As cryptoassets continue to become increasingly mainstream, and become integrated into both daily payments and financial instruments, the following questions needs to be asked; just what exactly is the future of the space? Bitcoin and other crypto were designed, developed, and launched as a mechanism to create a parallel financial system that would enable peer-to-peer payments without the need for intermediaries. The reality of the situation, however, is quite different at least as far as bitcoin is concerned; bitcoin has been surpassed by stablecoins and central bank digital currencies (CBDCs) for transactional purposes.
The point of view and perspective that bitcoin is an investment rather than a currency or transactional tool might be an unpopular one in some circles, but is one that is virtually undeniable. As new applications and iterations of cryptoassets have emerged in the marketplace, the dominance and leadership of bitcoin continues to challenged via the numerous crypto applications running on the Ethereum blockchain.
All of that said, there are several trends and use cases for bitcoin and other cryptoassets that are worth noting, and are playing a critical role in how these instruments are – more and more – becoming part of mainstream financial conversation.
Bitcoin bonds are here. The coming issuance of a $1 billion bond collateralized and supported by bitcoin by El Salvador is a clear sign that bitcoin (and other crypto) are continuing to permeate the fixed income space. Although the bond has yet to be issued, and there are several factors that might complicate the issuance, payments, and retirement of this instrument, the fact that such instruments even exist is a clear sign of how mainstream these assets have become.
The global debt market is much larger and actually more interconnected than the equity market, although equities typically receive more headlines and discussion. Even with the approval of the first ever bitcoin exchange traded fund (ETF), the potential for bitcoin and crypto bonds is a significant story for both nations and corporations. The fact that the proceeds from this bond are going to assist with the construction of the world’s first crypto city is icing on this proverbial cake.
Bividends. Just within the last several weeks the first ever dividend denominated in bitcoin – “bividends” – have been issued and paid out to stockholders of BTCS, Inc. Dividends, clearly, have long been a part of the financial markets conversation, but have always been paid in either fiat currency or equity shares. The paying of dividends in the form of bitcoin is noteworthy for several reasons, namely 1) it is the first time such an event has happened, and 2) it further reinforces the role of bitcoin as an institutional asset class.
It remains to be seen how widespread this practice will become, or if organizations such as Tesla
Taxes. As cryptoassets and crypto transactions continue to become increasingly mainstream, and enabled by large international payment processors, the current state of crypto tax policy is worth a second look. Under current guidance from the Internal Revenue Service (IRS), anytime a cryptoasset is involved in a transaction, exchange, or trade there is a tax reporting obligation and potentially a tax liability. As bitcoin and other cryptocurrencies become more integrated into financial transactions this is an issue and matter that needs to be addressed. Simply put, cryptocurrencies will never achieve their potential if every time a cryptoassets is involved in a transactions there is a tax obligation.
That said, it is encouraging that the regulatory conversation is seeming to evolve and mature; no longer are cryptoassets universally treated as mechanisms for illegal transactions. Tax policies, and the accounting rules that accompany the tax treatment of financial instruments, are a multi-faceted and complicated conversation that requires input from numerous stakeholders. The fact that bitcoin and other crypto are being utilized by major payment processors should hopefully lead to more favorable tax treatment going forward.
Cryptoassets are a fast moving and rapidly evolving asset class, but as quickly as the sector has matured and expanded, there are several significant developments that are worth of a second look. While the original idea of blockchain and cryptoassets might have been to construct a separate and parallel financial system, crypto is – more and more – an aspect of the fiat based financial ecosystem. Even as these developments continue, and crypto is utilized by nations and countries the world over, it is worth noting that it is still early days; crypto has a long and promising journey laid out before it, and financial markets have an important role to play in this process.