The night king threatening the world with a winter of terrors, the dragon nation rising from the East, and the old powers clinging to old grievances, unable to cooperate and move forward…

Any similarities between Westeros and our world might be just a coincidence. But as a new multipolar order emerges, causing profound changes to monetary regimes and an energy crisis unlike any other we’ve seen before, a Game of Thrones of our own might be brewing.

The next decade in crypto will be shaped by three interconnected trends: one is technological (the creative destruction of money), one is political (the alignment of digital currency tracks) and one is economical (a Bretton Woods for crypto).

The Creative Destruction of Money

Money is reaching a breaking point.

Earlier on, the discussion on crypto revolved around whether it was a currency or not. Still unable to convince most people, crypto might have become the straw that broke the camel’s back and redefined what money really is.

We tend to assume that money performs its functions— as unit of account, medium of exchange and store of value¹— with equal competence. That is incorrect. Fiat currency is an excellent unit of account, a poor medium of exchange, and an atrocious store of value.

Fiat currency is an excellent unit of account, a poor medium of exchange, and an atrocious store of value

In reality, fiat currency as we know it is mostly a unit of account. As of today, 90% of the money supply is already in digital form and created by commercial banks — not central banks. In a world of credit cards and shadow banking, it is an illusion to think that the exchange and storage functions are still controlled by the monetary authorities. That’s what a cashless society really means: fiat currency shedding its storage and exchange functionalities².

Money as a direct function of value is an instrument to measure, transfer and store value. In the digital context, the measurement of value is migrating towards wholesale CBDCs³ — which are fiat currencies — , the transfer of value towards retail CBDCs and stablecoins, and the storage of value towards conventional assets and digital assets — including CBDCs, paper money, crypto, and gold.

Currency as we know it has already been disrupted

Currency as we know it has already been disrupted. And monetary policy needs to acknowledge this reality. Instead of the “gas and brake pedals” of money supply/reserves, the new monetary policy needs a “liquidity gearbox” controlling the ratio of payment liquidity to economic activity. The flow of money should replace the stock of money as the key monetary policy instrument.

The Triple Digital Currency Track

If you heed the advice of Bezos, Musk, and others, we are just out of the infancy of e-commerce and we already need to replace the financial rails to overcome the growing pains. Effectively this means fully digitalised currency areas in terms of payments, credit, funding, taxes… to capture network effects and build the scale to succeed at the next level.

We are just out of the infancy of e-commerce and we already need to replace the financial rails to overcome the growing pains

Things like FedNow, the European Payments Initiative, and the Digital Yuan (eCNY) hint at the future to come. Legislation such as MiCA, Lummis-Gillibrand, and the many crypto bans offer further evidence that the US is aligning with a crypto model closer to Bitcoin, the EU with a model closer to Ethereum, and China and Russia are moving away from both alternatives. This will give rise to a triple track of digital money in the next decade:

The Bitcoin track will be an area where crypto will be largely free to develop, with light regulation and a flourishing DeFi and stablecoin ecosystem. Ethereum will be a large part of the ecosystem, as well, but Bitcoin dominance will remain high.

It’s undeniable that a Bitcoin ban is a possibility for the US but, with strong political backing, this threat will be thwarted.

The Ethereum track will be an environment of heavy regulation which will hinder crypto innovation — and Europe will keep playing catch with the US in terms of technology. Retail CBDCs will crowd out stablecoins —with digital assets legislation banning interest and redemption fees basically rendering stablecoins uneconomical in the EU

It seems very likely that the EU will enact a Bitcoin ban —as it almost happened in March — officially because of energy consumption and AML/CFT reasons, but it will be really because Bitcoin is harder to control. The EU has a large chip on its shoulder because of its fragmented payments system dominated by US-based corporates (namely Visa and Mastercard), so hijacking Ethereum is a golden opportunity for the EU.

Hijacking Ethereum is a golden opportunity for the EU

The big question is whether the EU or the euro will still exist by 2030.

