Crypto – the two big elephants in the room
(image: ideogram.ai)
After the wild and volatile 15-year journey of crypto and the accompanying blaze of sensational stories, the entire enterprise seems to be settling into an early, if uneasy, legitimacy. There are only two big stories now—at least those which may directly affect the way global capital and assets interact.
There is, of course, still a frenzied and occasionally chaotic landscape of smaller crypto stories, many of them great fun to watch, but none large enough to move the big global financial needles. At least not yet.
The two big stories are entangled. The first is obviously Bitcoin, which has traversed a long rocky terrain from its libertarian cyberpunk roots in 2010 to a currency now recognized by the richest country in the world as a strategic reserve asset, giving it the same weighty status as gold, dollars, forex, a call facility at the IMF, and other national buffers. It has also started to become the darling of a growing cohort of companies' treasuries—a welcome embrace after more than a decade of derision.
As a striking example of this new corporate faith, consider this: BlackRock (the world's largest asset manager with $14 trillion under management) has seen their iShares Bitcoin Trust ETF zoom to a staggering $70 billion in assets faster than any exchange-traded fund in history, hitting this milestone in just 341 days. That's five times quicker than the previous record holder, a gold fund.
The second related story is the rise of stablecoins, a much less sexy neighbourhood of the crypto market (its price does not bounce around like a yo-yo—there are no fortunes to be made and lost on the price of a stablecoin, and so fewer headlines).
Before I get into the relationship between these two big players, let me dispense with the other crypto-related frenzies. NFT art—a blaze of headlines, now a speculative corner. DeFi—sparked, flamed, died, now showing new signs of life. Tokenized real-world assets—not yet, but their time shall surely come. Metaverse, Web3, Decentralized Autonomous Organizations, CryptoAI—yes, well, one day they might move the world, but not today.
OK, back to Bitcoin and stablecoins. Bitcoin was created as a secure, immutable, unhackable, provably scarce currency and payment system for person-to-person transactions, designed to be outside the clammy hands of governments and their central banks. It may become that one day but is not yet a widely accepted payment system. Rather, it has become a store of value, like a digital version of gold. It is increasingly trusted by governments (not all, to be sure), institutions, and investors, both professional and retail. This is reflected in the price, now reliably above $100,000, representing the fastest appreciation of a financial asset in history.
And now there are stablecoins, the next big thing, which have exploded onto the world of real finance and banking.
For the uninitiated, a stablecoin is a blockchain-borne cryptocurrency which gives the owner a right to redeem it for exactly one real dollar (yes—there are other kinds of stablecoins, but this is the overwhelmingly dominant use case). Because a stablecoin is nothing more than a secure digital receipt for a dollar sitting in a traditional bank somewhere, its price is not volatile. It is locked to the value of a dollar, so no one is going to get rich quickly holding stablecoins.
So why buy stablecoins then? Let me count the ways. They can be moved from one account to another in seconds (including cross-border)—there is no bank or other middleman in the middle checking account balances or creditworthiness or counterparties. Consequently, they are really cheap to move; no fees are extracted except a tiny fraction for blockchain network "gas."
It is as easy to move a single stablecoin as it is to move hundreds of millions of stablecoins, at the same negligible cost. Also, you can do all the other things you can do with real-world money, like lend it out in return for interest (without filling in a single form). Oh, and it wears all the shiny buttons of blockchain—immutable, secure, unhackable, uncounterfeitable, and so on.
Governments are falling over each other to promulgate regulatory frameworks to let stablecoins loose on their economies, because they all covet the speed of movement of capital, called the velocity of money, which is good for an economy. When transfers of money happen in seconds and not hours or days, the economy wins. The most important of these regulations is in the US. The Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act now looks as though it will make its way to the president's desk within weeks and is likely to become law. It is also worth noting that South Korea has just this week legalized stablecoins under a new statutory framework.
Who will be using these stablecoins? Everyone from businesses (to buy raw materials or pay suppliers) to the casual shopper at the POS machine at their local grocer, where stablecoins will be as ubiquitous as cash and credit cards.
It is estimated that the current size of the stablecoin market is $250 billion, led by the two largest companies—Tether and Circle (there are numerous others, 180 at last count, all offering similar products, including PayPal). When GENIUS passes, estimates are that the value of stablecoin purchases will quickly go beyond $2 trillion during the next three years as financial institutions relax their hesitance to do business with this new financial asset.
There is a catch, though. Those countries writing stablecoin regulation and laws have one thing in common, and it is that the governments want to know who is transacting (to support crime prevention and to adhere to anti-money laundering laws).
So all of these new evolving regulatory frameworks in different jurisdictions, including GENIUS, include a raft of constraints to enable governments to retain control. This is not true of Bitcoin, which is designed to be government-proof. And there will certainly be stablecoins that find a life outside of government monitoring. Even so, both Bitcoin and stablecoins are branches of a common crypto evolutionary tree and are simple and cheap to exchange with each other—one acting as a portal to the real world, the other outside of government control. The success of one is directly tied to the success of the other.
Bitcoin currently has a market cap of $2 trillion, seemingly heading northward. If we add to that the forecast stablecoin growth, the global financial system will be embracing nearly $6 trillion in "legitimate" crypto assets in the next few years (not counting other growth areas like tokenized real-world assets and DeFi).
To put this in perspective, gold has a global market value of $12 trillion (before the 2025 bull market—it is more now). It took thousands of years to get there. Crypto's "legitimate" tokens will be nearly halfway there in less than two decades.
If your eyes still glaze over when you hear about crypto, then you are missing the largest and fastest movement of financial assets from one class to another in human history. This industry is going to come into your life, one way or another.
Pay close attention. You might even find a way to make those financial returns of which we all dream.
Steven Boykey Sidley is a professor of practice at JBS, University of Johannesburg and a partner at Bridge Capital. His new book "It's Mine: How the Crypto Industry is Redefining Ownership" is published by Maverick451 in SA and Legend Times Group in UK/EU, available now.