Over the past few years, we hear about mass adoption of cryptocurrency. The developments in the space have led to a positive sentiment for the applications of blockchain technology on a large scale. However, the outlook is still somewhat vague. Where do we really stand at the moment? Is a Bitcoin standard realistic? Does the current economy expedite or hinder mainstream adoption?

In this article, you’ll get answers to these and many more questions. We apply a bird’s eye view to the current state of the economy, while zooming in on the progress of Bitcoin, Ethereum, and CBDCs. After reading this article, you should be able to differentiate FUD from facts, and realize that we might be closer to the ideal future than we actually think.

Current economic outlook

To understand the current state of our economy we need to rewind the clock to 2020, when Covid19 was first declared a pandemic. The extended lockdowns of businesses and the restrictions of citizens created catastrophic consequences for the economy. People were left in need of money, since their only lifeline was now blocked on government’s orders.

Soon enough, these same governments decided to “stimulate” the economy by printing and handing out freshly printed money. Estimates for exact amounts printed range. Some estimate that the US printed as much as 40% of the total USD currently in circulation. For the financially illiterate, free money sounds like a good deal. For those of us who know about inflation, this was a different story.

Inflation started out as transitory, but slowly became the new reality. While governments of western countries attempted to shift the root of the problem towards Russia, more people started to wake up to the uncomfortable truth. The actual inflation numbers based on CPI are high, but grossly missaccurate. A quick look at groceries and real estate tells a more realistic story.

The reality of inflation has turned many away from the banking system, looking to find a way to preserve their wealth. Naturally, precious metals and crypto are the first that come to mind. However, given the complexity and shortage of physical gold, the most convenient “exit valve” from the system is that of decentralized money.

Bitcoin has proven this point over a 12-year period demonstrating that even countries (El Salvador) can see benefits by adopting a Bitcoin standard. As a result many more nations are considering the shift. The US dollar is weak, and a solution is needed.

Bitcoin adoption over time

Bringing it back to mass adoption of cryptocurrency, let’s take a closer look at Bitcoin’s growth, and see how it can act as the solution against a collapsing economy.

Interest over time

Awareness-stage interest for the industry as a whole has declined in the past year. On the graph below you will see the search volumes for several key terms in the crypto industry over the past five years. Can you spot the correlation?

The final months of 2017, interest for Bitcoin exploded, while other sunsectors laid, basically, flat. In 2021 we see renewed and longer-sustaining interest in Bitcoin, albeit not on frenzy levels. The interest then returns to a higher low, while other terms, especially Ethereum receive more attention. This chart gives us some important information. First, the “mania” phase for new investors has not occurred yet, despite Bitcoin being way higher than its 2017 peak. Second, interest has spread to the subsectors of blockchain-applications and the industry as a whole. Both of these conclusions point towards a continuation of bullish sentiment, and thus mass adoption of cryptocurrency.

Active addresses and their behaviour

Most on-chain analysts like to review wallet data to get a better idea of the network’s growth. While the metric is not very accurate (one person can create > 1 wallets), it is a good indicator of increased activity over time.

Bitcoin’s non-zero balance wallets increased rapidly through 2019-2020, until mid-2021, when we saw a correction in its price. During the peak, we saw nearly 35 million active addresses in the network. In 2022, this number reached new highs, counting 40+ million wallets, according to Glassnode.

The same is true for the number of total addresses, which keeps on growing steadily, not taking corrections into consideration. At the moment, we are close to one billion wallets.

And what are all these wallets up to? When looking at exchange outflows, we are at an all-time low – only 6% of all available bitcoin are on exchange wallets, while the majority is held in non-custodial “offline” wallets. On top of that, 63% of BTC’s circulating supply is illiquid and hasn’t moved in more than a year.

Distribution dynamics

There is another trend worth mentioning. Whale addresses (holding >10k BTC) are continuously decreasing which could indicate a more democratized distribution of available coins. Of course, this chart could be inaccurate as many whales are known to distribute their coins in multiple addresses. Historically, however, such patterns indicate bullish momentum ahead. And we all know that mainstream adoption occurs in bullish conditions.

Jack mallers announced partnerships with companies who are willing to accept crypto as form of payment.

