Bank of America: Digital Asset Primer

The Bank of America, a major financial institution in the United States has released a primer report by analyst Alkesh Shah regarding the state of the global cryptocurrency market. The report covers a number of areas, specifically targeting blockchain derivatives such as tokens, NFTs, and DApps (decentralized applications). Click here to read the full report from The Bank of America.

The Landscape Has Changed

Not that long ago Bitcoin was considered the be all and end all of cryptocurrency. The spicy term “Digital Gold” was thrown around a lot, but then Ethereum launched and decentralized networks became a whole lot more intricate. Tokens, digital art, and autonomous organizations came into life in new marketplace we’ve come to know as “DeFi”, decentralized finance.

NFTs alone saw the biggest boom in the report; an estimated $3 billion USD was spent on NFTs in August. Driven by a mix of classic hype and celebrity drops, this sector has seen the most growth over 2021 considering the sector was $250 million.

As a result, the wild west days in crypto are coming to an end as regulators around the globe start to take aim at this booming market. China has continually restricted the use of cryptocurrencies and outright banned transactions recently as well. The United States seems to be taking the regulatory route in the interest of consumer protection. CBDCs (Central Bank Digital Currencies), a kind of stable coin issued by a central bank are catching on as well.

Adoption, Adoption, Adoption

As you can expect the reason there are increasing regulation efforts in the space is due to the growing use of cryptocurrencies. What is especially interesting is the demographics mentioned in the report; Gey Y, Millennials, and Gen Z are the key drivers here. These are people who have grown up with the internet, they are tech savvy and more importantly, they’re not interested in traditional investing like their parents and grandparents.

The report estimates that 14% (21.2 million) of American adults have digital assets and another 13% (19.3 million) plan on buying digital assets in 2021. The average age seems to be around 44 years old, and 53% of them identify as female.

When the public latches onto something, you can bet corporations will be quick to follow as well. Sure enough, mentions of digital assets in earning calls has risen as a result. Increased regulation makes adoption by businesses easier, and one can assume that we’ll see more companies making moves into the space as scams and ponzi schemes become less of an issue.

The Impact of Bitcoin & Tokens

Bitcoin, the first implementation of blockchain technology has seen massive gains this year, doubling the previous all time high from 2017. While ETFs have struggled to gain entry into the stock market, this may be the year they actually succeed given the massive growth.

Altcoins, are no longer just another random coin. They have use cases and thanks in part to Ethereum’s smart contract platform, and they’ve exploded in popularity. The ability to swap Ether (or ETH, Ethereum’s native token) for thousands of tokens each with a unique call to action has made diversifying into Decentralized Finance (DeFi) much easier than before.

With increased demand, comes the the impact on the environment. While this author doesn’t fully agree with the impacts of cryptocurrency mining on the environment it cannot be denied that we could improve this quite a bit. Bitcoin alone used ~91 terawatt-hours of electricity this year from mining new blocks alone. However, the report makes note that ~1,375 terawatt-hours are used by US homes for all manner of activities and ~6.6 terawatt-hours is used up by Christmas lights in the US.

Environmental issues aside there are a number of improvements being made to the Ethereum blockchain to make it more energy efficient. While Bitcoin has lagged behind in this area, supporters are quick to note that this energy consumption is critical to Bitcoins security and that most miners often seek out cheap electricity and or electricity from renewable energy.

Still The Beginning

When Bitcoin was unleashed on the world it had one goal, to provide a trust-less transaction network anyone could use. While it may be tempting to look at the timeline and historical charts, it is still the beginning. Regulatory framework is still required, and while some countries like El Salvador have made Bitcoin legal tender, we’re still a long ways away from the finish line.

Just like traditional markets, volatility is decreasing as more people get into cryptocurrency. In 2013 the annualized volatility for Bitcoin was 300%, at the time of this report that is down to 70%. While this is still high compared to other assets it does show how the market has calmed down over the years as more players enter the market.

Web3 is coming fast, and Ethereum is driving it forward. Web3 is a catch all term for things such as DeFi, NFTs, Stablecoins and CBDCs. Tokens and NFTs live for the most part on Ethereum and there are loads of ways developers can plug into the network from a browser to empower users with those digital assets.

Central Bank Digital Currencies (CBDCs) are coming soon with the expected launch of China’s e-yuan. The European Central Bank (ECB) has begun researching a potential digital euro and the United States has also begun researching their own CDBC as well. The report remarks that these types of assets are “inevitable” as countries rush into the space to provide some semblance of regulatory framework and of course some good old competition to see who will be first. In this authors opinion, China will lead the way but the United States stands to be the “gold standard” should they implement a CBDC as well.

Closing Remarks

The space is growing and with it comes new regulations. The wold of cryptocurrecny is slowly opening up to the world on a scale we haven’t seen before and we’ll likely see more developments come out in the coming years. The space can no longer be ignored and those who have made gains are inspiring more people to read into the world of cryptocurrency.

Simplified Crypto is not financial advice nor is it to be taken as trading advice. The author owns digital assets and this article was written with as little bias as possible. Further research should be done before making any purchases and or investments in the cryptocurrency space or any digital assets listed in this article. Stay safe out there.