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PRIVATE KEY

What about digital currency? Our 2020 predictions for bitcoin, Libra, and the digital yuan

Reuters/Dado Ruvic
Mind over matter.
By Matthew De Silva

Tech reporter

As we turn our calendars to 2020, now is an opportune time to reflect on the year ahead. What does our financial future hold in store? With the S&P 500 booming, it’s difficult to imagine a shift toward alternative finance, but the landscape could change in a hurry.

Geopolitical and corporate forces are on a collision course, and our financial lives might be upended in an instant. From China’s exploration of a digital yuan to Facebook’s insistence on Libra (its own digital money), the world’s powers are gearing up to seize financial control. The question is, will it work? Simultaneously, legacy digital currencies—especially the hundreds of cryptos that arose in 2017—could fall by the wayside.

With that in mind, here are my predictions for digital money in 2020:

Bitcoin will soar again

After a rejuvenating 2019, it appears bitcoin is on the rise once more. While its underlying market is virtually inscrutable—billions of dollars shuttle between traders in the black market—there is one fundamental change on the horizon. Sometime in May, the bitcoin network will automatically reduce its “block reward,” the money paid to miners who secure the network.

While miners currently receive 12.5 bitcoins (market value: $87,000) for adding each new block of transactions, the network will programmatically adjust to provide a smaller payout, a reward of just 6.25 bitcoins. This reduction, which occurs every 210,000 blocks, is called the “halving,” or sometimes, the “halvening.”

The last time this happened—in July 2016, when the reward dropped from 25 bitcoins to 12.5 bitcoins—the crypto market wasn’t nearly as popular. Back then, bitcoin traded in the mid-$600s. Now, though, with greater attention on its contracting issuance rate and finite supply, bitcoin’s price could rocket up the charts. While some argue the halving is “priced in” (i.e., everybody knows it’s going to happen), others suspect the shrinking reward will make buying bitcoin more urgent.

Ethereum will crater

Kicking a project while it’s down isn’t my style. But with so little to show over the last three years, it’s hard say that ether’s market cap ($14 billion) is justified. Arguably, if bitcoin ascends, it might take ether with it.

But if there’s any rationality to crypto trading (hint: there’s not) then ether should rightfully plunge. Perhaps I’m locked into an outdated expectation that ether will be more than digital money—its creators billed ethereum as a decentralized internet, a place where peer-to-peer platforms could flourish without corporations. From file storage to new-age lenders, ethereum was/is supposed to change everything. Maybe my prediction is colored by my disappointment. But, other than currency, there still isn’t a provable use case for ethereum—and as long as we have bitcoin, who needs another one? It’s time for the market to reflect ether’s bland reality.

Facebook’s Libra will not launch in 2020

Continuing with my hard-truths tour, I anticipate that Libra will not launch this year—at least not in anything close to the format Facebook initially promised. Can you even imagine Facebook launching a digital currency in a US election year? If Libra launched and was even remotely tied to election interference, there would be hell to pay.

Libra has already stained Facebook’s reputation, showing that the company jumped on the blockchain bandwagon without much planning, and it (briefly) made regulators laser their focus on big tech. If Facebook moves forward, I’d expect it to make Libra much less crypto and much more conventional finance—something like a Facebook debit card, not full-blown Facebook money. In my view, it’s much more likely Facebook will focus its effort on WhatsApp Pay—and hopefully, warding off fake news.

China will start public experiments with its digital yuan

All right, it’s time to get bold. While there’s been a lot of buzz about China’s digital money experiments (link in Chinese), I’d wager that this is the year when the country will actually release something to the public. The digital currency/electronic payments (DC/EP) plan has been years in the making, and I see little reason why China would continue to wait in the wings.

While I don’t expect a complete rollout, China might begin limited tests of the DC/EP, perhaps with corporate partners. As the country makes its push onto the world stage and grapples with possible US sanctions, this centrally-planned effort could shift the balance of financial power. And it’s something that few others have the wherewithal to pull off.

Yes, there are challenges to be ironed out with a digital wallet system, but with the increasing desire for insights into citizen/consumer behavior, a digital currency—issued by and linked to the People’s Bank of China—would provide exactly the leverage the country seeks. My guess would be that this happens in the middle of the year.

Blockchain projects continue to fold

The quiet collapse of the blockchain industry hasn’t made headlines. But projects are absolutely running out of money—and patience. How long are programmers and community managers willing to work on something that doesn’t ship? Or just doesn’t make sense?

In 2020, I think lots of blockchain developers—and especially researchers—will return to academia. Likewise, the hangers-on in the marketing machine will move on to the next hot thing. Perhaps cannabis or 5G?

The SEC will approve a bitcoin ETF

Finally, I’ll go out on a limb once more to say, I think the US Securities and Exchange Commission will finally approve a bitcoin exchange-traded fund. Realistically, there’s little reason for the agency to hold it up any longer. Concerns about bitcoin market manipulation don’t relate nearly enough to the financial product itself. Additionally, it seems, the competition from a bitcoin ETF would probably make private investment vehicles lower their fees.

Bits & Pieces

  • How China’s new cryptocurrency could track money flows, challenge Facebook’s Libra (WSJ)
  • A human rights activist explains why bitcoin is so important to his work (Bloomberg’s Odd Lots)
  • Heard of bitcoin’s ‘halving’? It’s set to shake crypto markets in 2020 (Reuters)
  • Bitmain to cut workforce in half ahead of bitcoin halvening (Decrypt)
  • Bitcoin’s 9,000,000% rise this decade leaves the skeptics aghast (Bloomberg)
  • Ethereum developer Virgil Griffith to be released on bail to parents (CoinDesk)

Please send news, tips, and your predictions to privatekey@qz.com. Today’s Private Key was written by Matthew De Silva and edited by Katie Palmer. Only rich people tell you not to talk about money.