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Chain News ChainNews (ID: chainnewscom)Chain News ChainNews (ID: chainnewscom), Written by: Peter Johnson and Pete Mscichowski, Head of Financial Technology and Encryption Industry Investment at Jump Capital and Assistant MBA Venture Capital Intern, Translation: Lu Jiangfei, Published with Authorization.

Earlier this year, cryptocurrency venture capital firm Jump Capital

• Listed reasons why 2020 will be the most important year for the cryptocurrency industry

• , So far, this idea has not wavered. However, the world has changed a lot during the year (the global pandemic of the new crown virus epidemic, the collapse and rebound of traditional financial markets), so it is necessary to summarize Jump Capital's "core beliefs" about Bitcoin and encrypted assets at this time .

• In the digital age, Jump Capital believes that encrypted assets will eventually become "digital money". Looking forward to the development in the next few years, they found that the encryption industry has three core beliefs:

Stablecoins will provide a new currency movement track, and will also promote the dollarization of currencies in many parts of the world;

Next, let us carefully analyze the future trends, potential and "catalysts" of the cryptocurrency market.

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Bitcoin will become "digital gold"

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For centuries, people around the world have sought out non-government-controlled objects of value to protect their wealth, mostly in the form of gold (although more recently art has joined the ranks) . But right now, the U.S., and most people around the world, don't have that urgency, especially over the past forty years when people's lives have been pretty peaceful and stable—low inflation, interest rates Steady declines, strong currencies, and few major conflicts. But now, times have long since changed, and many countries are beginning to show signs of market turmoil and instability.

Not only that, political turmoil in countries around the world is also intensifying. In the past few months, the United States has experienced the greatest social turmoil since the 1960s. In the aftermath of the coronavirus pandemic, the Federal Reserve embarked on a massive economic stimulus and increased the money supply, and the result is clear: America's already high debt levels will be pushed up again. In fact, no matter what method is used to reduce debt (including in the public sector, private sector, and even households), US debt is at the highest level in history, while millions of people are out of work and supply chains around the world are in danger. interrupted. Jump Capital therefore judges that the current global economic environment may trigger inflation or volatility in the coming decades.

It’s also important to note that hyperinflation is not a prerequisite for people looking to hedge against stores of value such as gold and bitcoin. The chart below shows what happened after the 2008 financial crisis and subsequent rounds of quantitative easing, during the period 2008-2013, although CPI inflation (shown by the blue line) rose, but never exceeded 4%, gold Significantly better than stocks in terms of return performance. On the other hand, inflation has risen steadily to 3-4%. These factors will be important catalysts for increased inflows into stores of value such as gold and Bitcoin. Far-fetched.secondary titleTop Global Macro and Institutional Investors Are Buying Bitcoin

Prominent macro investors have publicly backed gold or bitcoin assets, with Ray Dalio starting gold's defense against the current macro backdrop and Paul Tudor Jones declaring himself invested Bitcoin, while still in "

"(The Great Monetary Inflation) elaborates on its argument as a reason to buy Bitcoin futures to hedge the risk of U.S. government debt:

“At the end of the day, the best strategy for maximizing profits is to get on the fastest racehorse and try to find the highest yield among many products. People always think they are smarter than the market, which can lead you into Performance dilemma. If I had to predict, my choice would be Bitcoin.”

Jump Capital believes that Paul Tudor Jones' endorsement as one of the greatest macro investors of all time will be one of the main catalysts for Bitcoin's rise. In fact, the steady rise in the price of Bitcoin has helped to remove some of the “investment stigma” of the crypto asset class in the past, and has enabled other emerging portfolio managers to continue to add positions. On the other hand, there is also data showing an increase in CME Bitcoin futures and the Grayscale Bitcoin Trust (Grayscale Bitcoin Trust), both of which are the most exposed Bitcoin investments by institutional investors. tool.

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Today, top-tier and institutional investors are starting to “go big” into the cryptocurrency industry — and while this is critical, there is another important aspect to watch, and that is mass market adoption, primarily by retail investors.

