In the last decade, the market value of public blockchains went from zero to $850 billion. On its journey, Bitcoin was pronounced dead by countless thought leaders and “tulip mania” was the buzz word of nocoiners the world over.
- Remodelled Tokenomics
- Decentralized Finance Bubble
- Libra gets the Green Light
- I Prefer My Bitcoin on Ethereum
- 2020 Price-Rallying Events
To the contrary, Bitcoin was not only alive and well during that entire time, but it was also inspiring a hundred blockchains in its wake. One of which was Ethereum.
What began with Bitcoin as a very specific monetary movement has transitioned into something bordering on incomprehensible. The generality of Ethereum’s blockchain has already begun to unlock concepts that no one would have ever anticipated in 2010. And in a similar vein, attempting to predict the utility of Ethereum at the end of the next decade would only reveal one’s ignorance: it would be safest to settle with the vague explanation that it’s “the next big thing“.
We are still very much in the experimental phase. Whether it’s Microsoft’s Decentralized Identity, Facebook’s Libra project, Fidelity’s custody and exchange services, Nike’s fraud-proof trainers or EY’s privacy protocol, these multi-nationals are on the hunt for value that they know can be created with Ethereum.
Despite what the Chinese and US regulators might threaten, Ethereum is not going anywhere. So what can we expect for Ethereum in 2020?
1. Remodelled Tokenomics
Tokenomics, the word used to describe the token-led incentive structure of a protocol or dApp, has been notoriously difficult to optimize.
The Basic Attention Token (BAT), which raised $15 million in its ICO, has generated (like nearly every other Ethereum token) a poor return for its early investors.
Unlike nearly every other Ethereum token however, BAT has seen phenomenal user growth. The token, which is used to power its blockchain-based advertising network, has attracted over 350,000 publishers. And the organisation’s internet browser, Brave, which earns its users rewards in the form of BAT, now has over 10 million monthly active users.
The BAT token is arguably not at all aligned to platform growth. Going further, one could even argue that the token’s core purpose (payment of rewards) is better done through a predictable Ethereum stablecoin like DAI or USDC.
The story of BAT is similar everywhere you look. Protocols and dApps that launched tokens in 2017 and 2018 during the ICO bubble have nearly all lost their value, regardless of user adoption. But the problem for these ICOs and BAT in particular, is that they can’t just swap out their 15 million dollar funded token for a stablecoin for obvious reasons.
Instead, I expect that 2020 will see dozens of projects remodelling their token with better incentives, ideally aligned to network growth.
Of course, should this approach prove effective at breathing life back into a dead token, we can expect uptake of this strategy to go parabolic and followed by more cynical attempts to extract value from retail investors.
2. Decentralized Finance (DeFi) Bubble
Decentralized Finance may be the first token category to escape the market-moving effects of the Bitcoin and Ethereum. Synthetix Token (SNX), a token used to mint synthetic USD (sUSD), which can be traded with other synthetic assets, had strong enough tokenomics to not only navigate the market downturn in the second half of 2019, but to grow 20x over the period.
Volumes for DeFi tokens are currently very low. The market’s most valuable token, Maker (MKR), has a daily trading volume of roughly $5 million while the volume of SNX (mentioned above) can hover as low as $100,000.
Data from Google Trends over the last 5 years shows no upward movement in search interest for DeFi. Given that “DeFi”, as we know it, didn’t exist 5 years ago, we can assume that mainstream interest is negligible.
Yet despite this, some fascinating projects are underway. MakerDAO recently launched Multi-Collateral DAI (AKA Much Cooler DAI), which introduced the DAI Savings Rate (DSR). The DSR currently stands at 4% and is baked into the low level protocol, providing a “safe” (as safe as it gets in blockchain) real-time return on DAI deposits.
DAI has already been transformed by other projects. xDAI, iDAI, cDAI, rDAI, gDAI, dDAI and recently, Chai, are all derivatives created off the back of the DAI stablecoin.
Chai, for example, provides a wrapper for DSR-deposited DAI, allowing owners of Chai to have liquid DAI that earns interest through a claim on the deposited DAI but without being locked to the DSR contract.
