5 Reasons Why Stablecoins Will Be $1+ Trillion In Market Cap In 5 Years
Per the chart above, Stabl;ecoins recently blew by $10 billion in market cap. Up 70+ in just the last three months!
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Per the chart above, stablecoins recently blew by $10 billion in market cap. Up 70+ in just the last three months!
In our most recent episode of “Stablecoins Are Killing It”, all three panelists stated their belief that the stablecoin marketplace can 10X in the next year and surpass $100 billion.
Looking out a few years beyond that, stablecoins can 10X again from there and surpass $1,000,000,000,000 (one trillion dollars) in market cap for these five simple reasons
1. The Market For Dollars Is HUGE & Growing Fast
Stablecoins, today, are largely just digitizing dollars. Similar to how Craig’s List started digitizing classified ads 25 years ago. It turns out, things have more utility when they’re digitized. And the digitization of dollars represents a massive opportunity because it’s a huge and growing market with modest digitzation to date.
M1 is the most basic view of U.S. dollars, and includes physical currency, demand deposits, travelers’ checks, other checkable deposits, and negotiable order of withdrawal accounts.M1 passed $5 trillion for the first time last week. That’s a tripling in the last 10years, an 11% CAGR. M1 grew by 25%, or $1 trillion, over the last four months. It took 216 years to to get to the first $1 trillion.
M1— From Federal Reserve Bank of St. Louis
M2 is a broader view of the U.S. dollar, including all of M1, plus “near money”, which refers to savings deposits, money market securities, mutual funds, and other time deposits. These assets are less liquid than M1, but they can be quickly converted into cash. M2 currently stands at $17.8 trillion.
M2 — From Federal Reserve Bank of St. Louis
Over the last 10 years, M2 has a 7.6% CAGR. If it continues that trend, it will reach $25.6 trillion in 2025. So, in 2025, $1 trillion will represent less than 4% of all dollars or near dollars that could be used to drive the creation of fully backed stablecoins. Craig’s List took more than 4% of classified ads in its first five years.
Given those facts, is $1+ trillion a reasonable prediction for stablecoin market cap in 2025? Below are four other factors that give me confidence in the $1+ trillion prediction.
2. The U.S. Accounts For LessThan 50% of All M2 In Major Countries
Money & Credit: Global M2 Growth & Bank Lending — May 2020 — Yardeni Research
There’s another$22.3 billion in M2 just from from China, Japan, and the Eurozone. So we need less than 2% of the M2 from those places and the U.S. to get to $1 trillion
3. Algorithmically Driven Stablecoins Don’t Need To Be Backed By Anything
There are various algorithmically driven stablecoins in development.
Basis raised $133 million in April, 2018 to develop an algorithmically based stablecoin, but it shuttered, and returned unspent capital, just 8 months later, due to regulatory issues.
As the regulatory issues get worked out, we expect to see algorithmically driven stablecoins become meaningful players. Some may be partially backed, some may have no backing at all. In either case, algorithmically backed stablecoins again decrease the % of M2 that will need to be locked to get to $1 trillion in stablecoin market cap.
4. The Major Impediment To Faster Stablecoin Growth Today, The Difficulty of Cryptocurrency On Ramps & Off-Ramps, Are Being Addressed
China is already testing it’s central bank digital currency (CBDC). But China isn’t the only country. A January, 2020, survey by Bank for International Settlements showed that over 80 countries were “working” on CBDCs:
Facebook’s Libra recently pivoted away from it’s own currency, to a series of stablecoins tied fiat currencies. Libra won’t be denominated just in USD, rather it will be denominated across many of the world’s most significant currencies.
By definition, concurrent with the deployment of those initiatives, we’ll see dramatic improvements in the on-ramps and off-ramps for cryptocurrency. And Libra will likely emerge as a major player in the space.
5. Stablecoins Are A 10X+ Improvement Over Current Systems, And Will Continue To Improve Their Value Add
While trading has been the major factor in stablecoin growth before this year, the future growth of stablecoins will be driven by the fact that they offer a 10X+ better experience for moving dollars vs. bank transfer today due to two factors:
Cost — most stablecoin transfers cost less than one dollar
Settlement — being able to settle in minutes vs. days for corresponding banking systems is a massive advantage
While some think the advantage go away with the introduction of CBDCs, I believe the biggest advantage will still exist, and that’s programmability.
Central to any CBDC is security. As a result, the Federal Reserve has already indicated that it’s CBDC will not be programmable, and I believe that the U.S.’s stance will be mirrored by most, if not all CBDCs.
What does programmability mean? Take a look at the incredible landscape of innovators in DeFi today:
And we’re just beginning. Just like no one predicted Facebook, or Google, or Amazon web services when the internet emerged in 1994. It’s impossible to know what innovation stablecoins will bring. But it’s safe to say it’ll be mind blowing. And 99%+ of the world has no idea.
Register for “Stablecoins Are Killing It” — Episode #4, 5/21, 1pm-2pm EST
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