- While scores of pundits have proclaimed crypto’s demise, the technology and industry have quietly matured and are poised to transform financial services.
- As crypto ETFs create a reliable path to investment, stablecoins are powering new apps that facilitate the movement of money, especially in developing economies.
- Decentralized finance platforms are broadening access to tangible financial services such as lending and borrowing, validating the vision of many crypto pioneers.
KEY INSIGHTS:
Over the past decade, crypto has faced its share of failures and scandals. CEOs have landed in prison, markets have crashed, and pump-and-dump schemes have swindled investors out of their life savings. The drama has earned crypto a chorus of haters, with critics declaring it an elaborate Ponzi scheme and an “utterly pointless” innovation. “Let crypto burn,” read one 2022 headline.
And yet, crypto endures. Since that headline, bitcoin’s price has risen sixfold, Wall Street firms like Goldman Sachs and Morgan Stanley have amassed millions in crypto assets, President-elect Trump has signaled an interest in creating a federal bitcoin reserve, and Federal Reserve Chair Jerome Powell compared bitcoin to gold (although he may not have meant it entirely as a compliment).
Instead of imploding, crypto is entering its mainstream moment. No longer just a collection of speculative currencies, crypto is evolving into a parallel financial system — one that is faster, cheaper, more efficient, and more inclusive than traditional banking. Powered by blockchain technology, these decentralized networks record peer-to-peer transactions in a transparent, encrypted, and permanent digital ledger. Because they operate independently of banks and governments, bypassing the need for central clearing authorities, they enable money to move with unprecedented efficiency.
“No longer just a collection of speculative currencies, crypto is evolving into a parallel financial system — one that is faster, cheaper, more efficient, and more inclusive than traditional banking.”
Although crypto is certainly destabilizing to existing banks, it is not necessarily an existential threat. Many legacy institutions have started, and will continue, to embrace crypto. In this sense, I see it less a financial disruption than a deep technological upgrade to the infrastructure for moving money. Instead of banks and other third parties facilitating transactions, distributed networks of blockchain software do it automatically.
This upgrade is long overdue. Across the globe, customers are demanding better, faster, cheaper, around-the-clock, and more efficient banking and financial services. They don’t want to pay exorbitant or hidden fees for payments, wait days to access their funds, worry about bank hours and cutoff times, or earn paltry interest on their deposits. While the fintech revolution of the past decade has made strides in improving and automating financial services, these advancements have largely operated within the constraints of the traditional system. Crypto represents a truly digital manifestation of financial services, with an infrastructure entirely distinct from the legacy banking system.
Signs of its mainstreaming are everywhere. Bitcoin ETFs (exchange-traded funds) now allow anyone to invest in bitcoin without owning it directly. Stablecoins, often pegged to the US dollar, have gained traction as a way to move money across borders. In four years, their total market value has gone from almost nothing to $183 billion, and their settlement volumes are approaching that of Visa. So-called DeFi, or decentralized finance, platforms enable crypto holders to earn interest on their assets or borrow against them. Perhaps most striking, crypto’s real-world value is becoming evident in emerging markets, where millions of people and businesses lack access to affordable banking services. Here, crypto is proving to be more than a digital casino — it’s a lifeline.
Yes, the industry still has issues and dark corners. Regulatory frameworks remain murky in most countries, creating an environment that attracts fraudsters and get-rich-quick schemers. Too many people continue to chase short-term, flashy concepts, build questionable things, and take crazy risks. But this is happening at the same time that legitimate crypto assets and companies are starting to democratize markets, solve real-world problems, and provide tangible services to consumers and businesses. As with any emerging technology, we don’t know exactly where this will take us or what a crypto-powered financial system will ultimately look like. But I see several developments that offer clues about what the future may hold.
ETFs: A traditional path to crypto investment
In the annals of crypto history, January 2024 will stand out. That’s the month the US Securities and Exchange Commission (SEC), under pressure from a federal court ruling, approved the trading of bitcoin ETFs. Trading much like stocks or mutual funds, these products are easy to invest in and a popular way to diversify risk since they track the performance of underlying assets. The new bitcoin ETFs — two of which are issued by our company — track bitcoin by holding a combination of bitcoin shares, bitcoin futures contracts, and stocks of companies using blockchain technology. Financial heavyweights like BlackRock, Fidelity, Charles Schwab, and Franklin Templeton also started offering bitcoin ETFs. In May, the SEC approved the issuance of ether (on the ethereum network) ETFs.
As well-established investment vehicles, these funds have opened the floodgates to mainstream and institutional investment in crypto. Since January 2024, bitcoin ETFs have attracted more than $100 billion, making them the fastest-growing ETFs in history. At least two states — Wisconsin and Michigan — have invested in these funds for their pension systems, a noteworthy development since pension funds tend to be conservative, long-term investors. Wisconsin’s stake in two different funds is valued at $160 million.
