Can cryptocurrencies still be invested? Will there still be high-yield investment opportunities?

Since the beginning of this year, the unit price of Bitcoin has risen all the way and exceeded 60,000 US dollars, and the total market value has exceeded 1 trillion US dollars. Now everyone asks the most: Is it worth investing in Bitcoin because it is so high? Some people are optimistic that Bitcoin can break $100,000, while others are worried that it may plummet like 2018. As an asset determined by market supply and demand, it is estimated that no one can accurately predict the future price of Bitcoin. The unit price of Bitcoin has risen to 100,000 or even 150,000 US dollars, which has doubled by one to two times. Such a rate of return is nothing in the stock market or other financial markets. Can you still invest in cryptocurrency?

Before answering this question, we must first see that although Bitcoin is the boss, it is not equal to the entire cryptocurrency world. Let’s compare the changes in the crypto market in June last year and March this year.

Table 1 shows that in June last year, Cardano, which ranked tenth in the market value of cryptocurrencies, had only $2.2 billion in value. Nine months later, the market value of Cardano has leapt to $35 billion. Now the top ten Chainlink has a market value of 12 billion U.S. dollars. Let’s take a look at the comparison of the nine-month growth of the following major currencies.

Although the headlines are that Bitcoin exceeds tens of thousands of tens of thousands, its actual increase is the bottom. I will not list those small coins that are even scarier. Therefore, investing in cryptocurrency can’t just focus on whether Bitcoin is worth 100,000. Then there is another natural question: Are all cryptocurrencies in bubbles and small currency bubbles have a bigger bubble? Before answering this question, it is necessary for us to review how Bitcoin has come to today.

For thousands of years of human history, precious metals gold and silver, which are limited and easy to preserve, have been used as currency exchange units. The establishment of the central bank has a history of several hundred years, and most of the time the issuance of banknotes is subject to certain constraints, such as the gold standard system based on the issuance of gold reserves. Only after the decoupling of the U.S. dollar from gold in the 1970s did the issuance of global banknotes enter a new era of unconstrained. Especially in the 2008-09 financial crisis and the 2020-21 epidemic crisis, the uncontrolled issuing of banknotes by global central banks has caused a lack of trust in banknotes. In the search for modern gold in the 21st century, born in the 2008-09 financial crisis, Bitcoin, which has grown stronger under the 2020 epidemic crisis, has naturally become everyone’s favorite digital gold.

Whether the birth and development of a new thing can finally become a big climate depends not only on whether it is sought after by many people and institutions, but also on the proliferation of banknotes caused by the central bank’s issuance, but whether it conforms to the general trend of the development of the times. . With the development of the Internet, computers, and mobile phones in the past two decades, today’s society has basically achieved information exchange: Peer to Peer, Global Communication, 24X7, and the cost of communication is close to zero. This kind of information dissemination method quickly replaced the old exchange model of using post office intermediaries and paying for stamps, because the old post office model is far behind the pace of the information age.

Under the general trend of global information Peer to Peer, commodity and financial transactions are still an old-fashioned economic and financial system constrained by different intermediaries and by regions, time differences, and cumbersome political and administrative models. The entire system is divided into hundreds of pieces divided by sovereignty, region, and time difference. The rules of the game in the various financial systems are chaotic, and the transaction costs between each other are high and slow. The US dollar, which was originally a global trading currency, has gradually lost its appeal because of its issuer’s conflicts of interest and unclear game rules. This kind of paper currency, which is issued by a certain central agency, is no longer suitable for the current trend of globalization and informationization. The new era requires a brand new digital transaction and value currency.

What about the financial system in the cryptocurrency world? The centralized transaction model, which is issued by the central bank and various financial intermediaries, will be replaced by decentralized public blockchain accounting and Peer to Peer transactions. Asset transactions and transfers between people on a global scale no longer go through the intermediary of banks, and are no longer restricted by regions, time, and economic and financial systems. The cost of the transaction will also be close to zero. Decentralized DeFi finance will also be more and more accepted.

We can take a look at the future development trend through a few examples of cryptocurrency finance.

