December 6, 2022



BofA: Cryptocurrencies on the threshold of recognition, implementation and growth

This week, the analytical division of Bank of America (NYSE:BAC) published a report on the prospects and trends in the development of cryptocurrencies, highlighting the new qualities that these tools bring to the financial world. According to the bank, the world is at the very beginning of the 30-year period of introduction of blockchain technologies.

So, last year, only 17 companies mentioned “digital assets” in the income statement, whereas in 2021 their number increased to 147; and the number of crypto users during this time increased from 66 million to 221 million people.

The largest growth is observed in the segment of decentralized finance (DeFi) and non-interchangeable tokens (NFT). In 2020, NFT sales reached $0.25 billion, and as of August 2021 – already $3 billion. The DeFi market has grown from $19 billion to $90 billion in a year. The main beneficiary was Ethereum smart contracts, which continue to hold the lead despite the emergence of promising competitors. The annual growth of ETH exceeds 900%.

Bitcoin has a different architecture and cannot participate in the NFT and DeFi rallies, but it is increasingly being considered as “digital gold”. BofA notes that over the past 5.5 years, Bitcoin correlates better with inflation than gold (an inversely proportional relationship is implied). However, the history of observations is not enough for statistically correct conclusions.

In 2020, the Fed and the government began actively supporting the American economy, throwing trillions of dollars into the markets. Insuring against the approaching inflation, institutional investors began to invest in cryptocurrencies. They are responsible for the Bitcoin rally, which has grown to $60,000 this year.

Given the growth of real estate in the United States by 20% year-on-year and the cost of energy more than doubled, the rate of price growth will continue to climb, and the demand for Bitcoin will increase.

BofA sees high volatility and regulatory pressure as the main risks for investors.

However, with the increase in capitalization, the volatility of Bitcoin decreases.

With regulation, not everything is clear: if you do not follow the Chinese scenario, then bringing the “Wild cryptocurrency West” to a civilized appearance will only increase its investment attractiveness. Jerome Powell recently announced the Fed’s unwillingness to ban cryptocurrencies, but noted the need to regulate the issuance of stablecoins and the DeFi market. This increases the likelihood of BofA’s forecast being fulfilled, and we are indeed at the beginning of a 30-year growth cycle.