Ethereum is beginning to show what “money lego” is all about, but as it stands, DeFi is far from the eyeline of mainstream investors. However, with Ethereum offering better-than-banking interest on individual savings, it’s only a matter of time before these new financial products are picked up by those in traditional finance. DeFi is already on course to balloon from $650 million to $1.5 billion next year, but a rise in retail interest could see this value double, sending DeFi tokens rallying in the process.
3. Libra gets the Green Light
It’s an unpopular opinion in this space, but I have some sympathy for Facebook’s Libra project. They have spent 2019 fighting regulators on one side and crypto-purists on the other. On the one hand, Libra is too decentralized for the US government to stomach while too centralized for cryptocurrency-enthusiasts to get on board with.
At the same time, Libra has been warning of Chinese dominance in the space (which Xi Jinping kindly confirmed shortly after) and a new UK-based project, SAGA, launched their own basket-backed stablecoin (on Ethereum) in the meantime.
Understandably, Facebook has been held back by enormous skepticism over their ability to safeguard privacy and questionable motives behind launching Libra. However, with mounting pressure for the US to “stay ahead of the curve” along with a determined David Marcus, I’d expect the Libra project to have at least a tentative green light by the end of 2020.
4. I Prefer My Bitcoin on Ethereum
2019 saw the first handful of Bitcoin being “moved” to the Ethereum blockchain. “Wrapped Bitcoin” (WBTC) provides a custodial service for depositing Bitcoin on the Bitcoin blockchain in return for Ether on the Ethereum blockchain.
WBTC will be the first of many. There is a demand for Bitcoin on Ethereum because with Ethereum, a user’s Bitcoin can be put to work. While WBTC will be limited in its success due to the need for a third party custodian, other projects like tBTC are taking a non-custodial approach would could see enormous traction.
tBTC, which is expected to launch its public testnet in Q1 2020, could be a monumental step for Ethereum on its journey to becoming the leading public blockchain. Expect over $50 million worth of Bitcoin to reside on Ethereum by the end of next year.
5. 2020 Price-Rallying Events
While I’ve avoided price predictions for the past few years, it’s important to look at what major events might cause some serious price action in 2020.
We should expect the deposit contract for ETH 2.0 staking to go live in the first half of 2020.
It’s hard to overstate what this will mean for the community.
ETH 2.0 has been under development for several years and has faced a number of delays during that time. One of the major criticisms of Ethereum has always been that Proof of Stake has never shipped. A successful launch of the Proof of Stake deposit contract will put this concern to bed.
The Bitcoin block reward is due to be cut in half some time in May 2020 and, in the past, the price of Bitcoin has rallied in advance. Of course, markets should well and truly have priced this in by now, however the media attention that the halving will bring may attract an onslaught of renewed interest.
If “the halvening” doesn’t drive prices upwards then I expect we’ll enter another crypto winter as investors begin to worry about Bitcoin’s long term security model, which – put simply – is reliant on Bitcoin’s price going up.
My hunch is that with the halvening and Blockchain Week NYC both kicking off in May, along with ETH 2.0 at some point before or during that time, we may be in for some dramatic rallies upwards.
With the possibility of a green-lit Libra Project some time in 2020 we can expect yet another media storm for the space. While Libra itself is not directly related to Bitcoin or Ethereum, the platform will introduce millions of users to the cryptocurrency ecosystem overnight.
The price rally of Spring/Summer 2019 was arguably driven largely by Libra’s announcement. Crypto markets seemed so in tune with Libra that the price of Ethereum and Bitcoin moved in line with both the announcement (price go up) and the US government’s concerns over the project (price go down). If Libra gets the go ahead then, ceteris paribus, we can at least expect Spring/Summer 2019 price levels.
Earlier this year the CFTC chairman gave his personal opinion that Ether, the currency of the Ethereum blockchain, was in fact a commodity and that he expected to see Ethereum futures within the next 6 months (while writing this, crypto exchange ErisX announced their futures launch). Those futures products aren’t here yet, but it’s with CME Group’s recent addition of the “Ethereum reference rate” it would seem these institutions are beginning to line up.
2020, as most of the years before it, will not be a quiet one for the cryptocurrency markets. While there are seismic events lined up in the first half of the year, it also takes just one headline from China to reverse months of gains.
As always, cryptocurrencies are extremely volatile and unpredictable. The best case and worst case scenarios are a universe apart. Yet being the optimist that I am, I can’t help but see some extraordinary gains coming in the next 12 months.