Deutsche Bank says that inflation could become “more embedded” in the world economy, leading people to later question fiat money. The bank predicts “demand for alternative currencies will therefore likely be significantly higher by the time 2030 rolls around.”
The bank even wonders if, as authorities will face policy dilemmas as they try to balance higher yields with record debt levels, fiat currencies will survive.
“That’s the multi-trillion dollar (or bitcoin) question for the decade ahead,” the bank writes. “[W]hile critics bemoan cryptocurrencies as constrained by regulatory hurdles, we believe the incentives of governments and card providers are such that digital currencies are inevitable.”
Deutsche Bank mulls what it terms “the end of fiat money.” It notes that the forces holding the fiat money system together appear fragile, potentially increasing demand for alternative currencies, including gold and crypto.
“Until now, cryptocurrencies have been additions, rather than substitutes, to the global inventory of money,” the bank writes. “Over the next decade, this may change. Overcoming regulatory hurdles will broaden their appeal and raise the potential to eventually replace cash.”
Deutsche Bank points to 2017 as the year cryptocurrencies gained global attention, as Bitcoin increased to $20,000. “When Facebook announced Libra, its new cryptocurrency payment system, earlier this year, the conversation hit all levels of society and politics,” he said. “And no wonder. Facebook, with its potential user base of over 2bn, has the potential to disrupt the payment industry send the use of cryptocurrencies in to the mainstream.”
Deutsche Bank sees cryptocurrencies as additions, not substitutes, to the global inventory of money. “They have not managed to take off as a means of payment despite their well-known benefits, such as security, speed, minimal transaction fees, ease of storage and relevance in the digital era,” the bank wrote. “Looking ahead, this situation may be different.”
The bank foresees ways in which the appeal of cryptocurrencies could broaden and their adoption hasten, enabling them to replace cash.
“Key is what happens in the world’s two most populous countries,” the bank wrote. “Until now, China and India banned the purchase and the sale of cryptocurrencies.”
Also key is what consumers want. Deutsche Bank cited dbDig research, which showed almost two thirds of consumers prefer dematerialised to cash payments and a third are concerned by anonymity. “These are the two things that cryptocurrencies do best,” the bank writes.
Regardless if via crypto or not, payment technology adoption will speed up. “Assuming governments back cryptocurrencies, and consumers want them, adoption rates will drive the timeline for mainstream use,” the bank writes. “The chart below shows the adoption rates of blockchain wallets with the equivalent for the internet. It is early days but the curves are similar after adjusting for scale. Indeed, if current trends continue, there could be 200m blockchain wallet users in 2030.”
Cryptocurrencies need to overcome three main hurdles to enjoy mainstream adoption. “First, they must become legitimate in the eyes of governments and regulators,” according to Deutsche Bank. “That means bringing stability to the price and bringing advantages to both merchants and consumers. They must also allow for global reach in the payment market. To do this, alliances must be forged with key stakeholders – mobile apps such as Apple Pay, Google Pay, card providers such as Visa and Mastercard, and retailers, such as Amazon and Walmart.”
The bank would not be surprised if a new and mainstream cryptocurrency were to emerge out of nowhere. “Some countries with historically-strong banking industries are trialling cryptocurrencies,” the bank wrote. “Separately, cryptocurrencies may constitute the best tool for a digital war. The question is which country will take advantage of being the first to obtain licenses and build alliances. As that occurs, the line between cryptocurrencies, financial institutions, and public & private sectors may become blurred.”