The digital asset industry as a whole is set to grow, according to Ronit Ghosh, an analyst at investment bank Citi. At the same time, the dominance of Bitcoin, that is, its share in the total capitalization of the industry, may significantly decrease over the next decade.
In other words, the main cryptocurrency is starting to lose in popularity to new projects that offer more opportunities, higher bandwidth and cheaper transactions. The latter, by the way, is important, since recently the commissions in the Bitcoin network reached a historical maximum. Let’s talk about the situation in more detail.
Let’s start with an explanation. Bitcoin is the very first, popular and reputable cryptocurrency, the network of which has been operating since January 2009. It was BTC that paved the way for new blockchain-based projects with more advanced features and capabilities.
At the same time, Bitcoin itself is not developing very much – especially in the eyes of an ordinary user. The BTC network can still handle only seven transactions per second, and new blocks are added to the blockchain every about ten minutes, which is very slow by today’s standards. But despite this, Bitcoin continues to be considered the main asset of the market and determine what happens on it, because when the BTC rate rises, altcoins usually fall in price.
According to analysts, this situation will change in the future. Still, now new projects are much more perfect than Bitcoin, which means, ideally, what happens to them should not be dictated by the behavior of BTC. This is the scenario that Citi representatives are counting on.
What will happen to Bitcoin in the next ten years?
Here is a quote from Ghosh from a recent interview with the news outlet Decrypt, in which he shared his attitude to what is happening.
The cost of Bitcoin will decline, it will be affected by the popularity of other cryptocurrencies.
That is, the analyst believes that in the future, new investors will increasingly choose other cryptocurrencies instead of Bitcoin. And since buying activity will be concentrated around altcoins, BTC will become less popular. Accordingly, there will be fewer people willing to push the value of the main cryptocurrency up.
The analyst’s comments overlap with the recently released Citi report. The document analyzes how cryptocurrencies and regular money can develop in the future, and how Bitcoin should be valued based on all of this. The main cryptocurrency as a payment mechanism has a different value than a store of value like gold. And if it becomes a widely used payment network, it will add value to it.
However, the problem here is that Bitcoin is not widely used for day-to-day payments. Ghosh acknowledged that it has found applications in developing countries or territories where a full payment infrastructure is still lacking, but is not usually used to buy everyday goods. Not only is Bitcoin relatively slow and expensive to use, there is another catch: if its value continues to rise, people may not want to spend their coins.
Note that the cost of conducting transactions on the cryptocurrency network also increases as the BTC rate rises. Nevertheless, commissions are calculated in cryptocurrency, which means that with the same load on the network, transfers will be more expensive when Bitcoin has a higher rate. And this is another obstacle in using BTC as a means of payment on a daily basis, because not everyone is ready to give the equivalent of $ 50-60 for one transfer.
For this reason, the expert claims that there are two alternatives that can lead to a drop in the level of BTC dominance. First, he pointed to alternative cryptocurrencies like Ethereum and Polkadot, offering faster payments and support for smart contracts. Second, the advent of central bank digital currencies (CBDCs) could provide a way to seamlessly make digital payments without cryptocurrency volatility.
The expert continues.
Perhaps Bitcoin will grow more slowly than some of the next generation projects.
At the same time, the analyst admitted that the difference between CBDC and BTC-like coins lies in the level of decentralization. CBDCs can become an important tool in the hands of governments, which will use them to control many financial flows of the population. In such a situation, Bitcoin gains value as a sane alternative to the traditional monetary system. However, this also applies to other cryptocurrencies.
We believe that the scenario described by the analyst is quite real. Bitcoin gained massive popularity due to its primacy, limited maximum number of coins and its positioning as digital gold.
At the same time, the network capabilities of the first cryptocurrency cannot be compared with the same Ethereum, which supports smart contracts and, in addition, has become home to projects from the decentralized finance industry and unique NFT tokens. Obviously, watching the development of the niche in the coming years will be even more interesting.