While privacy concerns and censorship are seen as bugs for the other two tracks, they are considered features by the regimes in the eCNY track. Much like the EU, China and Russia see an independent payments system as a strategic matter, but with a focus on sanction-proofing their economies and disciplining rogue companies and citizens.

I expect the first two tracks to be vastly connected — if not fully interoperable — and the third track will need to connect on specific points to allow for the seamless flow of international trade. This brings us to why we need a Bretton Woods for crypto.

Game of Coins: A Bretton Woods for Crypto

From the Delian and Hanseatic Leagues to Bretton Woods and the Washington Consensus, monetary arrangements are a necessary response to generational shifts in the way economies are organised.

Credit Suisse’s Zoltan Pozsar raised the need for a new Bretton Woods, seeing this crisis as unlike anything we have seen since Nixon took the US dollar off gold in 1971 — ending the era of commodity-based money.

“We are witnessing the birth of Bretton Woods III — a new world (monetary) order centred around commodity-based currencies in the East that will likely weaken the Eurodollar system and also contribute to inflationary forces in the West.”Zoltan Poszar, Credit Suisse

Cue in crypto. Underpinning crypto’s explosive growth is the risk of overdollarisation, as most crypto assets are increasingly more sensitive to the US economic cycle. Already making its way into institutional investor portfolios, the risks to financial stability brought by crypto are noted.

But there are plenty more risks hiding behind the digitalisation of currency areas: CBDCs will invariably cause bank disintermediation, regulated stablecoins are a massive risk of bank runs, and DeFi will compete for liquidity with bonds and other debt markets. The different tracks will need to come together to standardise finance and create a reliable system of reserves to govern asset tokenisation and discipline liquidity flows.

The good news for regulators is that their toolbox will get an upgrade as well: embedded regulation, smart contract audits, validator and oracle policies, kill-switches… financial regulation is also prime for disruption, increasingly allowing financial authorities to regulate things that might happen, instead of things that have already happened.

The move from “gas and break” monetary policy to “gearbox” monetary policy, and from ex-post financial regulation to ex-ante financial regulation will be the legacy of the new Bretton Woods.

2030 Crypto Predictions

1) Stablecoins and CBDCs will coexist, mostly peacefully and mostly in the US

There’s no reason why this shouldn’t happen. Stablecoins might even be backed by CBDCs. The proposed US approach to stablecoins is perhaps the most straightforward in the crypto world and the risks to financial sovereignty are grossly exaggerated by ill-informed opposition.

2) Ethereum will IPO and revolutionise capital markets

Ethereum is unlikely to succeed as a payment network but is likely to survive as a financial platform, depending on how it executes on its roadmap (I trust it will fare well, as long as it remains centralised).

With higher fees than Stripe, lower throughput than Visa, and more regulation than Bitcoin, Ethereum will need to raise large swaths of capital to compete.

It should capitalise on its strength: it is highly programmable. Seeking liquidity and diversification, large ETH holders will champion a movement that might end on another milestone for both crypto and capital markets: the IPO of a DAO.

3) Despite bans, Bitcoin will thrive if it can sort its governance

Due to its energy consumption and anonymity, Bitcoin will face multiple bans either directly or indirectly through the ban of proof-of-work. And Bitcoin adoption will become a proxy for economic freedom, as Bitcoin bans will mostly align with economic authoritarianism.

To achieve its full potential, Bitcoin will need to dramatically improve its smart contracts functionality and deliver on the Lightning Network, so they need to fix the governance issues first.

4) Bank disintermediation will happen, but it will not mean the death of banks

For over 120 years, financial service providers have steadily earned an estimated 1.5% fee over their assets under management — irrespective of wars, recessions, pandemics… but this might be about to change with crypto offering the ability for customers to securely transfer $1 million for a 10 cent fee in 15 seconds.

Banks can’t compete with that.

Retail CBDCs will offer hard currency directly to the public with no credit risk or capital constraints.

Banks can’t compete with that.

