The impact of the recent US election goes beyond politics. Given Trump’s pro-crypto affinity, much is expected for the digital currency market in the future.
Despite this association with the United States, UK investors will want to keep an eye on emerging crypto trends.
Institutional Adoption
Large financial institutions (many of which are anti-crypto) adopting crypto has been an ongoing trend globally. However, the US has been leading the way while the UK lags. Despite being a hub for regulated and innovative digital assets, a cryptocurrency exchange-traded fund (ETF) is yet to be available in the UK.
As with many countries, UK regulators remain cautious about crypto-based ETFs due to the volatility risks of this market. Still, institutional investors can capitalise on exchange-traded products (ETPs) from the likes of WisdomTree and 21Shares in the UK.
If more ETF approvals in the US occur, this would likely give UK regulators a second look. With the UK having some of the highest crypto adoption in Europe, it stands the best chance of leading a wave of ETFs.
Central Bank Digital Currencies
Any government would benefit from a central bank digital currency (CBDC), as it would provide more security and convenience to the financial system. The Bank of England (BoE) has teased the prospects of such currency. As early as 2023, it published a “Consultation Paper” on the need for a digital pound, which received more than 50,000 positive responses.
Still, the central bank has made it clear this currency would be government and not crypto-backed). However, it is likely to use some blockchain technology.
The BoE is still determining whether it will ultimately introduce its CBDC. However, it is currently in the design phase, testing how such an idea could work in real life. Should it launch this currency, it has stated that the earliest time would be around the second half of the 2020s decade.
ESG and Sustainability
The crypto market began as an industry heavily reliant on computer mining. Despite the benefits, this digital currency production method has proven environmentally unfriendly. Mining coins like Bitcoins consume the same energy as some countries annually.
Over the years, many projects have adopted proof-of-stake (PoS) mechanisms in favour of proof-of-work or mining. The PoS system aligns with the UK’s (and many other nations’) goal to reduce its carbon footprint. For those who still prefer mining over PoS, there is also a trend of using renewable energy like solar and green hydrogen.
Ultimately, this focus on sustainably creating coins aligns participants more with ESG (Environmental, Social & Governance). Crypto producers will likely have to disclose their environmental impact, governance structures, and social contributions by UK regulations.
Artificial Intelligence
The influence of AI reverberates across a seemingly endless number of industries, including the crypto space. Anticipated growth should unlock new opportunities and use cases for all participants.
The trading environment is among the first to continue to innovate with AI. More specifically, it uses algorithmic trading through AI-powered trading bots. With machine learning, these should be able to execute trades at much faster and accurate rates while processing tons of data.
Another example is portfolio management, which is present on platforms like OANDA. Investors are leveraging AI for more personalised and tailored investment strategies, as it can thoroughly analyse risk profiles and goals. Furthermore, this technology can rebalance portfolios according to market conditions to ensure risk management and optimal returns.
Interestingly, AI has played a role in optimising mining operations to reduce energy consumption and increase profitability. Miners can adjust specific settings like cooling and electricity usage using predictive models through algorithms. Finally, AI will increasingly become useful in PoS networks by identifying the best validators with the help of numerous data and providing different staking strategies to maximise rewards.
More Scalable and Interoperable Blockchains
Crypto followers will be all too familiar with the so-called blockchain trilemma. This trilemma refers to simultaneously achieving the three crucial parts of decentralisation, security, and scalability.
Projects in crypto continue to be increasingly complex. Layer 2 solutions help improve the overall product and make it as user-friendly as possible. Popular examples include Optimism and Arbitrum, which are prevalent on Ethereum.
These are said to lay atop “layer 1,” (in this case, Ethereum), lightening its load to reduce transaction fees and processing time. In doing so, the overall system becomes more scalable.
Another long-standing challenge in crypto is the lack of interoperability — in other words, the ability for blockchains to communicate with each other. Polkadot and Cosmos have been the leaders in this subsector for some time.
Chainlink is an even more unique example, using “oracles” to connect on-chain and off-chain platforms and, thus, opening many use cases. These include asset tokenisation, insurance, decentralised finance, and climate markets.
Staying Ahead of The Curve
2024 has been another year exemplifying the rapid evolution of the crypto landscape. Regardless of the US elections, trends would have continued emerging. These include greater institutional adoption, central bank digital currencies, and artificial intelligence.
Ultimately, staying updated with such developments aims to capitalise on new opportunities and techniques to manage risks.
