This crib sheet will undoubtedly be useful for future investors.
On a spectrum between regulatory restrictions and launch failure, the report includes notable crypto developments that we have already covered on The tokenist:
- The performance of Layer-1 vs Layer-2 scalability solutions, including Proof-of-Work vs. Proof-of-Stake, as shown by Solana surpassing Ethereum by 500%.
- Hacking smart contracts on DeFi protocols. In particular, when a platform becomes popular, it attracts more hackers, as witnessed by Binance Smart Chain facing a hacking wave during a period of high ETH gas fees.
- The bank runs small cap DeFi projects that can affect stablecoins. For example, when Mark Cuban invested in Iron Finance’s Titan token, only to collapse after a bank panic.
However, when it comes to CBDCs (Central Bank Digital Currencies), the BoA also points out the risk of bank leaks as well as scalability and AMC / KYC compliance issues. The report concludes that the wider emergence of CBDCs is a strong possibility, saying that, “central banks of countries that account for over 90% of global GDP would explore CBDCs. “
Interestingly, although BoA observes that CBDCs are inevitable, it does not mention its key issue – programmability. For example, the Bank of England and the Bank of Russia are both discussing the programmability of the CBDC which could limit some purchases. Moreover, given that CBDCs could potentially be nothing less than money for surveillance, they could also be the most effective form of thought policing ever considered.
Finally, the report notes that “digital assets, such as bitcoin, may be targeted if central banks see a risk to the payment system or a disruption to credit flowsFortunately, Jerome Powell, the chairman of the Fed, and Gary Gensler, the chairman of the SEC, eliminated those concerns last week by explicitly stating that cryptocurrencies will not be banned. September losses, the good news drove Bitcoin to surge to over $ 50,000 and it is slowly heading towards its pre-May peak at around $ 60,000.
In tokenized Finance 2.0, what role should banks play? Let us know in the comments below.