“Since January 2024, bitcoin ETFs have attracted more than $100 billion, making them the fastest-growing ETFs in history.”
Stablecoins: The key to crypto’s mainstream moment
While ETFs are amassing windfalls, stablecoins are the engine driving crypto into the financial mainstream. These digital assets sidestep the volatility of traditional cryptocurrencies by pegging their value to government-issued (fiat) currencies. Most stablecoins, such as tether and circle, are currently tied to the US dollar, effectively functioning as a virtual version of the world’s most widely used currency. (These digital innovations are not unlike eurobonds, which allow investors to raise debt in US dollars and were first used in the 1960s to help create Italy’s system of high-speed roads, the autostrade.) Over time, stablecoins are expected to exist for all highly liquid global currencies.
Stablecoins offer several practical benefits. Most notably, they enable easy, inexpensive, and near-instantaneous payments, particularly for cross-border transactions. These digital assets are already facilitating $2.5 trillion in annual international payments, replacing the outdated SWIFT system, which is slow, costly, and reliant on multiple intermediaries. Stablecoins can be transferred seamlessly between digital wallets, anytime, anywhere, and converted into local currencies like dollars, euros, yuan, rupees, and many others. A growing ecosystem of payment providers offers these services at a fraction of traditional banking costs.
“Stablecoins can be transferred seamlessly between digital wallets, anytime, anywhere, and converted into local currencies like dollars, euros, yuan, rupees, and many others.”
The impact is particularly profound in emerging economies, where access to banking is limited. Even those with bank accounts often face exorbitant fees and unfavorable exchange rates. For instance, the African crypto company Yellow Card was inspired by a Nigerian man who paid $90 in bank fees to send $200 to his family. Today, the company allows users across 20 African countries to use their local currency to buy US dollar-backed stablecoins on a mobile app. They can then use this crypto wallet to make or receive payments, with fees reduced by up to 60 percent. In developed countries, crypto may still be thought of as a get-rich-quick scheme, but in regions like sub-Saharan Africa, Latin America, and Southeast Asia, it is increasingly powering everyday activities like bill payments and mobile phone credit top-ups.
Businesses are also benefiting. In economies with restricted access to foreign exchange, stablecoins offer a ready and reliable source of dollars or other widely used currency. An Argentinian company, for instance, could use US dollar stablecoins to buy supplies from Brazil and a Thai manufacturer could use euro stablecoins to import raw materials from Germany.
In these transactions, stablecoins not only offer a supply of needed currency, they also provide a hedge against currency risks. In the past year, for instance, the Nigerian naira has lost more than 80 percent of its value. Consumers and businesses that converted naira into USD stablecoins before the decline safeguarded their finances and effectively turned a profit.
Next-generation digital tokens: The continued democratization of markets
Just as stablecoins offer expanded access to their underlying currency, the digital tokenization of other highly tradable assets, such as foreign exchange currencies, provides similar opportunities. In the foreign exchange market, investors trade currencies in pairs, such as EUR/USD, or buying euros and selling dollars. With stablecoins tied to the euro and dollar, crypto could act as the middleman in a new kind of forex market that could offer lower fees and give market participants an opportunity to earn money in new ways. Other assets and markets are already being tokenized, and seeing explosive growth, as companies such as BlackRock and Ondo Finance offer access to real world assets such as US treasuries, bringing more efficiency and price transparency, and easier collateral management to market participants.
DeFi: Bank-free lending and borrowing
The final trend I see as evidence of crypto’s mainstream evolution is the growth of decentralized finance (DeFi) platforms. Companies like Lido and Aave allow crypto owners to use their bitcoin or other holdings as collateral to secure loans or deposit their assets to be lent out to others, earning interest rates that can exceed 10 percent APY. No banks or middlemen are needed. Smart contracts automatically execute transactions when certain conditions are met. This innovative approach to lending and borrowing has gained traction, with the total global value of crypto locked in DeFi platforms recently surpassing $100 billion.
“Companies like Lido and Aave allow crypto owners to use their bitcoin or other holdings as collateral to secure loans or deposit their assets to be lent out to others, earning interest rates that can exceed 10 percent APY.”
The need for stability
While I’m deeply optimistic about crypto’s potential to transform the global financial system into something more equitable and responsive, any innovation experiencing this level of rapid growth must prioritize stability. Crypto enthusiasts and investors often celebrate the freedom this technology offers, but genuine freedom cannot thrive without a shared set of rules and safeguards. Stablecoin issuers are not currently required by law to back their coins one-to-one with secure, cash-like assets. Ensuring such backing is essential to maintaining the stability and trustworthiness of stablecoins. Similarly, US bitcoin holders who deposit their assets on DeFi platforms lack the protections afforded to traditional bank customers under FDIC insurance. Without these assurances, users face significant risks if something goes wrong. Establishing clear standards and safety nets is vital for crypto’s sustainable growth and continued mainstream acceptance.