Stablecoin

There is a one-to-one sovereign currency Stablecoin in cryptocurrencies. For example, the U.S. dollar has a corresponding U.S. dollar (a U.S. dollar is a U.S. dollar). Since it is one-to-one, why does this U.S. dollar still have a meaning? Globally, people-to-people goods and services transactions that circulate within the existing system with paper currency dollars will have to go through N intermediaries and delays. If the same dollar is circulated multiple times, it will be repeatedly wiped out and delayed. This model is not suitable for more and more frequent commodity transactions on a global scale.

The current solution is that the transactions between us can also be settled in U.S. dollars, but transferred to cryptocurrencies for settlement. In this way, the same U.S. dollar goods and services exist, trade, and circulate in the form of U.S. dollars in the cryptocurrency world, which is much lower in cost and more convenient and free than the current financial system.

transaction cost

Current financial intermediaries charge various fees and commissions in the process of asset agency and transaction. The cost of a transaction seems to be small, but with the huge increase in the number of transactions, the accumulation of tangible and intangible friction cost is also considerable.

I won’t talk about the friction cost that everyone sees. Here is a very small intangible example. The smallest settlement unit in the current financial system is 0.01 yuan. Many transactions cannot be divided, and the remainder may be 0.002 or 0.008 yuan. The remainder of less than 0.01 yuan cannot be rounded to the pockets of ordinary people, but is eaten up by the banking system.

In cryptocurrencies, the minimum settlement unit of many coins is accurate to 8 digits after the decimal point. Take 50,000 US dollars of Bitcoin as an example, the minimum accuracy is 0.0005 yuan. For the same 100 million transactions, the current financial system wipes out $500,000 (assuming that each transaction has an average of 0.005 yuan taken by the bank) while the cryptocurrency system wipes out only $25,000 (assuming an average of 0.00025 yuan is taken by the encrypted system), which is only 20 points of the former one.

The emergence of a lending market without intermediaries and the interest rate determined by supply and demand

After cryptocurrency is a financial asset, someone will want to borrow. In the past year, the DeFi market without intermediaries has exploded.

If there is a lending market, there will be interest rates. The interest rate of the current financial system is largely determined by a few people in the central bank, and is neither determined by the market nor elected by the society. This decision itself is very opaque, uncertain, and unscientific. Interest rates in the DeFi world are completely determined by market supply and demand. The following is the recent market loan and borrowing interest rate information for cryptocurrencies.

At present, the interest rate in our financial system is based on the day as the smallest unit of settlement. This system of starting work at sunrise and finishing work at sunset in a certain time zone can no longer meet the global 24-hour business demand without distinction between day and night. Assets resting at night in one time zone can be fully loaned to another customer who is already in the day time zone. Therefore, the minimum settlement time for interest rates in cryptocurrencies can be hours or even every minute. Such high-efficiency capital is always in operation and profitable every second.

4. Financial transactions without a trading center

Financial transactions are now mainly completed by large central exchanges. The supply and demand of the market are concentrated on the central accounting book of fiat currency in a certain time zone. Due to restrictions on trading hours, currency settlement, and asset transfers, this regional trading model is no longer able to meet global demand. The trend of financial transactions in the cryptocurrency world is a Peer to Peer transaction model without a fixed central exchange, which is in line with global investment. There is no market opening and closing, and it will not be shut down. Transaction costs are also very low and transparency is high. The chart below shows that the decentralized trading market, which was basically zero before the summer of 2020, has turned into an exponential function-style skyrocket.

Digitization of assets

An important feature of cryptocurrency is digitization, so that both tangible and intangible assets in the world can be digitized and traded across regions in the cryptocurrency in the future. Our current assets such as houses and cars are mainly the overall transactions in a certain area, for example, the entire house is bought and sold. Without digitization and high transaction costs, it is impossible for everyone to buy or sell a quarter of a house and a car. However, once the physical assets are digitalized in the encrypted world, because of the low cost of division and transaction, half or quarter of a house can be bought and sold.

For example, A who has real estate in Beijing wants to realize part of the real estate in his hands due to capital or other investment needs. But because I am still optimistic about the long-term development trend of houses in this district, I don’t want to sell the entire house. The Chinese B in the United States is optimistic about the long-term appreciation of real estate in Beijing but cannot afford the entire house because of investment needs and does not want to live in. This is impossible to achieve under the current financial system. If the real estate is registered in the decentralized public blockchain, then A can sell to B at the lowest cost without intermediary.

