In 2024, as Bitcoin (BTC) prices begin to rise again, competition among existing crypto asset (virtual currency) lending businesses will rapidly develop.
In other words, new entrants from traditional finance (TradFi) and crypto assets industries seek to occupy a corner of this high-risk but high-demand industry, driving innovation in lending products and services.
Much of the market turmoil during the last bear market was caused by the bankruptcy or failure of overly expanded or unscrupulous crypto lending operators.
However, the rebirth of the crypto asset lending market will bring about continued changes to the current digital lending ecosystem, creating exciting opportunities for end users and investors. Below, I have listed seven points regarding crypto asset lending in 2024.
1. Beware of the rise of lending businesses aiming for short-term profits
As more users enter the space, a variety of companies, old and new, are leveraging defunct crypto lending businesses like Genesis, Voyager, BlockFi, and Celsius. will try to fill the void left by others.
These companies, like failed lenders before them, will promise customers high returns with little transparency and little risk management. There will be more ad hoc opportunists trying to enter the market and grab a share.
Even if crypto asset prices go public, don’t forget to ask the right questions! Was that lending business able to survive 2022 safely? Are they “newcomers” to the field?
Investors should carefully understand how yields are generated, demand evidence that lenders are properly accounting for customer assets, and scrutinize risk management policies and track records. Be careful if you cannot obtain clear information disclosure or answers!
2. Trading volume is concentrated on regulated exchanges
Bitcoin and Ethereum (ETH) spot and derivative trading volumes will shift from unregulated exchanges to regulated exchanges.
Until now, the majority of crypto transactions have been processed through unregulated and KYC-free platforms such as decentralized exchanges (DEXs) and P2P markets.
With regulatory clarity and the arrival of Bitcoin spot ETFs, much of the trading volume will shift to regulated markets as participants from TradFi gain the clarity they need to operate in these markets. Become.
In other words, spot trading volume will move from decentralized exchanges like Uniswap to centralized exchanges like Coinbase and Kraken, where spot trading volume will move from decentralized exchanges like Uniswap to centralized exchanges like Coinbase and Kraken. Derivative trading volume will move from overseas exchanges like Binance and ByBit to ETFs on the Chicago Mercantile Exchange and New York Stock Exchange.
3. Arbitrage Opportunities in Bitcoin ETFs
The approval of a Bitcoin spot ETF will allow TradFi and market makers in the crypto industry to arbitrage not only on the spot price of Bitcoin, but also on price differentials between various investment products. , which will lead to a massive expansion of the Bitcoin lending market.
Until recently, some of the largest TradFi market makers did not participate in crypto or Bitcoin trading as arbitrage opportunities required them to participate in unregulated markets. Ta.
Bitcoin spot ETFs are now available at places like Nasdaq, Bitcoin derivative products are now available on the Chicago Mercantile Exchange, and spot Bitcoin is now available on regulated exchanges like Coinbase and Kraken. , financial institutions now have all the tools they need to create a market. The only other thing you need is an inventory of physical Bitcoin.
Those actively participating in the Bitcoin lending market are already beginning to feel the effects of this. This evolution will not only increase the attractiveness of Bitcoin lending as an investment option, but also contribute to the legitimacy and stability of the digital asset market as a whole.
4. The return of crypto debit cards
Crypto debit cards are likely to make a comeback as regulatory clarity increases and established, well-regarded industry players continue to engage. Visa, Mastercard, and Circle, in particular, continue to invest in crypto asset platforms and solutions that are more integrated with digital assets.
These solutions blur the line between digital assets and traditional payment methods, allowing users to directly spend their holdings without the need to convert them into fiat currency.
5. Investors want faster, cheaper transactions
As the bull market gains momentum, higher transaction fees will encourage the growth of layer 2 solutions and more efficient blockchains (as they usually do in bull market cycles).
Innovations such as scaling solutions like Bitcoin’s Lightning Network and Ethereum’s Polygon are prime examples of technologies designed to enable faster, cheaper transactions.
High-throughput blockchains like Tron and Solana will also grow in popularity. I expect these ecosystems to mature and become more widely accepted. This evolution will create many opportunities for both future product innovation and investment.
6. Growing demand for stablecoins
The stablecoin market will grow significantly, and I predict that the total supply could exceed $250 billion.
Tether (USDT) in particular is expected to maintain its dominance, controlling more than 50% of the market share due to its widespread adoption around the world. The growth of this market reflects the growing demand for digital assets that combine the benefits of crypto assets with the stability of the US dollar.
Governments will try to counter this with their own central bank digital currencies (CBDCs), but it is unlikely that CDBCs will receive the warm welcome they hope. CBDC attempts have already been rejected by citizens in countries such as Nigeria and the Bahamas, and this trend is expected to continue.
7. Strengthening supervision of DeFi (decentralized finance)
This bullish cycle will be distinctly different from previous cycles, primarily due to expected increased scrutiny in previously unregulated markets such as DEXs (decentralized exchanges) and lending platforms. It will be.
Financial regulators around the world are well aware of the increasing importance and volume of transactions on platforms where customers are unknown. Many of these platforms have fully centralized operational teams and will be subject to regulatory requirements.
In fact, these factors will likely result in authorities imposing a small number of DeFi projects. The aggressive stance of regulators is likely to create “DeFi martyrs” who will bear the brunt of the crackdown.
Once these nominally “decentralized” platforms have to implement KYC and follow regulations, these platforms will be able to move to either fully regulated exchanges or truly unregulated exchanges. trading volume will dry up.
The next bull market will not only be about financial growth and innovation, but also about industry maturation. With every Bitcoin block created, we are building the future of finance.
｜Translation and editing: Akiko Yamaguchi, Takayuki Masuda
｜Original text: 7 Predictions About the Crypto Lending Landscape in 2024