Below, we can see a clue from the bitcoin transaction data in developing countries. For example, the bitcoin P2P transaction volume in places such as Africa and Latin America is growing steadily over time. Actually not relevant:

Sub-Saharan Africa Bitcoin historical trading volume (in USD) data source: UsefulTulips.org

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Historical Bitcoin Volume in Latin America (in USD)secondary titleInstitutional Assessment: Opportunities for Cryptocurrency as a Non-Sovereign Store of Value

At this stage, the market value of Bitcoin is still hovering in the $200 billion range, but our question is: how far can the market go? Is it a good time to invest in Bitcoin now? Here, we wish to draw on John Pfeffer's book a few years ago,

Institutional investors investing in crypto assets

"(Institutional Investors Take on Cryptoassets)" (Institutional Investors Take on Cryptoassets) Some classic cases answer these questions.

• Today, cryptocurrencies are seen more as non-sovereign-controlled value stores. If you want to know what cryptocurrencies can bring us, the best observation point is to compare this emerging technology with a reference , and the best reference for cryptocurrencies at present may be: gold. There are now about 2.6 tons of gold bar stocks and 2.1 tons of government official gold reserves, and in the long run, given Bitcoin's many advantages over gold, its market value may match gold's or even exceed private gold holdings. Not only that, Jump Capital also believes that Bitcoin can become part of the market for public gold reserve services.

• However, it may be very slow to adopt cryptocurrencies in the national debt assets of some countries, but many governments are also trying to diversify their foreign exchange reserves and reduce their dependence on the US dollar. For example, in recent years, the Central Bank of China and the Central Bank of Russia have Has been a "big buyer" of gold.

Cryptocurrencies have many advantages over gold, such as:

storage costs are much lower

1. Crypto assets can be verified in real time

2. So in the long run, we can imagine that the market size that Bitcoin can serve is almost equivalent to more than double the market value of gold in the private market, which means that its potential should be a quarter of the official gold reserve, which is equivalent to the current market value of 3.1 tons Gold - that is to say, the upside potential of Bitcoin's market value in the future is 15 times that of the current $200 billion!Additionally, there are other factors driving the Bitcoin market, such as:Since the vast majority of people in the world can now easily access and store any amount of cryptocurrency through a telephone and Internet connection, it means that Bitcoin actually expands the market for private storage of valuable stocks;

international currency reserves

. As cryptocurrencies continue to establish themselves as a major global asset class, Bitcoin could become the most attractive for many countries looking to diversify their reserves and minimize their reliance on the U.S. dollar (and the control that comes with it). One of the alternatives. Many countries already have synthetic reserves in IMF Special Drawing Rights (IMF SDRs), but holding cryptocurrencies does not appear to be much of a burden.

A non-government-controlled store of value based on a digital form is indeed useful, and the market potential for this demand is likely to be large, regardless of the market assumptions of the form. Cryptocurrencies do have risks, but if they succeed, they will also gain enormous value. Bitcoin's risk-reward skew will make it an extremely attractive investment when investors take advantage of this opportunity in the current macro backdrop - "-1x" vs. "15x+", which is why we think Bitcoin Reasons why this should be part of every modern diversified investment portfolio, and this trend is expected to continue over the next decade.

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• Stablecoins and cryptocurrency dollarization (crypto-dollarization)

• One of the most important things to happen in the cryptocurrency industry in 2019 was the rise of USD-backed stablecoins, with the total market capitalization of stablecoins ballooning from about $3 billion to nearly $12 billion, and a handful of stablecoins dominating the market (worth Note that the USD-based Tether stablecoin is not regulated, while USDC is regulated).

Despite concerns about U.S. monetary policy and debt levels, for billions of people around the world, the U.S. dollar is actually more stable than the national currencies of many countries and is therefore often seen as a safer haven for assets, especially in developing countries of people are eager to hold dollars. Of course, reality and data can prove this, such as:

Countries such as Ecuador have basically completed the dollarization of their currency systems, while Venezuela is moving towards dollarization.

