Market View
On June 22, Coinbase hosted the State of Crypto Summit in collaboration with the Financial Times, where the theme was “digital assets in a changing world”. Panel discussions covered a wide range of topics including the macro landscape, increasing economic freedom, institutional adoption, regulation and the intersection of AI and crypto.
On the macro landscape, the view was that the lingering effects of monetary and fiscal policies implemented after the financial crisis (2008) and during the pandemic (2020) have taken a toll on the global economy. For example, errors in inflation forecasting by central banks in the post-pandemic era have led to short-term cautiousness among central banks and may prolong the process of policy correction. Consequently, the prevailing uncertainties and misallocations across asset classes globally could create important opportunities for macro investors in the next five years.
Meanwhile, the prospect of potentially higher rates in the US has already been factored into market expectations, and it seems reasonably well-priced. Economically, the aftermath of the pandemic has created unprecedented challenges for central banks and economists. The inherent uncertainty of the situation has given rise to heightened fears of inflationary pressures or even a severe recession, though the situation is muddied. Consequently, it’s not entirely clear that easing by the Federal Reserve, if it materializes this year, wouldn’t signal underlying problems in the financial landscape.
The stock market's recent narrow rally, largely dominated by a select few mega-cap companies – reminiscent of the trends witnessed in 2020 – also raises questions about the breadth of the market rally. However, given the unique preconditions caused by deglobalization, political shifts-- one that and the rise of artificial intelligence, it is difficult to determine the potential implications of a concentrated market rally. The growing importance of macro factors in the post-zero-interest-rate era underscores the need for careful consideration of investment strategies, as well as the possibility of deviating from traditional buy-and-hold approaches.
With regards to crypto, the effects of the so-called "crypto winter" seem less persistent today than a year ago, as various jurisdictions and institutional players continue to embrace crypto-related initiatives. More than half—52%—of Fortune 100 companies have pursued crypto, blockchain or web3 initiatives since the start of 2020, according to research from Coinbase conducted in partnership with The Block. To usher in wider adoption and realize the full potential of the crypto industry, three things still seem necessary: (1) regulatory clarity, (2) blockchain scalability and (3) user-friendly interfaces.
Among institutions, the emerging field of tokenization presents tremendous opportunities for investors engaged in this space. This process involves encoding and standardizing assets such as stocks, bonds, art, real estate and music to facilitate cheaper and more efficient trading and settlement. Advancements in tokenization could lead to democratizing investment opportunities for individuals with otherwise limited access to such assets.
Finally, achieving regulatory clarity in the cryptocurrency industry necessitates comprehensive rules that provide consistent guidelines for the entire industry. In the US, the involvement of multiple regulatory agencies presents unique complexities that could be resolved through legislative action - one that takes a holistic approach toward the unique aspects of digital assets. The path to regulatory clarity requires a collaborative effort to ensure a market framework that benefits all participants and fosters global harmonization.
