Original author: Mauricio Di Bartolomeo
Original text compiled by: BitpushNews Mary Liu
From the emergence of TradFi arbitrage interest to the screening of decentralized exchanges, Ledn co-founder Mauricio Di Bartolomeo predicts the changes that may happen after crypto lending recovers.
Much of the market turmoil during the last bear market was caused by overexpansion or crypto lender bankruptcies and business failures, and as Bitcoin begins to rise again, competition among existing crypto lenders will heat up. This means more innovation is needed in lending products and services, as new market entrants from traditional finance and cryptocurrencies look to get a piece of this high-demand industry and risk.
The rebirth of the crypto lending market will also bring exciting opportunities for end users and investors, and drive the continued evolution of the digital lending ecosystem. Here are seven aspects of the track to watch in the coming year:
Be wary of the rise of overnight lenders
As more users enter the space, new and old competitors will try to fill the void left by defunct crypto lenders such as Genesis, Voyager, BlockFi, and Celsius. They will try to sell clients the same promise of high returns but with little transparency or risk management, as failed lenders did before. There will be more unreliable opportunists trying to enter the market and try to capture share.
As prices skyrocket, don’t forget to ask the right questions! Can lenders survive 2022? Are they “new” to this field? Investors should carefully understand how returns are generated, ask for evidence that lenders correctly account for client assets, and scrutinize their risk management policies and track records. If you don’t get a clear disclosure or answer, be careful!
Trading volume will be concentrated in regulated venues
Bitcoin (BTC) and Ethereum (ETH) spot trading and derivatives trading volumes will move from unregulated to regulated venues. Until now, a large portion of cryptocurrency trading volume has been handled through unregulated platforms that many times do not conduct KYC (Know Your Customer) checks, such as decentralized exchanges and P2P marketplaces. With the introduction of regulatory transparency and the emergence of spot Bitcoin ETFs, much of the trading volume will now shift to regulated venues as traditional financial players gain the necessary transparency to be active in these markets.
In other words, spot trading volume will move from decentralized exchanges such as Uniswap to venues such as Coinbase and Kraken, while derivatives trading volume such as options and futures will move from overseas exchanges such as Binance and ByBit to the Chicago Mercantile Exchange and New York Stock exchanges (ETF products).
Arbitrage Opportunities with Bitcoin ETFs
The approval of a spot Bitcoin ETF will lead to a massive expansion of the Bitcoin lending market, as traditional finance and cryptocurrency market makers will be able to arbitrage the spread between various investment instruments as well as spot BTC prices. Until recently, some of the larger TradFi market makers did not participate in cryptocurrencies or Bitcoin because arbitrage opportunities forced them to participate in unregulated venues.
With places like Nasdaq offering spot Bitcoin ETFs, the Chicago Mercantile Exchange offering Bitcoin derivatives, and regulated exchanges like Coinbase and Kraken offering spot Bitcoin, institutions now have all the tools they need to make markets. There’s one more thing they need – a physical inventory of Bitcoin.
Projects where I am actively involved in the Bitcoin lending market are already starting to see this impact. This evolution will not only enhance the appeal of Bitcoin lending as an investment option, but will also legitimize the digital asset market and contribute to overall stability.
The comeback of crypto debit cards
We may see a renaissance in crypto debit cards due to increasing regulatory clarity and continued efforts by reputable and established industry players. Specifically, Visa, Mastercard, and Circle have been relentlessly investing in solutions that are increasingly integrated with crypto platforms and digital assets.
These solutions blur the lines between digital assets and traditional payment channels, allowing users to spend their holdings directly without converting to fiat currency.
Investors will demand faster, cheaper deals
As the bull market gains momentum, rising transaction fees will likely drive the growth of Layer 2 solutions and more efficient blockchains (which often happens during bull market cycles). Innovations such as Bitcoin’s Lightning Network and scaling solutions such as Ethereum’s Polygon are prime examples of technologies designed to enable faster and cheaper transactions.
High-throughput blockchains such as Tron and Solana will also grow in popularity, and these ecosystems are expected to mature and gain wider acceptance. This evolution will create numerous opportunities for future product innovation and investment.
Growing demand for stablecoins
The stablecoin market will grow significantly, with total supply expected to likely exceed $250 billion. Tether, in particular, is expected to remain dominant, controlling over 50% of the market share due to its widespread global adoption. The market’s growth reflects growing demand for digital assets that combine the advantages of cryptocurrencies with the stability of the U.S. dollar.
Governments will try to compete with these currencies with their own central bank digital currencies, but I don’t think CDBC will get the “hot response” that governments want. Citizens in places like Nigeria and the Bahamas have already rejected several attempts, and this trend is expected to continue.
DeFi regulation continues to strengthen
This bull cycle will be significantly different from previous ones, mainly due to the expected increase in regulation of decentralized exchanges and lending platforms. Financial regulators around the world are fully aware of the increasing traffic on crypto platforms and their importance in the financial sector cannot be ignored. Many of these platforms have fully centralized operations teams and will become victims of regulation.
In practice, all of this will lead to authorities taking action on some DeFi projects. This radical stance is likely to create some “DeFi martyrs” who will bear the brunt of regulatory crackdowns. Once these nominally “decentralized” platforms have to start doing KYC and comply with regulations, trading volumes will shift to fully regulated platforms or truly unregulated decentralized venues.
The next bull market is not only related to financial growth and innovation, but also to the maturity of the industry. We are building the future of finance step by step.