Ethereum is following the trend

Despite the recent news that the Merge will not likely occur in June this year, Ethereum has shown lots of strength and adoption as well.

  • Supply on exchanges is at an all-time low (only 10% available), while a growing amount of tokens are already locked to receive rewards when the Merge occurs.
  • DeFi and GameFi are majorly dependent on Ethereum’s blockchain, making the network appealing to a growing audience pool.
  • Price predictions from leading industry experts (e.g. (Arthur Hayes, Su Zhu, Tetranode, and others) expect ETHs short-term price to reach 10.000-15.000.
  • Smart contracts technology is being adopted at a growing rate by many industries.
  • According to Raoul Pal, Ethereum’s network effect is closelly following that of Bitcoin with one cycle difference (by measure of Metcalfe’s law). Now imagine what is to be expected one the Merge to PoS decreases the issuance of new Ethereum by 90%.

While not our primary focus on this article, Ethereum has massively increased the speed of which we can expect the mass adoption of cryptocurrency to occur. Most experts believe that we will reach this point by 2030 but, until then, we can expect a turbulent journey.

Gradually, then suddenly

If you read this far you might be wondering when the first signs of economic collapse will occur. After all, it seems like the main argument that would lead to an expedited mass adoption of cryptocurrency. But wait… there might be another, faster way this occurs. And it doesn’t involve everyone around you losing their life savings.

The concept we hint to is more commonly known as the Bitcoin supply shock. According to this theory, the decreasing number of Bitcoin (& Ethereum) available on exchanges will eventually lead to a massive amount of demand without the matching supply to level it out. With all available Bitcoin bought and taken off exchanges, there will be a massive shortage, which in turn will lead to a sharp increase in price. This increase will eventually level out once long-term holders start to sell their coins on exchanges.

But what price point will make them sell? Many estimate that Bitcoin might be worth more than a million dollars. With roughly 27 million Americans own cryptocurrency, and less than half of them owning Bitcoin, what will this do to the adoption curve?

The rate of adoption is similar to that of the internet, albeit much faster in its timeframes. The early adopters usually form an 8-10% of the population, before FOMO and accessibility enable a massive surge on new participants By many, this type of adoption curve is described with the phrase “gradually, then suddenly”. And in the case of Bitcoin, we might be months away from the surge. The impending Bitcoin halving of 2024 certainly makes this scenario more realistic. Until then, however, we can look at the adoption of the internet and develop strong conviction. This will help us overcome stormy weathers (a.k.a. large price fluctuations).

CBDCs and what they mean for the future

Despite the bullishness that seems to lie ahead of us, there is also the topic of CBDCs. Governments and banks don’t like the idea of crypto investors “escaping” the system. With carefully structured propaganda they label Bitcoin holders as selfish psychopaths who abuse energy resources for profit.

Central Bank Digital Currencies are the attempt of governments to “fight” the growing adoption of cryptocurrencies head on. In short, it refers to a monetary system that is similar to that of Bitcoin – based on virtual currency – but that is nonetheless highly centralized, inflationary, and limited.

Financial experts refer to the concept as “coupons” instead of money, since the way you will be allowed to spend your CBDCs will come directly from the issuing bank or government. And the ability to actually do so will depend on your behaviour and ability to meet your responsibilities (social credit score anyone?).

China has already released the digital Yuan, a CBDC that can be used through a mobile app without the need of an internet connection. Ukraine has also issued a CBDC that is available for all residents that meet certain criteria. All in all, the concept seems to be bearish for the markets. Not because it will work better as a form of currency or an investment but due to eventual regulations that would make cryptocurrencies inaccessible or socially improper.

Mass adoption of cryptocurrency – Summing up

As we wrap up this article, let’s briefly look at the main points highlighted herein:

  • Bitcoin and Ethereum are growing in terms of new users, all while the existing supply on exchanges is decreasing.
  • Distribution of coins is becoming more democratic, which means there is less chance for price manipulation by whales.
  • A supply shock in both BTC and ETH might expedite mainstream adoption of cryptocurrency.
  • CBDCs are a real threat to the accessibility and sentiment towards BTC. But even then, countries can only exclude themselves from the network, they cannot shut it down.