Factors driving virtual currency adoption
On the 12th, US financial giant Fidelity released a report titled “2024 Digital Asset Outlook.”
Fidelity likens the crypto asset (virtual currency) industry to a skyscraper. After 2023, when the focus was on building infrastructure, construction will accelerate after the long-term foundation work is completed, and 2024 will be the year of “acceleration” where the adoption, development, interest, and demand for digital assets will increase. There is a good chance that it will.”
Fidelity points out that a factor promoting the introduction of crypto assets (virtual currencies) is the U.S. Financial Accounting Standards Board (FASB)’s change in September last year to mark-to-market accounting, which reflects valuations, for corporate virtual currency holdings. It states that it has been approved. Fidelity believes this change “could make it easier for companies to hold digital assets.”
connection:U.S. FASB changes accounting standard to “valuation value”, perhaps a tailwind for corporate virtual currency investment
Additionally, on the 10th local time in the United States, the Securities and Exchange Commission (SEC) approved a Bitcoin spot ETF, expanding the market in which Bitcoin can be handled, and making it easier for more Americans to buy Bitcoin over the long term. It is pointed out that it will be possible to own it. “This is a major historical milestone for the adoption and maturity of Bitcoin,” he said.
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He also cited the example of El Salvador, which adopted Bitcoin as legal tender in 2021. In December of last year, unrealized gains on Bitcoin investments in the country turned positive, and Fidelity said that “early results are positive.”
However, President Najib Bukele has no intention of changing his long-term investment strategy in Bitcoin, saying that the price is just an indicator, and Bitcoin-backed bonds called “Volcano Bonds” are scheduled to be issued in the first quarter of this year. is.
El Salvador’s fiscal strength is demonstrated by the payment of $800 million of government debt in January 2023, and in November last year, S&P Global’s short- and long-term sovereign credit ratings were increased from CCC+/C to B-/B. improved.
“President Bukele may have created a blueprint for Bitcoin that other countries could follow in 2024,” Fidelity concluded.
connection:El Salvador’s Bitcoin-backed bond “Volcano Bond” receives regulatory approval
Stablecoin adoption and use cases
Regarding stablecoins, regulatory uncertainties and algorithmic risks may continue into 2024, but adoption and use cases in various fields such as payments, remittances, and international trade will expand. , Fidelity predicts.
The areas where stablecoins are expected to become more popular are international remittances and payments, but the company believes that the biggest key will be the adoption of stablecoins by traditional financial institutions.
By 2024, traditional financial institutions could bring legitimacy to this asset by exploring its potential for various purposes, including on-chain asset management and payments.
Additionally, as stablecoins serve as the foundation for decentralized finance (DeFi) apps, they are “expected to continue gaining momentum throughout 2024.”
Fidelity predicts that the top two stablecoins, Tether (USDT) and USD Coin (USDC), will maintain their positions through 2024, but competition for market share will continue as new projects and technologies emerge. The company expects the situation to intensify.
Impact of Fed rate cuts
Fidelity notes that DeFi yields could become “more attractive” than traditional finance (TradFi) yields if the U.S. Federal Reserve lowers interest rates. He argued that if “a more developed infrastructure emerges,” financial institutions that had put off entering the market in 2023 could turn their attention to the DeFi field this year.
In that case, it suggests that the stablecoin market could gain further momentum as an entry point for DeFi.
Regarding Ethereum, he said the real yield paid to validators “could be more attractive” considering annual interest rates of around 4% and annualized volatility of 39%.
Ethereum is a cash-flowing technology platform with sustainable yield characteristics, especially considering its annualized volatility in 2023 is comparable to high-growth companies like Amazon (34%) and Netflix (38%). An attractive asset in a low interest rate environment.