Future of Crypto in the Next 5 Years: Trends, Challenges, and Predictions
For the majority of cryptocurrencies, 2023 got off to a good start. The most part of the crypto tokens took the path of recovery last year after taking the brunt. However, compared to their all-time highs, crypto prices are still low. The crypto winter is still in full swing, and it may take a while for the cryptocurrencies to come back strong and for the bullish tendencies to be restored. So what can we expect from the crypto market in the upcoming years? Are the next 5 years going to make a big difference for digital assets? Let’s examine the current state of the cryptocurrency market and try to predict what the future of crypto may be.
Article contents
The Current State of Crypto
The cryptocurrency market is moving comfortably in a constrained range with rounded curves. The market was shaken and went downward in 2022 as a result of the FTX collapse. Major cryptocurrencies like Ethereum and Bitcoin progressively went green this year, helped by the more relaxed macroeconomic environment and declining inflation, which gave them a new and optimistic outlook.
In addition, market attitudes have gradually shifted from fear to greed to neutrality. Last month, the U.S. inflation and its effects on liquidity prevented the cryptocurrencies from displaying any signs of stability. The U.S. Federal Reserve’s stance on interest rate hikes has moved the crypto market upside down. Bitcoin crossed the level of $31,000 in July 2023 and is again at a low in August 2023 at $27,000. This has left crypto investors confused and nervous.
Crypto experts think that the current scenario is difficult and that a protracted recovery is in store. Most cryptocurrencies have fallen far from their record highs. The all-time high for Bitcoin, which was $60,000 in November 2021, is still more than 50% below that level. The all-time high for Ethereum, which is presently trading at $1,600, was $4,000 in the same month. The crypto market has undoubtedly responded well to the unpredictability in the world of finance so far, and it is still going strong despite credit conditions being tighter and volatile bond markets.
Technological Innovations on the Horizon
By 2024, global investment on blockchain technologies will amount to $19 billion, predicts Statista. Hundreds of billions of dollars more need to be invested in this technology. From 2022 to 2029, the blockchain market is expected to increase at an average annual pace of 56%.
The fact that the European Union plans to invest billions of dollars in technology advancement, including blockchain, is another hopeful trend. Blockchain technology is actively used by businesses across a wide range of industries, with the banking, financial services, and insurance sectors setting the pace.
Main Sectors for Blockchain. Source: Softermii.com
There are a number of sectors where innovations are being introduced to. Not only the Proof-of-Stake consensus mechanism that is a lot more energy-efficient and ‘greener’ is changing the face of crypto – there are a lot of underlying processes that shape the future of crypto.
One of the results of the blockchain industry development is the change of the traditional banking system. The use of Central Banks Digital Currencies or CBDCs from various nations is one of the newest developments in blockchain technology. This trend suggests that banks will produce digital coins that are comparable to fiat currency.
BaaS (Blockchain-as-a-Service) is yet another popular 2023 trend. Amazon and Microsoft, for example, have already implemented this technology. When used as a cloud service, blockchain-as-a-service will let customers build digital products based on the principles of the technology.
AI, IoT, AR/VR and Blockchain Technologies
Artificial Intelligence (AI)
Artificial intelligence (AI) and blockchain are two of the most transformative technologies of our time. Individually, they have the potential to revolutionize a multitude of industries and transform economic and social interactions and relationships. When combined, they unlock a new frontier of possibilities that can empower a new generation of applications that benefit both from the vast productivity gains unlocked by AI and the security and transparency enabled by blockchain technology.
Combining blockchain technology with artificial intelligence (AI) can result in clever automated decision-making systems that deliver extremely trustworthy outputs that cause particular real-world consequences based on immutable, tamper-proof data.
The cryptocurrency market is anticipated to be significantly impacted by recent advancements in AI. Numerous companies have decided to concentrate on the development of AI technology as a result of the increased popularity of cryptocurrency platforms based on AI. For instance, Los Alamos National Laboratory researchers created an artificial intelligence program in August 2021 to recognize unauthorized cryptocurrency miners who utilize research machines for cryptocurrency mining.
Blockchain and AI Implementation. Source: Blog.chain.link
Internet of Things (IoT)
AI develops just as rapidly as the Internet of Things (IoT). There are currently IoT-enabled fitness trackers for your dog’s collar, smart toasters that let you know when your food is thoroughly toasted, and even smart mirrors that display on-demand workouts and show fitness statistics. The IoT industry has advanced to the point where it can elevate even common household items to another level.
The only thing left to do is merge IoT with blockchain, another hot area of technology. And it’s already happening. A future blockchain-based digital mobility project, backed by the German government, is being led by the engineering and technology company Bosch and was live-demoed at IAA Mobility 2023 in Munich, Germany. At the occasion, Bosch unveiled a peer-to-peer parking and charging system based on moveIDs on the Peaq ecosystem, along with its colleagues MOBIX and the Peaq blockchain, among others. Built on the blockchain, MoveIDs serve as self-sovereign identities (SSIs), enabling autonomous transactions between cars and connected infrastructure. The IAA Mobility demonstration showcased automatic interactions between interconnected equipment, in this case, a smart automobile, a charging station, and a parking indicator.