Stablecoins could make dollars more accessible than ever before, providing a dollar-based financial system for people in global markets. According to Jump Capital analysis, USD stablecoins (or USD-based cryptocurrencies) may eventually become the "killer application" of encryption technology. If the market value of stablecoins may surpass Ethereum or even Bitcoin and other major encrypted assets in the next few years, Perhaps unsurprisingly, the cryptocurrency market may even hear "we want stablecoins not bitcoin" voices, just as the market has often heard "blockchain not bitcoin" in the past few years Same.

Ultimately, Bitcoin and stablecoins will co-exist, just like the US dollar and gold, so the potential of stablecoins is actually very promising, especially in payments, remittances and money movement. The programmable nature of cryptocurrencies — that is, the ability to transfer, settle, and verify around the world, 24/7 — combined with the “stability” of stablecoins could make stablecoins a global currency transfer rail.

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• cryptocurrency speculation

• We will now move on to the last “Core Belief” about speculation, and a cryptocurrency-based “global casino.”

• Speculative trading remains the primary use case for cryptocurrencies, at least for now, and there are many reasons for this, mainly two:

First of all, if Bitcoin (or cryptocurrency) can become "digital gold" (digital currency) in the digital age, then the market value of encrypted assets must increase significantly, otherwise there will not be enough liquidity to serve mass use cases, so the encryption industry itself is a "gamble";

Lastly, many cryptocurrency exchanges user registration is very simple, basically just an email to trade, which means that crypto trading is almost open to everyone in the world, allowing people from all over the world to "bet" effortlessly .

Overall, Jump Capital is very bullish on cryptocurrencies, and in particular believes that Bitcoin has the potential to become "digital gold," but at the same time admits that the technology is still relatively new, there are a lot of things to prove, and there are still inherent risks. At this stage, Bitcoin is still unable to play the role of "digital gold". The market performance is actually similar to other risk assets, so you will see that the price of Bitcoin also plummeted during the market panic caused by the new crown virus epidemic, but this is not the case. No way, you can "bet" that Bitcoin will become digital gold in the future. Before becoming "digital gold," the bitcoin market is still expected to see a lot of speculation, and speculative trading will remain the largest market for cryptocurrencies for some time to come.

When trying to assess the potential of cryptocurrency use cases, it might be helpful to start with the current size of the global gaming market, which is estimated to be around $500 billion according to the latest estimates, compared to roughly $1.2 trillion for global retail stock trading. Although it is difficult for us to make an accurate estimate of the size of the retail trade market, a surge in trading volume can already be seen on trading brokerage platforms such as Robinhood, which shows that the global retail market still has a very strong demand for cryptocurrencies. Even if cryptocurrency speculative trading activity is only a small fraction of the overall speculative retail market, it can still be a huge potential source of value for Bitcoin and other crypto assets.

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2. The Most Exciting Fields of Investment

3. In the cryptocurrency industry, Jump Capital has three major investment "core beliefs":

Bitcoin will be the "digital gold" of the digital age and will have a place in most investors' portfolios;

1. Stablecoins will provide a new regulation for global currency movement and will promote the dollarization of currencies in many countries around the world;

2. For the foreseeable future, cryptocurrencies will provide a powerful "global casino" for traders and speculators.

3. As such, Jump Capital believes there are several categories of business models that will deliver the greatest value, including:

4. Fiat/cryptocurrency exchange channels – especially in developing markets;

Global cryptocurrency derivatives exchange and CFD brokerage service provider;

Cryptocurrency compliance technology.

Of course, the above four business models are not all. They are just examples to illustrate the current business types that are most in line with the "core belief" of Jump Capital's investment. Let us analyze them one by one below:

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1. Fiat/Cryptocurrency Exchange Channels

2. Jump Capital believes the fiat/crypto exchange channel remains the most exciting area to invest in as it will be key to the growth of the crypto industry (everyone needs to convert fiat to crypto for crypto to work ), and can generate value.

3. Naturally, fiat/crypto exchange channels are often combined with cryptocurrency exchange operations, which can often exhibit strong network effects due to liquidity needs and positive feedback loops that generate liquidity. This phenomenon has already occurred in traditional financial markets. Most developed asset classes such as stocks are now consolidated into a few stock exchanges. It is expected that the cryptocurrency market will eventually be the same as time goes by. So at least in the near future, cryptocurrency exchanges in most countries will still focus on local construction, coupled with the high variability of regulations and the varying capabilities of cryptocurrency companies to operate internationally, the cryptocurrency/fiat currency The exchange channel will build a "moat" locally based on the following four factors:

4. Local regulatory approvals and permits;

Local banking relationships (so that fiat-based deposits can be converted into cryptocurrencies);

• Liquidity based on local currency trading pairs;

• Brand, local customer base, and customer acquisition capabilities.