The recent hot sale of NFT (no-fungible token) artworks has completely opened up a brand new digital asset market with blockchain as the core. There are digital artworks, Fan coins that interact with stars/stars, and real estate, communities, and governments that are completely built on the blockchain. Recently, an NFT artwork was bought for 69 million US dollars, which suddenly pushed the entire digital asset market to a new high. The value of art is no longer the visible and tangible object itself, but also represents the meaning that appears at that time and space in history. Just like Da Vinci’s famous paintings, the value is not in the painting itself (because later generations can copy the paintings to be more vivid), but in the time and space of history, Da Vinci described the scene at that time. In the digital age, only public accounts, blockchain, and encryption technology can guarantee the uniqueness and authenticity of artworks. Moreover, the ownership and participation of art has also changed from a single owner in the past to a global mass. Everyone can use the blockchain to raise funds to buy Coins to bid for a certain artwork, so as to achieve mass participation.

Sports Fan Coin represented by Chiliz (CHZ) is also very hot. With the advent of the information age, interaction with stars/stars is no longer limited to face-to-face. The celebrity’s signature has also been transferred from the notebook to the blockchain. The participation of fans and fans will also be more global, no longer limited by region and time.

With the exchange of information and internationalization, virtual real estate on the blockchain, communities, and even governments have all been born. People with common interests are no longer separated from the physical world, but build their homes and communities together on the blockchain. The representative of this aspect is MANA coin. This year has been a leap-like surge.

In the era of explosive growth of information, it is no longer realistic to store and read information by an intermediary such as (Google, Amazon, Facebook, Apple). This centralized client-server system is prone to attacks/hacks and point of failure. The exponential growth of data has also overwhelmed the centralized management model. Store encrypted information in a distributed manner, so that everyone can use the extra space on their computer. In this way, there is no point of failure, hack, or attack. FileCoin is the leader in distributed data storage and retrieval, and it has been skyrocketing these days.

After seeing the general trend of cryptocurrency bringing new cryptocurrency finance, digital assets, decentralized information storage and other markets. We can return to the question that everyone is concerned about at the beginning of the article “How high can Bitcoin rise?” Let’s take a look at the current scale of various financial assets around the world.

If Bitcoin can replace a quarter of the gold market, then one Bitcoin will double by 1.5 times to more than 125,000 U.S. dollars. Within five years, if the entire cryptocurrency Defi market can account for 5% of the traditional stock and bond markets, then there is an opportunity to exceed 10 trillion US dollars. Of course, it is absolutely impossible for a currency to dominate the world. It is likely to be a few trillion-dollar scale public chain 3.0 coins with smart contract function.

From the current point of view, Bitcoin, Ethereum (Ethereum 2.0), Polkadot, Cardano ADA, and other currencies are all strong candidates. Based on the current market value estimation, within 5 years, Bitcoin may still increase by 2 to 5 times, Ethereum may increase by 10 times, and Polkadot and Cardano may increase by 50 times. If other currencies succeed, there will still be an increase of more than 300 times.

Several currencies with a market value of hundreds of billions of dollars will also appear in the DeFi world. Judging from the current market value of several currencies such as Chainlink, UniSwap, Aave, Compond, an increase of 30 to 100 times or more is also possible.

There should be several players with a market value of hundreds of billions of dollars in the field of digital assets and decentralized information storage. If FileCoin, MANA, Chiliz, etc. are successfully transformed, there is still room for growth of dozens to hundreds of times.

So it does not matter whether Bitcoin rises to 100,000 or falls to 20,000 within 5 years. The key is that Bitcoin has developed a technology that uses a decentralized open blockchain accounting model and an encrypted digital seal to make global Peer to Peer transactions without intermediaries a reality. This new globalization, 24×7, and new digital financial system with low transaction costs is still in the early development stage, and is gradually being recognized and accepted by the world. The entire cryptocurrency industry will usher in a spurt of development in various fields in the next 5 years, and there will definitely be many opportunities for investment returns of tens to hundreds of times.

Author/ Translator: Jamie Kim
Bio: Jamie Kim is a technology journalist. Raised in Hong Kong and always vocal at heart. She aims to share her expertise with the readers at blockreview.net. Kim is a Bitcoin maximalist who believes with unwavering conviction that Bitcoin is the only cryptocurrency – in fact, currency – worth caring about.