Augmented Reality (AR) and Virtual Reality (VR)
Blockchain has entered yet another popular field, Augmented Reality (AR). There are two dominant ways augmented reality projects are connected to the blockchain: AR NFTs and blockchain-powered AR software. One of the most popular uses of blockchain is to create Non-Fungible Tokens (NFTs). An NFT allows you to distribute objects through decentralized marketplaces with proof of ownership recorded immutability on the blockchain.
The other main way blockchain has been used for augmented reality is to use blockchain as the underlying infrastructure for the entire project. This gives an AR project all of blockchain’s inherent advantages: security, decentralization, immutability, automation, and more. Another – and probably one of the most talked about blockchain use cases – is metaverse. Metaverse should develop into a virtual reality that offers its users extraordinary online experiences. Of course, blockchain technology is essential for this world to function. Therefore, blockchain technology will continue to be useful the more well-known the metaverse becomes, and it will successfully spread into newer, only emerging high-tech areas.
Crypto Market Predictions
What to Expect from Bitcoin?
The price of Bitcoin in 2023 has been characterized by turbulence and uncertainty. The move to increase interest rates by the European Central Bank has helped the US dollar gain momentum. The strength of the US labor market and inflation indicators have also affected market sentiment. Even though previous failures have caused anxiety, technical analysis and market indicators point to the possibility of a bullish trend. Michael Van De Poppe, a well-known analyst, has clarified the recent Bitcoin pattern. The trader believes that Bitcoin could potentially reach $45,000 before the next halving event, which seems likely. Generally speaking, Bitcoin halving may prompt yet another bull run.
The long-term predictions for Bitcoin look even more promising. In a significant update that has reverberated through the cryptocurrency community, venture capitalist Tim Draper has adjusted his prediction for when Bitcoin (BTC) will reach the monumental price of $250,000. Renowned for his early and optimistic investments in digital currency, Draper has extended the timeline beyond his original forecast. He now believes that the world’s largest cryptocurrency is going to hit $250,000 by 2025.
Overall Market Expectations
When it comes to the crypto market in general, the global cryptocurrency market cap was valued at over USD 800 billion in 2022. In 2022, the market was dominated by the Bitcoin segment, which brought in more than 36.0% of the total revenue. During the projection period, the segment is anticipated to increase at the fastest rate. During the forecast period, it is projected that the
advent of Bitcoin Exchange Traded Funds (ETFs) would increase the number
of international bitcoin trading. For example, the Purpose Bitcoin ETF in Canada saw the most inflow of USD 207 million in May 2022.
US Cryptocurrency Market. Source: Grandviewresearch.com
It is projected that the Ethereum market would expand dramatically. There has been a significant increase in network traffic as a result of the proliferation of new projects using the Ethereum network, which is directly tied to the growth of the Ethereum market.
Crypto-asset markets also continue to be characterized by high levels of volatility. Over the last few years, the historical volatility of crypto-assets has continued to dwarf the volatility of the diversified European stock and bond markets. For example, while the volatility of the Bitcoin price has declined over the years, it is still significantly higher than for commodities such as silver and gold.
Crypto Regulatory Landscape: Shifts and Changes
Although crypto assets have been existing for more than ten years, efforts to regulate crypto have only recently risen to the top of the policy agenda. This is partially due to the fact that cryptocurrency assets have just recently transitioned from being niche items looking for a use to becoming more widely used as speculative investments, hedges against weak currencies, and prospective payment instruments.
It’s not that local government agencies or global regulatory organizations haven’t been working hard on wiring crypto into the traditional financial systems; rather the opposite, in fact. While others, like the European Union, United Arab Emirates, United Kingdom, and the United States, are still in the drafting stage, several nations, including Japan and Switzerland, have altered or adopted new legislation governing crypto assets and associated service providers. In sharp contrast to the U.S. that implemented new regulations, Hong Kong has taken a more friendlier approach to cryptocurrencies. In October last year, the city-state released its policy statement on virtual assets, which proposed allowing retail investors to trade in cryptocurrencies.
After its consultation paper on the proposed regulatory regime, the government implemented its new regulatory framework for crypto last month. Under the new rulebook, retail investors will be able to trade virtual assets, and the Securities and Futures Commission (SFC) of Hong Kong will also start providing licenses to crypto exchanges.
However, national authorities have often adopted highly disparate strategies for regulating crypto assets. In 2023, the crypto community in the UK can expect to receive the outcome of the Law Commission’s consultation and policy development of crypto technology as a legal asset, along with further steps towards implementation of the Financial Services and Markets Bill.
It is expected that efforts will continue to be made to promote the adoption of cryptocurrencies by the general public through the use of current advertising campaigns that feature famous people and celebrities like Matt Damon and Mike Tyson. A cryptocurrency’s own distinctive brand or reputation may be enhanced in some way by the public purchase and sale of crypto assets by businesses like Tesla, further legitimizing these as a legitimate source of investment.