DeFi will offer an infinity of financial products for pennies on the dollar and with no counterparty risk.

Banks also can’t compete with that.

Where banks thrive is on their relationship capital: they know the high net worth clients and they know the projects and companies seeking to raise capital. Banks make capital allocation decisions very efficiently, and that’s their competitive advantage. JP Morgan already knows that.

5) The Metaverse will become business as usual

If you ever tested one of those Oculus Quest or HoloLens you know virtual offices are the future: no need for multiple smartphones, monitors, keyboards, laptops, and their ancillary desks, wiring, etc. They can all be comfortably replaced by their virtual versions.

The Metaverse won’t become Second Life and will get traction mostly in corporate environments, boosted by the move towards remote working and the related reduction of office and transportation costs.

In the age of quiet quitting, corporates will realise that while you can’t monitor an employee at home, you can monitor their avatar in your Multiverse office.

6) DeFi will become the global Wall Street

DeFi is Amazon for financial products. In the same way that Amazon crushed physical bookstores by offering millions of titles, DeFi will crush their TradFi rivals by offering million of financial products conveniently.

It is worth noting that DeFi only worked so far due to overcollateralisation , and overcollateralisation only worked because a crypto bull market generated insane levels of speculation.

DeFi will need to focus on credit enhancements and an improved liquidity model to deliver on its promise.

7) The mix of crypto and politics will become a mess

If in the past decade the political cycle was completely turned on its head by the rise of social media, imagine what happens in the next political cycle with crypto stepping into the scene.

From political donations via NFTs to rallies on the Metaverse, crypto will test the boundaries of democracy. The world of politics will never be the same.

8) Universal Basic Income becomes a reality

Crypto has been touted as the perfect instrument to facilitate welfare. From negative income tax and universal basic income to foreign aid and emergency relief.

As the world of politics goes, legislating is an exercise in polite quid pro quo, if we are to have lightly regulated crypto markets on the right, we will also get universal basic income on the left.

9) VC will kick off crypto consolidation

Talking to entrepreneurs in recent events, one theme is very prevalent: crypto is starting to see its first M&A cycle. M&A consolidation might go against decentralisation, but it is necessary for scale. The industry could also benefit from weeding out some of the bad projects.

VC itself, currently the realm of the rich and well-connected, will increasingly have to compete for deals with DeFi-enabled platforms, which will bring VC investment to the masses through crowdfunding and other instruments.

10) AI and cybersecurity will takeover blockchain analytics

Blockchain analytics, as a business model, has a very limited shelf life. Unable to compete with better structured, more sophisticated, and capitalised AI and cybersecurity companies, they will have little time to adapt or die.

In the age of ex-ante regulation, being able to read what was written in the blockchain in the past will be of limited use.

Technology and demographics will make things even more interesting

Quantum computing — which is attracting a lot of capital since Moore’s Law started to stagnate— will make things in crypto very, very messy. Ultimately, hardware constraints and pseudo-quantum cryptography will buy crypto some time to adapt, but if crypto can’t properly quantum-proof itself, it might die overnight in 15 to 20 years.

The crossover of crypto with other technological breakthroughs such as AI, energy storage, nuclear fusion, space tech, CRISPR, 5G, etc will certainly add excitement and opportunity to the sector.

Demographic trends such as effective altruism, populational decline and aging, and AI ethics should also provide interesting perspectives for the development of crypto.

You should only do forecasts after the match

The advice, from Portuguese footballer João Pinto, is usually — or shall I say always— a good one. But trying to predict the future is actually pretty fun. I just put a reminder on my calendar for 31st Dec 2030 to revisit this…

Notes

[1] I’m using “money”, “fiat currency” and “paper money” almost interchangeably, but it should be clear from the context when a difference is relevant. Keynes would add speculation to the functions of money. (back)

[2] Fiat currencies as a store of value should carry no credit risk, unlike bank deposits. The amount of fiat currency that can be used as a medium of exchange is limited, unlike credit cards. (back)