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We’ve just passed one of crypto’s most anticipated events—the bitcoin halving.
Halvings, which take place every four years, have historically generated significant investor attention. But the major leaps in institutional adoption that transpired since the previous halving in 2020—including bitcoin ETFs in the US, Coinbase’s public listing, and companies like Starbucks and Nike launching their own crypto initiatives—led to last month’s halving being more widely covered, debated, and discussed than any other time previously.
So should we expect the next four years to be as impactful as the previous four?
We believe the short answer is yes. While it’s always difficult to make prognostications with such a volatile and dynamic asset class, the markers are in place for the broad adoption of crypto to continue to accelerate. To help investors understand what to expect from this asset class between now and the next bitcoin halving, we have summarized some of our predictions for the next four years.
1. Crypto index investing drives global ETF AUM to $300 billion
Bitcoin ETFs have approximately $50 billion in AUM, and it’s hard not to see how demand will only increase in the coming years as large wirehouses put these ETFs on their platforms, institutional investors continue to invest, and an increasing set of advisors recommend targeted BTC allocations. Ric Edelman, founder of the Digital Assets Council of Financial Professionals, believes $150 billion can come from independent advisors alone over the next three years.1
However, while there is no shortage of speculation about bitcoin ETF inflows, we believe the market is significantly underplaying the potential rise of crypto index investing for institutional investors. Our conversations have revealed a “what’s next?” mentality for many investors, especially those that have been early adopters in this space. The Nasdaq Crypto IndexTM, which Nasdaq developed in coordination with Hashdex, for example, contains many highly promising digital assets, filtered by a very strict methodology that has been tested over time.
This is why we believe that while regulatory challenges remain in the US, it’spossible we will see crypto ETF AUM rise more than three times where it is today by 2028.
2. Tokenized securities become a $10 trillion market
A 2023 Bank of America report suggested the tokenization of traditional assets could become a $16 trillion market and that this will “reshape financial and non-financial infrastructure and public and private financial markets over the next 5 to 15 years.” Additionally, Ernst & Young's global strategy consulting arm, EY-Parthenon, conducted a study with high net worth investors who commented they’d be willing to invest “up to 10% of their portfolios into tokenized securities.” 2
Tokenization will help push the adoption of Decentralized Finance (DeFi) applications to create fully digitalized capital markets. As the usage of tokenization technology increases, so too will demand for platforms like Ethereum and Solana and their underlying tokens, helping to further connect investors directly to the evolving digital asset ecosystem.
Source: Adapted from Bank of America Global Research, “Beyond Crypto: Tokenization,” June 29, 2023
These are not the only institutions recognizing an impending tokenized future. BlackRock launched their first tokenized fund in March of 2024 and investment banks like JPMorgan Chase, with its JPM Coin and Onyx private network, are already facilitating tokenized transactions worth nearly a trillion dollars.
The global market capitalization of all tradable securities (stocks, bonds, derivatives, etc.) is estimated to be around $350 trillion. If at least 2% of high net worth investors are interested in investing in tokenized securities in the short term, it could be possible to see a market capitalization of tokenized securities in the range of $10 trillion globally.
While tokenized real-world assets (RWAs) and securities are gaining traction, hurdles remain on the path to global adoption. These challenges include regulations that haven't caught up, a lack of standardization, and unequal access to the internet in different parts of the world which could hinder the eventual size of the market. But our future is undoubtedly going to continue to be digitalized, and tokenization will probably play a massive role in this gradual transition.
3. Bitcoin's use as a global currency increases as USD’s dominance declines
Bitcoin is designed to minimize trust in any central authority or third party. In fact, Satoshi Nakamoto mentions "trust minimization" fourteen times in the Bitcoin whitepaper. The core concept is that participants in the network don't need to trust each other directly. Instead, the system relies on cryptography and clever economic incentives to ensure everyone follows the rules.
“The root problem with conventional currency is all the trust that's required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust.”
- Satoshi Nakamoto in a February 11, 2009 blog post
The trustless mechanism that works for peer-to-peer transfers can also function, arguably, for trade settlement between nation states—especially given current levels of suspicion in international relations. In light of global geopolitical instability and several countries attempting to break away from an overreliance of western financial networks, the Sophie’s Choice between the USD and another currency for trade settlement will be increasingly present.
The exorbitant privilege the US has had in printing the world's reserve currency is being challenged at an unprecedented level, since US monetary policy decisions in practice can increase the concentration of power and global wealth in the US vis-à-vis other countries. When looking at alternatives, the shortcomings of the yuan, the pound, the euro, or other fiat currencies are visible. Bitcoin has some important advantages relative to these currencies, including having the lowest supply growth of any major currency. Many thought leaders in crypto have argued that bitcoin can serve as an important trade settlement tool, something that is already occurring on the corporate level and within developing countries.
If bitcoin’s volatility does decrease over a longer time horizon, alongside more institutional players and less speculators in the space, then we think it is possible that we are already on the path for bitcoin to gain global relevance with some central banks and potentially be an element in trade settlement by 2028.
The possible decline of the US dollar could be offset by the ongoing adoption of USD-backed stablecoins, but we believe it will also face competition from other major currencies. Bitcoin, with its finite supply and decentralized nature, could complement these traditional alternatives as a hedge against currency devaluation and geopolitical instability. While governments will continue to prefer fiat, the rise of blockchain technology gives some nations plenty to contemplate over the next few years.
In Conclusion
Forward looking statements are always tricky in an asset class as nascent as crypto. However, the predictions outlined for crypto's next era paint a picture of significant evolution and potential disruption within the global financial landscape. As institutional adoption grows and technological advancements continue to reshape traditional markets, the stage is set for crypto to play a more prominent role in investment strategies, asset tokenization, and even international trade settlements.
While regulatory challenges and technological hurdles remain, the potential for bitcoin in particular to emerge as a viable USD alternative in global trade by 2028 could underscore the transformative power of decentralized finance and blockchain technology. As the world moves towards a more digitized future, the trajectory of bitcoin, along with the ascent of the broader crypto ecosystem, appears poised to reshape the dynamics of global finance in the years to come.
1 https://www.prnewswire.com/news-releases/ric-edelman-says-rias-will-invest-150-billion-in-spot-bitcoin-etfs-302032870.html
2 https://www.ey.com/en_us/insights/financial-services/tokenization-in-asset-management
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