Ever since Bitcoin came into existence at the beginning of 2009 and began the age of cryptocurrency, enthusiasts have predicted that the technology would one day come to supplant government-issued fiat currency as the primary way people bought and sold goods. Eleven years on, and it looks like we're still a long way away from seeing that happen. Instead, we've seen fragmentation – with hundreds of cryptocurrencies to choose from and markets dominated by volatility. We've also seen countless crypto-scams, including the now-notorious Twitter hack this July whose primary purpose was to swindle people out of their Bitcoin.
What we haven't seen much of, however, are many crypto-products that could perform the nuts-and-bolts economic functions that fiat currencies do. That means while they've received plenty of attention from individual investors (some of whom ended up very, very rich), the industry as a whole is light years away from challenging banks for control of the existing global financial system. That fact has led plenty of observers to declare cryptocurrencies dead. But that assessment might prove premature.
That's because lately, there's been a few developments in the world of cryptocurrencies that smart investors ought to be paying attention to. On their own, they might mean little. But viewed together, they could represent the beginnings of a crypto takeover of the world of mainstream finance. Here's what's going on.
One of the biggest problems that has plagued cryptocurrencies from the beginning of their existence isn't technological – it's regulatory. Because of their decentralized nature, plenty of governments viewed them with a wary eye and walled off conventional financial institutions from having anything to do with them.
There were, of course, some adventurous nations. Countries like Senegal, Tunisia, and the Marshall Islands have all launched national cryptocurrencies. But they're all too insignificant to constitute a mass movement. Then there's China – but their cryptocurrency seems more about government control than it does about any desire to embrace the technology.
In the US, though, regulators seemed like they would be happy to let cryptocurrencies remain something of a financial outcast – until recently. In mid-July, the Office of the Comptroller of the Currency (OCC) issued an opinion that US banks could now legally act as custodians of cryptocurrency. That means that they can now legally offer their customers bank accounts that can handle both fiat currencies and cryptocurrencies.
While that might seem insignificant, it's a ruling with the potential for huge ramifications. For one, it means that anyone with a bank account in the US might soon be able to get into crypto-investing without having to navigate the myriad wallets, exchanges, and processors that now make the process a nightmare for rank-and-file investors. It also means that banks now have the green light to integrate blockchain technology straight into their retail banking operations, instead of as a bolt-on solution like they'd been exploring previously. And those changes couldn't have come at a better time.
The reason that banks being able to accommodate crypto-assets is such a big deal is that it is also happening at a time when investors now have several new options to use cryptocurrencies as investment vehicles, other than speculative direct purchases. A prime example of it is the soon-to-be-launched Axion, which brings a whole new approach to crypto as a savings vehicle.
It's a refinement of a cryptocurrency called Hex, which launched in December of 2019 as the world's first crypto-powered Certificate of Deposit. In just a few short months from its launch, it delivered an insane return of 115x investors' original stake. The trouble is, it was opaque and contained dubious payouts to its founder, causing many to label it a scam.
Axion works on the same principles as Hex, but without the financial incentives to its founder, making it far more trustworthy for investors. And judging by the early returns, it looks like it's going to mint a whole new class of crypto-millionaires in no time. In the process, it may help further transform the banking industry by finally making a reliable, dividend-based income stream possible with cryptocurrency – and that banks can protect and swap for fiat currency with less hassle.
Axion chart - Return over the past 60 days
And for those that prefer stock holdings to direct ownership, there's also the Greyscale Bitcoin Trust (GBTC). It's an over-the-counter ETF with Bitcoin as its primary underlying asset. It offers retail investors a simple way to profit from Bitcoin without having to actually own any. And it's getting more popular by the day. According to recent SEC filings, institutional investors have started moving significant portions of their portfolios into GBTC, which is a good sign the stock is here to stay and a good bet.
And if the developments mentioned so far don't convince you that crypto is about to go very mainstream, very soon, consider this: The US Federal Reserve just announced a partnership with MIT to develop a hypothetical US-backed cryptocurrency. While the move is viewed as more of a research project than a sign that the Fed is moving on a real cryptocurrency launch, the announcement itself is significant.
The reason is that the Fed is one of the most conservative national banks in the world and the very fact that they're doing due diligence on cryptocurrency indicates that they now view a 'digital dollar' as all but inevitable. So, put together, you have the makings of quite the trend.
US banks are now permitted to store crypto-assets for retail customers. There are a plethora of crypto-investment vehicles that can already yield substantial returns to fund those new accounts, many of which are gaining substantial traction. And the Federal Reserve is looking at the creation of an official US cryptocurrency. If those developments don't point toward crypto being on the precipice of taking over mainstream financial markets, I don't know what does.
So, the bottom line here is: smart investors that may have written off cryptocurrencies should take some time to take a second look. Because if they don't, they could end up missing out on the boom that will inevitably follow these developments coming to fruition – and that might be a very expensive mistake indeed.