Cryptocurrencies will witness a revolution through acceleration

On November 6, I wrote a memo to the blockchain leadership team at EY. The headline was simple: “Every Private Blockchain Has Just Died.” Since November 2022, the cryptocurrency and blockchain markets have been marked with caution and a gradual recovery. The trend has been steady and positive, but slow, especially in 2023.

In 2024, we see a gradual but sustained acceleration. The year began with the Bitcoin exchange-traded fund (ETF), and continued to accelerate with the Ethereum ETF and EU adoption. Markets in crypto assets (MICA) Legislation.

We have been on the path to consistent global regulatory convergence, including rules of the road for all major cryptocurrencies and digital assets. We were also on the path to public blockchains. Bitcoin is a type of digital gold, and Ethereum is a development platform for digital assets and services.

The path may have been steady, but the pace was measured. It was common for me to hear people at major financial institutions telling me that they would like to move to public Ethereum, but that “regulators won’t allow it.” On the night of November 5th (in the wake of the US elections), the prospect of fundamental regulatory change became a reality. Any certainty about what regulators would or would not allow was suddenly out the window, and the clear direction of travel was a radical acceleration on public networks.

There are no absolute certainties in life, but if I had to make a prediction about 2025, it is that we will truly see a radical change in the regulatory environment in the United States, which in turn will lead to a collective global shift in the same direction. Although not necessarily at the same pace. However, since the United States is by far the largest financial market in the world, this is of great importance.

Bitcoin is already the big winner here. It is cementing its position as the digital version of gold, and within 2025, it could officially take on that role with countries and governments dipping their toes into Bitcoin’s strategic reserves. My previous prediction was that Bitcoin would likely continue to grow until it reached the size and market cap of gold, which is currently around $14 trillion. In many ways, Bitcoin is more attractive as a scarcity-based asset. Rising Bitcoin prices do not increase supply, which is something you can’t say about physical gold.

Ethereum will be the second big winner. Ethereum has seamlessly transitioned to Proof of Stake, Reduce carbon production by >99%It has also expanded significantly. Ethereum’s combined network (the main Layer 1 network and Layer 2 networks) has hundreds of times the capacity it had during the last bull market. Transaction fees are low and will likely stay that way for some time. The massive scalability, low costs, outstanding security and uptime record will make Ethereum the choice for most digital asset issuers.

Beyond cryptocurrencies, the biggest boom we are likely to see in 2025 will likely be related to stablecoin payments. The value proposition and business case for stablecoin payments is already strong. All over the world, users want access to the US dollar, especially for international transfers. The use of dollar stablecoins was already popular among cryptocurrency users, but access and use cases are spreading rapidly. Circle is working with Nubank in Brazil, for example, to make USDC payments directly available to all account holders. Celo, an Ethereum network, has partnered with Opera to put stablecoin payments into Opera’s web browser, which is optimized for low-cost smartphones popular in emerging markets. As a result, Celo’s stablecoin transaction volumes have grown rapidly.

Stablecoin payments are reaching the enterprise sector as well. EY, PayPal, and Coinbase I worked with SAP to enable fully automated payment processes from within an organization’s ERP systems. Now, the same automation within the system that works with bank accounts also works with crypto payments. This is especially important for enterprise use where there is no opportunity to adopt processes that cannot be automated at scale. When combined with improved privacy tools (and better regulatory processing of privacy regimes), cryptopaths appear to be much less expensive options for enterprise users.

2025 is also likely to be a great year for decentralized finance (DeFi). DeFi relies on software applications running on-chain to replicate key functions in financial services and banking.

Throughout 2024, DeFi was the one area in the cryptocurrency ecosystem that saw no real movement on regulatory clarity, and thanks to high real-world interest rates, it wasn’t a very attractive option. The regulatory environment is likely to be more favorable for DeFi in 2025, and if interest rates fall, a more aggressive search for increased on-chain yield may begin. Decentralized finance (DeFi) tools that allow people to lend their assets in liquidity pools and other services in exchange for additional return on assets (and additional risk) may become popular again.

So the revolution will not be about something new or different, it will only be about everything moving forward at once. Across the board, the competitive intensity in every sector of the blockchain ecosystem is about to reach 11,(My “Spinal Tap” reference.). The companies, banks, brokerage firms, insurance companies and others that have been sitting on the sidelines and watching with horror in 2023, wary in 2024 and likely to decline in 2025 have already lost track of all the major companies that have announced their plans to offer a stablecoin, or a real-world asset, or Start selling Bitcoin and Ethereum to their clients.

The competitive intensity within the blockchain ecosystem has already been increased to 11, and 2025 will be a challenging year within the market. We should forgive people who run blockchain networks and services for wondering if these are good times, is it worth it? Within the Ethereum ecosystem, there are now over 40 different Layer 2 networks. Competition for transaction fees is intense, differentiation across Layer 2 networks is low, and more competitors are entering the market.

As is the case inside Ethereum, it may be worse outside as “alt-L1s” face a common Ethereum ecosystem that appears reliably scalable, secure, and low-cost. Some networks, like Celo, have already pivoted from competing with Ethereum to being part of it. I expect more to follow in 2025.

Perhaps the only place worse than facing angry public blockchain competition is running a private blockchain. When your value proposition is “as close to Ethereum as regulators will allow” and all those regulators are moved, the outlook is particularly bleak. I have already received calls from companies in private networks asking how to pivot and how quickly they can do it.

Finally, I expect 2025 to be a great year for fraud. The carnival atmosphere and casino-like atmosphere of online trading combined with rapid regulatory easing could attract the same scammers that emerged in the recent cryptocurrency boom. What is difficult to predict is where exactly this fraud might appear. People are generally good at closing the barn door after a horse escapes. So, things that have worked in the past, like hacking exchanges or borrowing depositors’ money, will be difficult to replicate. Better audits, regulators and security technology contribute to this. This does not mean that the danger will disappear, but rather that it will arrive in a new package.

Happy New Year and have a great 2025!

Disclaimer: These are the personal opinions of the author and do not represent the views of EY.