University of Cambridge researchers found that more than 100 million people around the world currently hold Bitcoin or other blockchain-based assets—marking significant growth versus just two years ago. At the same time, the financial sector has begun to embrace crypto assets across financial services and capital markets as a way to reduce costs through greater efficiency.
Let’s take a look at recent crypto trends, emerging use cases and the evolution of government regulations around the world.
Crypto Trends in 2019-2020
The University of Cambridge’s Centre for Alternative Finance recently published its third annual Global Cryptocurrency Benchmarking Study that explores the growth in the crypto industry. Over the past two years, the researchers found a 189% increase in crypto users due to a combination of a rise in the number of accounts and easier identification of individuals.
Bitcoin and Ethereum remain the most popular crypto assets worldwide, but zCash and Monero have been gaining popularity in North America and Europe. These two privacy coins have seen an increasing level of support from service providers—at 24% for zCash and 17% for Monero—and rising levels of hashing among miners that suggest accelerating adoption rates.
High Growth Enterprises by Region – Source: University of Cambridge
The Asia-Pacific region recorded the highest share of high-growth enterprises, which were primarily younger firms that were 3-4 years old. On the other hand, in North America and Europe, service providers indicate that business and institutional clients make up about a third of their customers compared to 16% in the Asia-Pacific and 10% in Latin America.
Popular & Emerging Use Cases
Bitcoin was originally developed as a low-friction and pseudo-anonymous electronic currency back in 2009. Since then, crypto has become a foundation for sophisticated financial assets from financial services to capital markets. There are even crypto futures contracts available to help provide stability to prices over time and enable institutions to hedge exposure.
The most popular emerging use cases include:
- Decentralized Finance, or DeFi, represents crypto’s move into conventional financial services. For instance, DeFi platforms support peer-to-peer lending between individuals and institutions, enabling lenders to generate a yield and borrowers to access capital.
- Capital Markets have begun to embrace crypto as an alternative to conventional securities. For example, Overstock.com’s tZERO securely tokenizes and trades digitally-enhanced securities through its alternative trading system (ATS).
For investors, these emerging use cases mean that crypto assets could play a much larger role in their portfolio than safe-havens or capital gains investments. Investors can earn a yield through DeFi lending platforms or participate in investments that were never possible for retail investors through tokenized securities and other offerings.
Evolving Regulations Worldwide
Governments have steadily increased regulation on crypto assets since their rise to prominence over the past few years. In addition to “know your customer” laws to prevent money laundering, many governments have introduced new measures to tax crypto assets and regulate everything from initial coin offerings (ICOs) to emerging crypto use cases.
The share of crypto firms that did not conduct any know-your-customer, or KYC, checks dropped from 48% in 2018 to 13% in 2020. In addition, more than half of custodial service providers performed an externally led audit of crypto reserves over the past 12 months, suggesting that these firms are becoming increasingly sophisticated and regulated.
The good news is that many governments are pushing for clearer laws. In the U.S., lawmakers have consistently pushed the IRS to clarify its position on crypto taxation while introducing bills designed to eliminate taxes for consumer use cases (e.g., buying coffee with crypto) and clarify what agencies have regulatory powers over what part of the crypto industry.
What It Means for You
Crypto continues to become more mainstream across financial services and capital markets, which has opened the door to new opportunities for traders and investors. Rather than simply investing in Bitcoin, you may want to consider expanding into DeFi platforms that can enable you to generate yield or capital markets platforms to invest in tokenized assets.
Traders also have access to increasingly sophisticated tools to make better decisions. For example, Coinbase Pro offers cutting-edge technical analysis tools while new DeFi platforms provide low-cost lending to support margin trading. These capabilities open the door to new possibilities to generate trading income from crypto markets.
ZenLedger’s Tax Loss Harvesting Tool – Source: ZenLedger
At the same time, new regulations have introduced new challenges. Fortunately, there are some tools that can help lessen the burden. ZenLedger helps crypto traders and investors automatically aggregate their transactions across wallets and exchanges to compute their capital gain or loss, as well as identify ways to offset taxes with tax-loss harvesting.
The Bottom Line
The number of global crypto users has surpassed 100 million, according to University of Cambridge researchers, as the technology continues to mature. As crypto captures an increasing share of financial services and capital markets, these assets could play an even greater role in investment portfolios over time.
If you invest in crypto assets, ZenLedger can help you automatically aggregate transactions across exchanges, compute capital gains and losses, and accurately file taxes each year. You can even use our tax-loss harvesting tool to find opportunities to offset your capital gains and/or ordinary income to avoid overpaying taxes.