Blockchain Coinvestor: 2020 Blockchain Industry Development Trend Forecast

Author: Matthew Le Merle Translation: Zoe Zhou

Source: Crypto Valley

Matthew Le Merle is the co-founder and managing partner of Fifth Era. Fifth Era is the operating entity of Blockchain Coinvestor, a blockchain venture capital fund. This article aims to predict the development trend of the blockchain industry in 2020 and does not constitute investment advice.

G7 / EU will announce digital currency issuance plan

We believe that G7 and the European Union will announce the release of digital currencies in 2020. The reason for promoting this behavior is China's initiative in 2019, announcing that it will not only develop digital currencies for its own country, but also consider blockchain as an emerging technology that the country is focusing on.

At the same time, we are seeing major financial leaders in Western countries (such as Mark Carney of the Bank of England) talking about why it is important for them to accept digital assets and digital currencies.

In early 2019, we didn't expect things to change so quickly. However, every major country in the world now attaches great importance to issuing their own digital currencies.

In 2020, we predict that the EU and some EU member states will firmly advance their digital currency development process. Christine Lagarde, president of the International Monetary Fund (IMF), has clearly expressed her positive attitude. EU member states followed shortly after the announcement. For example, France announced that it is prototyping the country's digital currency, and Germany also announced that 200 top German banks are working hard to promote supervision and have been able to provide digital asset custody services to customers.

The G7 covers not only European countries, but also Canada, Japan, and the United States. We are not sure what policies Japan and Canada will announce in 2020, but we are convinced that the United States will advance digital currencies. The US Treasury Secretary announced that they are tracking the development of digital currencies. (Although he believes that the United States is a cash-based economy, there is no need to accelerate in this area and become a leader in innovation).

Developing countries passionately embrace BTC

We believe that developing countries will firmly support BTC, and in some cases will use other forms of digital assets. For developing countries, this is a completely different dialogue.

The British "Guardian" has reported how many banknotes are needed to buy a roll of toilet paper in Venezuela. We can also see that the Reserve Bank of Zimbabwe issues the country's largest denomination. These examples show that up to billions of people in the world have no confidence in their fiat currencies. Many countries are facing problems such as bad inflation and currency devaluation.

We expect that in 2020, the entire Latin America will be inseparable from BTC. In fact, we have seen that the acceptance of BTC in many Latin American countries (Venezuela, Argentina, Brazil, etc.) is rapidly increasing. We predict that when the Latin American people are convinced that they have a trusted form of digital currency, BTC will become the currency of the entire Latin American continent.

In Africa, we think it will be a more subtle conversation. Although in most industries, African countries lack a lack of technological leadership, they have not fallen behind the times in terms of new digital Internet technologies, mobile solutions, and new forms of currency such as BitPesa. As African people begin to experiment with the concept of illegal digital currencies, we expect more digital asset initiatives to emerge on the African continent.

The third is India, one of the most important developing countries. India announced its hostility to illegal digital currencies such as BTC in 2019, but at the same time, people began discussing the need to complement their biometric solutions with some form of Indian digital currency. We expect that in 2020, India will reverse the current situation, thereby supporting digital currencies and digital assets more, and keeping pace with China, the European Union and the G7. At the end of 2020, we expect India to announce the issuance of its own digital currency and may lift some restrictions on BTC and other crypto assets in the South Asian subcontinent.

Banks will provide crypto access and escrow services

As each central bank increasingly accepts digital currencies, we expect that banks that are leading the world will face pressure to build digital currency infrastructure. At the same time, as institutional, corporate, commercial, and individual customers begin to demand services and solutions for their digital assets, such as BTC and Ether, we think banks have no choice.

Banks around the world are well aware that the number of encrypted users and wallets has been growing, and under the impact of emerging technologies, large banks have underperformed. In fact, they opened the door for many competitors, such as Binance, Blockchain.com, Coinbase, and Kraken.

Large banks around the world don't want customers to flow to emerging mobile technology providers. Therefore, banks also need to address their position on encryption and crypto custody. We have seen Bank of America, Bank of New York Mellon, Citibank, etc. announce that they will take measures to deal with it, but they have not fully launched it to customers. In Germany, leading banks, including Deutsche Bank, Commerzbank and Deutsche Bank, are lobbying the government to pass new regulations by the end of 2019. We think they will begin to provide customers with encrypted access and encrypted hosting services. But we think European bank leaders in this space tend to serve global customers like Swiss banks and are attracting their interest.

We expect that at the end of the first quarter, we will see companies such as Vontobel and Maerki Baumann launch rollout of crypto asset access and hosting solutions to their global customers.

Hybrid wallets will be available everywhere

The second impact of digital currencies is that we need other forms of infrastructure to support the use of these assets. For example, we need to be able to support entry and exit, wallets, payment paths and exchanges for traditional and native digital currencies and assets.

We must have multiple applications to support the financial business. They may have a major bank, or they may have some payment solutions, such as PayPal. They may also have investment accounts and applications, such as TD Ameritrade (now acquired by Schwab). They may use crypto asset applications such as Coinbase. Most high net worth customers will have more of these applications.

Given the fragmentation of our financial business and our need for work, we believe that a large number of applications will change in 2020. We will see global launches of hybrid wallets and apps that allow us to provide all financial services at once.

For example, we already know that WeChat has built many such functions. Chinese customers also benefit from these applications, not only being able to use electronic payments, but also lending to society, buying insurance and managing wealth. Based on local regulations and policies, we expect these services to be available globally in 2020. We are very interested in the launch of globaliD, which is rapidly advancing its hybrid financial services wallet.