• Opportunities in the fiat/crypto exchange channel are most attractive in developing markets, but where the value proposition of cryptocurrencies is strongest is also often the hardest for established players to enter. So, which types of countries are most likely to adopt cryptocurrencies? By studying different regions around the world, Jump Capital has summarized the following factors and prioritized them. Countries that are generally more willing to adopt cryptocurrencies usually have the following characteristics:

• Risk of high inflation/currency instability;

• Huge remittance flow;

• Inadequate financial infrastructure / lack of trust in local banks;

• population;

• GDP/wealth;

the regulatory and banking environment;

Combining the above factors, Jump Capital lists the countries/regions that most need to build fiat currency/cryptocurrency exchange channels, including: India, Latin America (Mexico, Brazil, Argentina), Southeast Asia (Indonesia, Philippines, Thailand, Vietnam, Malaysia) , and Turkey.

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Source: World Bank - DataBank: World Development Indicators; Gold data from Gold.org

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• Cryptocurrency Financial Infrastructure

• Many of Jump Capital's investments in the cryptocurrency industry to date have involved financial infrastructure (such as digital asset custody and analytics), but there are many other areas that deserve special attention:

1. Lending and interest-bearing accounts - Companies like BlockFi, Celsius, and Voyager have pioneered strategies to offer interest on cryptoassets and stablecoins, and we've seen centralized service providers in the above space, as well as decentralized service providers such as Compound Providers enable the seamless and efficient flow of capital from depositors/lenders to borrowers.

2. Banking – Access to reliable banking services remains one of the most important pain points in the cryptocurrency industry, but there is still a lot to offer in this area, especially for international companies that may not be served by Silvergate and Signature Bank in this way.

3. Merchant Processing of Stablecoin Payments – While it may seem early days, this will be very interesting given our vision for the stablecoin market and the general lack of software solutions and infrastructure to support stablecoin payments. eye-catching track;

Stablecoin-based remittances/P2P payments – companies that are particularly focused on user-friendliness, or can fully extract the underlying cryptocurrency technology for users are worth looking at;

Stablecoin-based FX trading - given the 24/7 instant settlement advantage of cryptocurrencies, FX trading will be a very interesting use case in the long run, although stablecoin liquidity will still need to be in multiple fiat-based stablecoins It is more feasible to obtain greater growth.

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This type of cryptocurrency business model seems to be more suitable for speculators, and global cryptocurrency derivatives exchanges and CFD brokerage service providers provide them with a highly accessible international trading platform, or you can say " casino".

There has been a recent surge in cryptocurrency futures trading volumes on derivatives exchanges around the world, largely driven by a small number of large, established players operating in lightly or unregulated markets. Much of the retail demand in crypto derivatives these days seems to be driven by regulatory arbitrage - anyone with an email signature, no KYC/AML required, can register on a derivatives exchange and gain extremely high leverage rate (100x or higher).

But all indications are that cryptocurrency regulation will become more stringent over time, so it will be interesting to see how those regulated crypto market participants, whether global crypto derivatives exchanges or Cryptocurrency CFD brokerage providers that offer leveraged trading will be interesting to watch as to how they provide speculative use cases for cryptocurrencies in a more stringent regulatory environment in the future. Those companies that ultimately comply with regulations, have links to the local banking system, and can serve speculators and have real hedging needs will be the most promising and the ones that Jump Capital is most concerned about.

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Cryptocurrency Compliance Technology

Given certain characteristics inherent in cryptocurrencies themselves, fraud, scams, and illegal trading activities inevitably result. As the use and widespread adoption of cryptocurrencies continues to expand, government agencies and financial institutions need access to a range of services such as blockchain forensics, transaction analysis, market surveillance, KYC/AML, and more.