The Adoption of Digital Assets

October 2021

Digital assets are heading for mass adoption. From grassroot crypto users to institutional DeFi traders, international usage of digital assets is growing steadily. In the last bull market of 2017/18 investors saw the potential of digital assets to disrupt value industries. In the current bull market of 2020/21, we can see that real adoption of this technology has begun. Bitcoin is a globally recognisable asset and has become legal tender and currency in El Salvador, where more people have Bitcoin Wallets than bank accounts. Unique Ethereum addresses are doubling every year. DeFi is being used, with over USD200bn of collateral locked in smart contracts. This month we will dive into the data to see where crypto adoption is taking place.

Bitcoin

Bitcoin is becoming globally recognised as money, resulting in the steady growth of active Bitcoin addresses. In the short term, Bitcoin address usage is volatile with periods of price appreciation naturally coinciding with sharp rises in usage, primarily from traders. However, zooming out over a longer timeframe, gradual network adoption is clear. Today, there are around 5 million active unique addresses, sending and receiving BTC.

Transaction volumes have also been on the rise. Bitcoin's daily transaction volume hit an all-time high of USD29bn on 26th September 2021. There have only been 5 days in history where the Bitcoin network has settled more than USD20bn of transactions. 3 of those days were in September 2021. To put this into perspective, on these days Bitcoin was clearing a greater transaction volume than all daily banking payments in Canada.

As Bitcoin adoption grows, so do transaction fees on the Bitcoin blockchain. We wrote last month about the growth of the Lightning Network, a layer 2 scaling solution for Bitcoin that allows for instant and near free Bitcoin transactions. Days after sending our last monthly letter, Twitter announced support for the Lightning Network, becoming the first major social network to enable the use of Bitcoin as a payment method. This is a big deal. If Twitter was a country, it would be the 7th largest in the world. The platform has over 200m daily active users who will soon be able to use Bitcoin to transact with each other.

Ethereum

As the leading smart contract platform, Ethereum has seen explosive growth. The number of unique Ethereum addresses has been doubling roughly every 12 months, and there are now almost 175m unique addresses. Of these, over 500,000 addresses are used daily.

As the leading platform, Ethereum has attracted the largest number of developers. A prominent Ethereum development environment, called Truffle, has now been downloaded over 5.5m times and it is estimated that over 200,000 developers are actively building and experimenting with dapps on Ethereum.

Decentralized Finance (DeFi)

DeFi is the first clear area of product-market fit in the digital asset ecosystem. Blockchains facilitate an “Internet of Value”, making them the perfect home for peer-to-peer financial use cases. The simplest metric to gauge the growth of DeFi is to look at the total value locked (TVL) in DeFi contracts. This is akin to AUM in traditional finance. The TVL of DeFi apps has grown from zero in 2019 to over USD200bn today. It has grown by 20x in the last year alone. Most of this activity takes place on Ethereum, although platforms like Solana and Terra are aggressively onboarding new users and many DeFi applications are porting onto these platforms.

From a geographical perspective, DeFi adoption is now a global phenomenon. After the US, Chainalysis ranks Vietnam and Thailand as countries 2 and 3 for the highest DeFi adoption. Using historic web traffic data, we can see that DeFi has evolved from being a Western pastime to a global fascination. Until mid 2020, the vast majority of DeFi web traffic originated in North America. Since then, the rest of the world has woken up and now makes up about half of all DeFi website visits.

NFTs and other sectors

2021 has been the year of NFTs. In August last year, 24,041 unique wallet addresses bought or sold an NFT. By August 2021, this number had increased tenfold, with 280,240 unique addresses buying or selling. With this increase in market participants, the amount of money being spent on NFTs has also exploded. In 2018, USD41m was spent on NFTs. By 2020, this had grown to USD338m. In the month of September 2021 alone, the amount spent on NFTs was almost USD800m.

NFTs, DeFi and other applications that make use of digital assets are now seeping into every industry imaginable:

  • Gaming: gaming is the perfect medium for trading NFTs. 44% of gamers have either purchased or traded game items on a blockchain.
  • IoT: IBM has spent over USD200m on IoT related blockchain initiatives and has over 1,000 employees dedicated to blockchain-powered IoT projects.
  • Central Bank Digital Currency: Over 80% of central banks around the world are exploring blockchain based central bank digital currencies, with 40% already running tests.

It is exciting to see blockchain technology being used and the data overwhelmingly supports the notion that we are headed towards mainstream adoption. However, we are still early in the life of this frontier technology. It is estimated that around 75m people are currently using blockchain technology. This is less than 1% of the world’s population. In contrast, 4.7bn people (60% of the world’s population) use the Internet. If blockchain technology represents the next era of the Internet, then we would expect that most Internet users will become users of digital assets leading to at least a 50x growth in user numbers.

At CMCC Global, we have front row seats to this emerging asset class. We look forward to seeing our industry expand into the further reaches of the global economy and public consciousness. We are excited to help shape this rapidly growing industry by identifying and supporting the leading teams, projects and protocols, as they capitalise on blockchain technology going mainstream.

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