Staying cool: Is crypto snowballing to 1 billion users this year?

Crypto.com raised a few eyebrows this past week when it announced cryptocurrency users worldwide could reach 1 billion by the end of 2022. 

The timing was curious, given that Bitcoin (BTC) and many other cryptos are entwined in one of the largest drawdowns in their (albeit short) history and with the prospect of United States Federal Reserve interest-rate tightening edging ever nearer.

But the cryptocurrency exchange, which in November gave its name to the arena where the Los Angeles Lakers basketball team plays in a 20-year deal, was obviously taking the long view. 

Also, its prediction was contingent on two things happening: one in the “developed” world, the other in less-mature national economies. It also involved some statistical extrapolation. To wit, the main arguments for a great crypto leap forward:

• Crypto.com expects the world’s developed nations to devise “clear legal and taxations frameworks.”

• “More nations facing a highly inflationary economy and depreciating currency may adopt cryptocurrency as legal tender, following the example of El Salvador.”

As for the extrapolation, the firm reported that “in 2021, the number of global crypto owners almost tripled, from 106 million in January to 295 million in December. If we extrapolate a similar rate of increase in 2022, we are on track to reach 1 billion crypto users by the end of 2022.”

But is 1 billion crypto users by year’s end really doable — particularly in light of the 50% market price retrenchment from early November’s high mark? 

Maybe there are good secular reasons, including demographics, to believe that adoption will continue to grow exponentially. But will other nations really follow El Salvador’s example, given that the nation’s BTC investment is currently underwater, and if so, who might be next? 

Finally, what, if anything, could still derail the steady, upward arc of global crypto adoption, which now stands at 3.83% of the world’s population, according to Crypto.com?

A generation gap

Nigel Green, CEO of the deVere Group, sees nothing far-fetched about this projection. “There is every reason to believe this could be true,” he told Cointelegraph when asked about the exchange firm’s prediction, in good part “due to a snowball effect of mass adoption and increasing understanding of and interest in digital currencies.” 

“It comes down to demographics. Younger people are more likely to embrace crypto than older generations, and we’re coming into the Great Transfer of Wealth. This is where Baby Boomers will transfer an estimated $40 trillion–$68 trillion to Millennials.”

Others confirm this generational reality. “Let’s face the fact,” Wharton School professor Jeremy Siegel said recently, “Bitcoin as an inflation hedge in the minds of many of the younger investors has replaced gold. Digital coins are the new gold for the Millennials.”

Yu Xiong, professor of business analytics and director of the Center for Innovation and Commercialization at the University of Surrey, told Cointelegraph that the number of crypto investors globally “is still very low” in the overall scheme of things. 

Crypto.com’s methodology for counting crypto users is more rigorous than most, but 300 million current users could still be on the high side, and “there is huge potential for more people to participate and push the value high. I saw many college freshman students buying cryptocurrencies” in the past year, Xiong said. 

Xiong believes that global turmoil, both political and economic, should bolster adoption. “We are facing a more and more uncertain world, such as what’s happening in Russia and Ukraine, and in Taiwan.” People see surging inflation in Turkey and other countries. In such circumstances, “it’s unlikely that the value of Bitcoin would not increase.”

But is it really a sure thing? This past week, after all, the International Monetary Fund urged El Salvador to walk back its decision to make Bitcoin legal tender, citing concerns about “financial stability, financial integrity and consumer protection.” Elsewhere, Harvard University’s Kennedy School professor Jeffrey Frankel declared that “El Salvador’s adoption of bitcoin as legal tender is pure folly” — in good part because of BTC’s price volatility. 

Still, a Jan. 6, 2022, research report from Fidelity Digital Assets (FDA) drew a different conclusion from the El Salvador experiment, with FDA declaring that it “wouldn’t be surprised to see other sovereign nation states acquire bitcoin in 2022 and perhaps even see a central bank make an acquisition.” 

In that report, authors Chris Kuiper and Jack Neureuter outlined a “very high stakes game theory at play” where countries seem to realize that if they secure some Bitcoin today, they “will be better off competitively than their peers.” Kuiper, a research director at FDA, further explained this notion to Cointelegraph:

“The first participant or country to make a purchase of Bitcoin is in many ways taking the most risk, while the risk hypothetically lowers as other countries choose to accumulate some Bitcoin. On the other hand, every purchase by an additional country increases the potential risk to other countries that have not yet purchased.” 

In other words, it is possible that at some point, the riskier decision could be not to own Bitcoin rather than to purchase the cryptocurrency, said Kuiper.

Kuiper declined to specify which nations might follow El Salvador, but along these lines, Green said countries, where there is “unpredictable inflation and an inefficient, outdated and costly financial system, and where GDP is reliant upon remittances from overseas,” may seize upon a Bitcoin alternative. He mentioned Panama, Paraguay, Guatemala and Honduras as prospects.

Xiong, too, viewed the world’s financially “unstable” countries most likely to follow the Central American nation’s lead, provided they have good internet access, including Turkey, Afghanistan and “many countries in Africa.” He singled out the “hundreds of millions of people in some under-developed countries that do not have bank accounts” as would-be adopters. 

Kuiper added, “Adoption may be more appealing for countries that have large remittance markets and can, therefore, save on fees, that are looking for additional financing options, or that do not have their own sovereign currency, making digital assets adoption easier.” 

Xiong didn’t believe that 1 billion crypto users by the end of 2022 is achievable, however. “I think it’s likely we may double the users by the end of 2022. I would say 700 million–800 million at least.” The sector “still needs some good applications that attract high daily active users,” he added. 

Keith Carter, an associate professor in the department of information systems and analytics at the National University of Singapore, agreed that more blockchain use cases would be required before the billion threshold is surpassed, particularly “use cases beneficial to society with strong business fundamentals or with entertaining engagements,” but obstacles remain, he told Cointelegraph:

“Recent hacking incidents and errors in smart contracts show that digital-asset ecosystem companies need to work to improve coding standards through training, research and collaboration.”

Other issues that could impede global adoption include “energy usage, unequal internet accessibility, technology accessibility and transaction costs,” Carter added.

DeVere’s Green remains unfazed when asked about recent price volatility. It basically comes with the territory. “Digital is the future of finance, and retail adopters know this. Institutional investors know this. Major multinational corporations and Wall Street giants know this.” Recent price drawdowns should be seen as a buying opportunity, particularly with the prospect of “red-hot inflation” looming, Green told Cointelegraph:

“The fundamentals haven’t changed, and the dips are being regarded as discounts.”

Following the path of internet adoption?

Carter was keen to set some context with regard to the adoption question. Crypto assets are a subset of digital assets, and digital assets are already in the hands of more than 1 billion people with credit cards, online banking, digital wallets and newly created central bank digital currencies, he told Cointelegraph. “The market dictates the success of a business model. If a compelling market need arises only satisfied by a particular digital asset, we may see higher adoption of that asset.” 

Meanwhile, Kuiper compared crypto adoption with internet adoption. “There are currently estimated 100 million digital asset users right now” — again, estimates vary, and no one really knows the true number — “roughly the equivalent of the number of internet users in the late 1990s,” he said. “While only one-third of Americans had internet access in 1999, this exploded to nearly 75% by 2010. We would not be surprised to see a similar acceleration in adoption of digital assets over the next few years.”

The prospects appear good. Kuiper concluded, “We think digital assets have very powerful network effects embedded into their design, and history shows that most people overestimate the short-term or early growth of such networks but vastly underestimate the longer-term growth.”