The crypto market has seen tremendous growth over the past decade, with the total market capitalization rising from virtually nothing to over $3 trillion at its peak. However, it has also experienced substantial volatility, regulatory uncertainty, and questions around scalability.
As crypto is in its second decade, what potential trends can we expect to shape the landscape in the coming years? This article will analyze the key factors that are likely to impact the future of crypto in the next four years.
Key Takeaways
- Institutional adoption of crypto is expected to increase substantially, providing legitimacy.
- Regulatory frameworks being developed may either enable or restrict growth
- Scalability and interoperability solutions to improve the efficiency of blockchain networks
- Decentralized finance (DeFi) and NFTs are rising in prominence and utility
- Bitcoin and Ethereum prices are likely to see continued volatility but potentially substantial upside
Institutional Adoption of Crypto
Over the past few years, institutional adoption of crypto has started accelerating rapidly. Major banks, hedge funds, pension funds, university endowments, insurance firms, and more have started entering the space.
This trend is expected to continue at an even faster pace over the next four years from 2024-2028 for several reasons:
Mainstream Acceptance
- Crypto is becoming a mainstream asset class that major institutions can no longer afford to ignore
- More regulated investment products like Bitcoin ETFs and futures contracts enable easier exposure.
“Institutional investors believe crypto is a new institutional asset class,” says Dan Morehead, CEO of Pantera Capital.
Portfolio Diversification
- Institutions are looking to diversify portfolios beyond just stocks and bonds.
- Crypto provides non-correlated exposure to hedge against stocks/economy
FOMO and Higher Returns
- Fear of missing out as crypto assets generate tremendous returns
- Fixed income yields declining – crypto provides higher return potential
The accelerating pace of institutional adoption between 2023 and 2028 can perhaps be best understood by examining the trend in the context of the Rogers Technology Adoption Lifecycle:
Note: The Rogers Technology Adoption Lifecycle provides a valuable framework, but it’s essential to note that the specified dates for institutional adoption are tentative and subject to change based on industry dynamics.
As the timeline suggests, institutional exposure is expected to rapidly move from the early adopter stage to the early majority stage between 2023-2028. This will require a massive influx of capital from pension funds, insurers, banks, and asset managers seeking crypto-asset exposure.
In the above sections of the article, we examined the expected growth in institutional adoption of crypto between 2023-2028. Driven by mainstream acceptance, portfolio diversification needs, and higher return potential, institutional exposure is likely to accelerate rapidly.
Next, we will analyze how regulatory developments may shape the trajectory of the crypto market over the next four years.
Crypto Regulatory Trends
As crypto becomes a $5 trillion+ global industry by 2028, regulatory developments will play a crucial role in either fostering or potentially hindering continued growth and adoption. Some of the key regulatory trends that are likely to shape crypto over the next four years include:
Global Regulatory Frameworks
- Increased guidance and frameworks from global regulatory bodies like the Basel Committee, IOSCO, and the FSB on the treatment of crypto-assets.
- Focus areas: standards for custody/asset management products, consumer protection measures, AML/counterterrorism financing regulations.
We expect to see greater regulatory clarity on a global level by 2025, led by organizations like the Basel Committee and the FSB.
Jurisdiction-Specific Regulations
- Crypto-specific regulations are established on national and state levels, e.g., US, UK, EU, India, Japan, Singapore, etc.
- These may take varied approaches in terms of stringency, ranging from complete bans to progressive embracing of crypto.
Decentralized Governance
- As decentralized networks and applications grow, decentralized governance models will start emerging.
- These may reduce dependency on centralized regulators and policymakers
- Platforms like DeFi protocols governed through DAOs based on community consensus
While detailed long-term predictions are difficult, a few potential regulatory scenarios that could unfold by 2028 include:
Most Supportive Scenario: Progressive regulations embraced globally that provide investor protection while encouraging innovation
Most Constraint Scenario: Fragmented regulatory approaches across the globe with bans/stringent policies in major jurisdictions like China, Russia, India, etc.
Status Quo Scenario: Continued ambiguity and uncertainty in regulations with modest incremental progress
Next, we dive into the technological scalability improvements and growth of new sectors like decentralized finance and NFTs that are likely to shape the future of crypto in the next four years.
Technological Improvements, DeFi, and NFT Growth
Beyond just growing institutional interest and regulatory developments, the crypto industry is expected to see tremendous technological improvements along with the rise of new sectors like decentralized finance and NFTs over the next four years.
Scalability and Interoperability Solutions
As decentralized networks start handling millions of transactions and users, scalability is imperative for efficiency, speed, and low costs. The global blockchain interoperability market is projected to grow from USD 0.3 billion in 2023 to USD 1.0 billion by 2028 at a CAGR of 27.2%. Major advancements that can be expected include:
- Ethereum Sharding: Breaking the network into 64 interoperable shards to allow nearly 100,000 TPS throughput, exponentially greater than the current ~15 TPS capability
- Layer 2 Protocols: Scaling solutions like Optimistic and ZK Rollups, StateChannels,s, etc., will significantly reduce transaction fees.
- Interoperability solutions through Polkadot, Cosmos, etc. allowing the transfer of liquidity and assets across blockchains
These improvements will allow blockchain networks to match the throughput levels of leading payment processors while preserving decentralization. Lower fees can enable micro-transactions at scale across various crypto-powered sectors.
Growth of Decentralized Finance (DeFi)
The decentralized finance ecosystem offers financial services from lending to derivatives built on public blockchains. Capital locked in DeFi has already grown 100x, from $680 million in 2019 to over $60 billion in 2023.
This rapid pace of growth is expected to accelerate substantially between 2024-2028 as the user base keeps expanding. According to Allied Market Research, the global DeFi industry is estimated to reach over $497.9 billion in transaction value by 2032
“The decentralized finance market is expected to expand more in the coming years due to the growing interest in crypto universal basic income is evidence of a widening realization that blockchain provides the ability to distribute money efficiently to people directly at scale, and decentralized finance provides efficient pathways to funding and distributing capital over time.” – Pradeep Ravi – Lead Analyst, BFSI at Allied Market Research.
Key drivers stimulating DeFi adoption are:
- Accessibility to global retail investors shut out by traditional finance
- Transparent protocols and composability between applications
- Censorship-resistance offered by decentralization
DeFi is also enabling the rise of…
Emergence of NFTs and Digital Asset Ownership
Beyond financial services, another sector poised for enormous growth is NFTs – digital assets representing ownership of unique virtual items across art, collectibles, gaming, metaverse etc.
The Non-fungible Token (NFT) market size is estimated to grow at a CAGR of 30.23% between 2023 and 2028, according to a report published on Technavio. The market size is forecast to increase by USD 68.16 billion. Driving this is the increased utility being added to NFTs:
“NFTs are transitioning from being just digital art collectibles to things like representing land deeds, intellectual property, access passes, tickets, etc. By allowing fractional ownership, they can even enable investing in physical assets like property,” explains Andrew Steinwold, Managing Partner of Sfermion.
Interoperability protocols are allowing NFTs to move across various virtual worlds and become deeply integrated into diverse experiences enabled in the open metaverse.
Conclusion: Overall Outlook
Analyzing the institutional adoption trends, regulatory developments, technological improvements, and emergence of new sectors, the future of the crypto industry appears tremendously promising over the 2023-2028 timeframe.
However, risks around regulations, security, market volatility, etc., still remain, requiring a measured approach instead of just speculative hype. As crypto becomes further entrenched into the global financial system and technologically matures, we can expect its true utility and possibilities to become increasingly mainstream in the next decade.
Also published here.