Regulation and Innovation: Retaining the Balance
Regulators have a difficult time finding the best balance between promoting ground-breaking innovations and protecting investor interests. First and foremost, describing cryptocurrencies and classifying them under the current legal frameworks is a challenging task. The decentralized nature of digital currencies puts standard financial definitions to the test, necessitating changes to current laws or the development of completely new ones.
Secondly, there are still major challenges in maintaining compliance and combating illegal activity in the crypto industry. Concerns regarding potential abuse, such as money laundering or the sponsorship of illegal activities, are raised by the anonymity that cryptocurrencies offer.
Additionally, the worldwide scope of the crypto market creates regulatory difficulties that cut across national borders. Harmonizing international legislation is essential to prevent regulatory arbitrage and guarantee comparable investor protection standards because digital currencies operate across borders and jurisdictions.
Challenges and Roadblocks: Addressing the Issues
In its most recent versions, major cryptocurrencies like Bitcoin and Ethereum have employed a variety of solutions to solve scalability and energy consumption issues. For instance, Bitcoin’s Lightning Network enables off-chain transactions in an effort to boost transaction throughput. Layer-2 solutions, such as the Lightning Network, offer promising improvements in transaction speed and cost. The Lightning Network is an off-chain protocol that enables instant, low-cost transactions by establishing payment channels between users. Transactions can then be routed through these channels without requiring confirmation on the main blockchain, resulting in faster processing times and reduced fees.
In 2022, another major cryptocurrency, Ethereum, was upgraded to Ethereum 2.0 in a series of updates called The Merge, which makes use of a Proof-of-Stake consensus algorithm to consume less energy. However, Ethereum is not resting on its laurels after The Merge. After this stage, which is known as The Surge, there will be The Scourge, The Verge, The Purge, and The Splurge. Even if each of these developmental stages lasts for only six months or so, that’s still a solid two to three years more of regular improvements being made to the blockchain.
When it comes to energy consumption, according to estimates, Bitcoin uses more energy than many nations, including Norway, at 127 terawatt-hours (TWh) annually. The predicted annual emissions from Bitcoin activities in the US range from 25 to 50 million tonnes of CO2, which is comparable to the emissions from diesel fuel used by US railroads. Producing that energy emits some 65 megatons of carbon dioxide into the atmosphere annually – comparable to the emissions of Greece – making crypto a significant contributor to global air pollution and climate change.
However, crypto may have another opportunity to prove its value beyond its financial portfolio: by becoming a leader in the transition to sustainable energy sources. If the cryptocurrency industry wants to become more environmentally friendly, it will face many obstacles, including recognizing its environmental impact, incorporating truly sustainable practices into its operations, such as the Proof-of-Stake consensus mechanism, and ultimately shunning the pursuit of profit at any cost.
Cryptocurrency Adoption and Integration
The future of crypto greatly depends on the way Decentralized Finance or DeFi evolves. One of the primary benefits of DeFi is that it allows for greater financial inclusion. Traditional financial institutions frequently have stringent criteria for opening accounts and obtaining financial services, which can be a barrier for those lacking the required paperwork or a good credit history. By utilizing smart contracts and blockchain technology, which enable anyone with an internet connection to access financial services, DeFi eliminates these restrictions.
The rising popularity of cryptocurrencies is a key factor in DeFi’s widespread adoption. Previously seen as a niche asset, cryptocurrency is now increasingly being accepted as a respectable investment. In fact, according to a recent survey, 46% of institutional investors think cryptocurrencies have a place in a balanced portfolio. DeFi is probably going to follow cryptocurrencies as it gains in popularity.
The growing acceptance of NFTs is another element propelling DeFi’s mainstream adoption. The ownership of original works of art, collectibles, and other one-of-a-kind artifacts is frequently represented by NFTs, which are distinctive digital assets. NFT marketplaces based on DeFi have grown in number as a result of NFTs’ rising popularity, which is assisting DeFi in reaching a wider audience.
Finally, the widespread deployment of blockchain technology is advancing DeFi. Blockchain adoption by businesses and organizations is expected to increase, and DeFi will probably follow. DeFi is well positioned to revolutionize the financial sector with its combination of financial inclusion, cheaper fees, enhanced security, and greater transparency.
Bottom Line
The overall cryptocurrency future may be influenced by the markets themselves. A string of publicly reported ‘crashes’ could serve to solidify the beliefs of many that Bitcoin and other such currencies are destined to fail, lowering public acceptability in general and making the legal and regulatory focus less important over time. And while it’s difficult to predict where the crypto market is going to be in five years’ time, but, given how resilient cryptocurrencies are as a technology, it is likely that they will continue to have a significant role in the world economy in the years to come, despite any market swings that may occur.
While the crypto market is experiencing a downfall, it may be a good moment to invest in cryptocurrencies, but don’t forget to do your own research before buying any crypto. It’s always best to stay informed and adaptable in this dynamic landscape. Just go to StealthEX, choose the amount of the cryptocurrency you want to swap, for example, ETH to BTC, and click Start Exchange.
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Don’t forget to do your own research before buying any crypto. The views and opinions expressed in this article are solely those of the author.
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