As a seasoned researcher with over two decades of experience in finance and technology, I find Mick Roche’s insights on the digital asset outlook for 2025 to be spot-on. Having closely observed the evolution of cryptocurrencies since their inception, I can attest that the focus on real-world use cases is long overdue.
In today’s issue, Mick Roche from Zodia Markets provides a stablecoin outlook for 2025.
Subsequently, Layne Nadeau discusses the function of cryptocurrencies within energy markets and artificial intelligence during the Ask an Expert segment.
–S.M.
Digital Asset Outlook for 2025
2024 could be recognized as the year when bitcoin became widely accepted, but in 2025, we anticipate a shift towards practical applications of digital assets – an area that has been a challenge for crypto so far. To facilitate these real-world uses, it’s likely that stablecoins will play a crucial role in fostering broader corporate acceptance.
Initially, Stablecoins were created to make transactions simpler in the digital asset market, mainly on centralized exchanges. However, we’re now observing a transition from their initial functions towards more practical uses in the real world. This shift is evident in the rising significance of the “other” category within the stablecoin sector, as shown in the following chart.
Challenges of current systems
Currently, most international money transfers using fiat currency are facilitated through the correspondent banking system, a system largely unchanged since the adoption of real-time gross settlement systems in the early 1990s. The costs and fees associated with these transfers are primarily determined by membership charges, transaction costs, and volume-based discounts. However, the process of settling these transactions remains obscure, being managed by priority systems based on price and time that provide little clarity for end users regarding their workings.
Why stablecoins are transformative
Stablecoins, functioning as digital equivalents of traditional currency online, provide unrivaled flexibility, swiftness, and accessibility, making them highly attractive for growing use. Let’s explore some practical examples of their implementation in the real world:
- Cross-border payments: Stablecoins enable the transfer of USD assets across borders at speeds comparable to email, in stark contrast to the days-long delays of SWIFT transactions. This advantage is especially significant in emerging markets, where the Bank for International Settlements has reported a decline in correspondent banking relationships. Stablecoins offer a potential solution to this gap, addressing inefficiencies in cross-border financial systems.
- Supply chain dynamics: Stablecoins could revolutionize supply chain efficiency, reducing costs and potentially curbing inflation. Optimizing working capital is a priority for treasury departments worldwide. For instance, Tether has already ventured into trade finance, demonstrating the tangible benefits stablecoins can bring to supply chain operations.
- Remittance flows: Global remittance flows were estimated at $857 billion in 2023. Stablecoins facilitate faster and cheaper transfers, allowing recipients to access funds more quickly. They also enable remittance providers to hold smaller balances in local currencies, reducing FX risk and easing the burden on balance sheets. These innovations enhance efficiency and reduce costs across the remittance industry.
- On-chain FX: As of June 2023, research from Cumberland revealed that 99.3% of stablecoins by market capitalization were linked to the USD. Over time, the emergence of non-USD stablecoins will likely create a 24/7, instant-settlement FX market, further enhancing the flexibility of global trade and finance.
Barriers to growth
As a researcher delving into the realm of digital currencies, I’ve observed that although stablecoins boast several benefits, they still represent a minor segment of the global financial landscape, equivalent to merely 1% of U.S. M2 money supply and 1% of foreign exchange transactions. The potential for growth in this area is significant, but it hinges heavily on regulatory changes, particularly within the United States.
The outlook for 2025
By 2025, we expect a surge in digital asset adoption as their practical applications become more refined. This growth is likely to be pronounced among primary commodity traders, producers, importers, and shipping firms. These businesses often struggle with inefficient payment routes between developed economies and developing regions like Asia, Africa, the Middle East, and Latin America. Stablecoins might offer valuable solutions by facilitating quicker, more streamlined transactions within these vital industries.
Businesses are no longer going to regard digital assets with suspicion. Instead, they will understand the real advantages that this technology can provide to their operations, and eventually, to their profits. As more companies adopt digital assets, they will move out of obscurity, making the argument that “crypto is a solution without a problem” irrelevant.
– Mick Roche, global head of trading, Zodia Markets
Ask an Expert
Q. What does crypto have to do with energy markets?
The world’s energy sector is shifting towards a system that monitors and records energy production, usage, and the carbon emissions associated with diverse activities on a global scale. Currently, the carbon credit market, valued at around $2 trillion, is projected to expand significantly post the UN COP29 climate conference declaration about global carbon offset markets.
Because energy and carbon offsetting occur on a worldwide level, distributed ledgers play a crucial role in facilitating widespread involvement. These days, blockchain technology is employed to convert and monitor tradable energy and carbon credits, thereby fostering the expansion of these markets at an expedited pace.
Companies specializing in blockchain technology and infrastructure, particularly those focused on energy and carbon credit markets, are experiencing substantial expansion and are drawing close attention from both researchers and financial backers.
Q. Why does AI need crypto?
With advancements in artificial intelligence (AI), there’s an increasing concern about the amount of energy needed to operate it. Projections suggest that by the year 2027, AI could potentially consume as much electricity as the Netherlands does currently, with a projected annual usage of around 85.4 terawatt-hours.
As the growing demand for energy intensifies, there’s a heightened emphasis on harnessing renewable energy alternatives due to escalating environmental worries about fossil fuel energy generation. In this context, blockchain technology plays a crucial role in efficiently monitoring and managing the generation and consumption of renewable energy by AI systems. Moreover, it serves as the backbone for carbon credit markets, allowing us to mitigate the carbon footprint of global AI infrastructure.
Developing advanced distributed computing systems, capable of managing vast computer networks, are being designed to meet the growing need for artificial intelligence processing power worldwide. Leveraging the effectiveness of blockchain technology, we can create organized platforms for accessing and compensating these resources.
– Layne Nadeau, CEO, NVAL
In this article, it’s important to remember that the opinions presented belong solely to the writer; they may not align with the perspectives of CoinDesk, Inc., its proprietors, or its associates.
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2024-12-05 17:35