We believe that by 2020, these solutions will also include much-needed communications and new forms of identity in the world.

Asset managers will deploy blockchain in the background

Asset managers have used technology to serve their front desks for the past few years. Many of us can now access accounts and execute commands through native mobile apps. Nevertheless, many agencies' middle and back office units are still based on paper.

The experience of the past few decades is that as large asset managers begin to apply technology and then streamline and save costs, they can reinvest the savings in product performance development. This is the story of iShares, the world's number one ETF supplier. It belongs to the BlackRock Group and is a pioneer in reducing product costs and helping investors achieve high returns. Historically, if the best-performing products shared revenue with investors in this way, they would account for most of the available funds.

In 2020, we estimate that the world's largest asset managers will increasingly apply blockchain to back-office offices, and even to intermediate departments to a certain extent. We believe their number one priority is to reduce costs quickly and maintain compliance in a more efficient and technically supportive way.

For example, at the end of 2019, HSBC announced that it will put more than $ 20 billion in private property on the blockchain by the first quarter to make it easier for customers to gather information about investments.

In the United States, Franklin Templeton has considered handing over the custody of all its products to the blockchain. In Asia, Securitize recently announced that it has received investments from multiple institutions such as Nomura, MUFG, Mitsui Fudosan, etc. in order to provide digitalization of assets and standardization of payments.

We expect that in 2020, more large financial institutions, especially creators of asset products, will join the blockchain field.

Non-ETF indexes and funds will quickly aggregate assets

The sixth forecast is divided into two parts. On the one hand, we do not expect the U.S. to approve ETFs that trade with BTC, Ethereum, or other crypto assets in 2020. The SEC is well aware of what needs to be done before ratifying such parties as Bitwise and VanEck. We do not expect these issues to be completely resolved in 2020.

However, on the other hand, we do not think that this regulatory trend is negative for digital asset participants. Because we think that those product developers will still gather a lot of assets in 2020 after deep thinking on indexes and funds. Grayscale is part of the New York Digital Currency Group (DCG) and offers products such as GBTC. The second example is that San Francisco-based Bitwise has launched a crypto fund index in the market.

We expect that in 2020, as institutional investors seek to gain exposure to such assets, they will accept these indices and funds in the absence of ETFs.

Professional traders expect higher-end exchanges to emerge

In 2020, we also expect more and more professional traders to embrace crypto technology. To this end, they will use high-end exchanges.

So far, we've seen companies mentioned above (such as Binance, Blockchain, Coinbase, and Kraken) create portfolios of millions of customers, and these companies have made great progress. However, in most cases, these are spot transactions targeted at retail customers. Crypto enthusiasts are not particularly proficient in this type of transaction.

On the other hand, professional traders always need more complex products. They need to see consolidated orders and find better prices. They want to be anonymous, so that the exchange doesn't know who they are, how big a deal is going on, and what direction the deal is going. At the same time, they want the support of algorithmic trading technology. They need better and broader data in order to create their own trading strategies that pair these assets with fiat currencies and other assets that have been traded in the past.

Therefore, as major traders begin to pair crypto transactions, we expect that by 2020 major crypto platforms like Amber in Asia, SFOX and Tagomi will gather a lot of resources and provide traders with more sophisticated products.

Enterprises will leverage hybrid blockchain networks

In the past 20 years, when we launched cloud computing, we encountered many difficulties, and many people worried that cloud computing would have problems with security and ownership. It took us a decade to transition from intranet and dedicated storage solutions to hybrid cloud computing. Currently, most enterprises around the world are using hybrid cloud computing. This approach considers the use of the network in enterprise computing solutions in a relatively complex way, perfectly balancing public and private spaces.

We believe that 2020 will be a year for enterprises to solve the complexity of hybrid blockchains. So far, more discussions have been made on whether to use a global public open blockchain or a private blockchain. We think this discussion is starting to merge into a hybrid solution. In this solution, the private network can carry out a lot of activities, but key information will still be stored in the public network.

Now, this is not a simple task at large scale. But we do think that in 2020 large enterprises will eventually be able to solve this problem and create a hybrid blockchain that can meet their needs.

There will be more than 5 new blockchain unicorns

By the end of 2018, there were a total of nine blockchain unicorn companies in the world: Binance, BitFury, Bitmain, Block.One, Circle, Coinbase, Kraken, Ripple, and Robinhood.

By 2019, five new unicorn companies will appear, namely Jianan Yunzhi, DFINITY, Ebon International, Liquid and BitMEX. In the past year, we have 15 privatized companies valued at more than $ 1 billion operating blockchain projects. This is mainly driven by blockchain companies headquartered in the United States and China, with companies from Switzerland, Japan and Malta participating.

We expect to see at least 5 blockchain unicorn companies appear in 2020. As an investor focused on this sector, Blockchain Coinvestors not only invest in existing unicorn companies, but more importantly, ensure that we invest in the most attractive emerging blockchain companies.

> We expect more blockchain unicorn companies to appear in the market in 2020. By the end of next year, there will be more than twenty global unicorn companies on the blockchain.

The highest returns will still come from the early stages of the industry

Our last point is not a prediction of the future. I have to admit the fact that one of the world's best performing asset classes in three decades is technology stocks in their early stages. By analyzing the 25-year returns of different markets, we can see that for fixed income, the average yield of Barclays government bonds is 3% per annum; for the stock market, the average annual return of the S & P 500 and Nasdaq is 10 % Or 11%. Cambridge Associates points out that the average annual return on venture capital in the United States is 24%, while the early return on venture capital is much higher, reaching 32%.