Cryptocurrency: Worth Quadrillions If Just Replaces FOREX

in #hive-16792211 days ago

How big can cryptocurrency become?

This is a question that many seem to underestimate. Few appear to realize how big things really are out there. We seem amazed when the talk of billions turns to trillions. For this reason, many within cryptocurrency look at the market capitalization of gold and compare things to that. We believe that $8T-$10T might be on tap.

Sadly, this underestimates things greatly.

Some get a bit of insight when we discuss the tokenization of real estate as being the future. That is a $300 trillion industry ripe for disruption. Cryptocurrency is going to eventually take over that.

However, this still underestimates what is potentially out there.

Then there is the $750T-$1.5Q derivative market. Certainly this could be taken over by crypto also. Yet again, still underestimating the potential.

What about if we focus simply on currency. This is something that is at the core of cryptocurrency, especially with the emergence of stablecoins. The following will show the potential of something such as the Hive Backed Dollar (HBD).

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Source

FOREX

When it comes to markets, nothing compares to FOREX (Foreign Exchange). This is light years ahead of bonds ($100T) or US equites ($50T). It even tops both real estate and derivatives.

The FX market is unregulated. It is open 24/7, 5 days a week. This is an arena dominated by the large banks along with some major insurance companies and hedge funds.

In short, it is one of the potentialities of cryptocurrency.

So how big is this giant? Keep in mind, the entire market capitalization of cryptocurrency right now, according to coingecko, is just over $1 trillion. It peaked in November 2021 at around $3 trillion.

Here are a couple vital stats:

Forex markets had a daily turnover of $6.6 trillion dollars in 2019, up from $5.1 trillion in 2016.
The total value of the forex industry increased from $1.934 quadrillion dollars in 2016 to $2.409 in 2019.

Source

The daily trading volume is more than double the all-time-high in crypto market cap and more than 6 times what it is now. In other words, the entire cryptocurrency market needs a 6x just to equate to the daily volume of FOREX.

Then we have the 2019 value. We can presume it is higher today since global trade only keeps increasing. Nevertheless, we can use the number of $2.409 quadrillion.

Basically, we are looking at $2.5 quadrillion in value. That is a 2,500x from where cryptocurrency stands right now.

Add up derivatives, real estate, bonds, and stocks and they still fall short, by a wide margin, of the size and value of the FOREX market.

Decentralized and Unregulated

The FOREX market is both decentralized and unregulated. Banks interact with each other, effectively making it an interbank market. There are dealers who dominate in terms of the majority of the volume. Smaller banks go to these institutions to get the currencies they need. There are other participants such as insurance companies and hedge funds but they make up a minor part of the volume.

It is effectively a peer-to-peer system. That does not mean the distribution is throughout. With a few dominant players, the major investment banks tend to have an outsized influence.

Here again, we see the pathway forward of cryptocurrency. While there is a lot of talk about regulation, we see how much of what takes place in the financial world is the exact opposite. Between FOREX and the Eurodollar system, we are talking trillions in daily activity operating outside the scope of central banks and governments.

We have the models to follow so it really makes it easy to construct a system that replicates what is in place. The key difference is the removal of the banks as intermediaries.

FOREX is no different.

DeFi's Opportunity

Much was made about Decentralized Finance (DeFi) and the potential it wields. This is certainly true yet is also underestimated in its potential.

DeFi is targeting this market. It is the simplest form of infrastructure construction since it is really basic.

To illustrate this, it is important to note what the participants in FOREX are really doing. What is the service they provide?

Essentially, they are ensuring the right currency gets to where it is needed. This is why the dealers handle transactions that are in the hundreds of millions of dollars. They facilitate the moving of USD to EURO, for example, so that merchants in the EU get their payments in the latter. For this to be accomplished, the European banks that individuals are dealing with need EUROs on hand. This is where FOREX comes into the picture.

DeFi changes this up since individuals are not required to utilize a bank. Instead, if they need a particular currency, this entails nothing more than heading to a liquidity pool and swapping what is needed. Want to go from BTC to USDC, there pools for that. Of course, at the moment many use the centralized exchanges yet that will change with time.

Now that we spelled out the landscape, imagine for a second liquidity pools (and DEX) handling $6.6 trillion worth of transactions daily. This is obviously the level required to sustain global trade. Picture the opportunity for cryptocurrency, via DeFi, to take that over.

Eventually, it is likely this all will be driven by wallets. For example, it might be a situation where a merchant sets the wallet to a default currency, such as USDC, and all payments that come in are automatically converted to that.

All of this shows the tremendous upside for cryptocurrency, especially stablecoins. If these end up taking over transactions, imagine what that does to demand.

In our next article we will cover how stablecoins fit in and what the potential for HBD truly is.

For now, we should embrace the fact that the potential for cryptocurrency is much bigger than we imagined, even based upon today's numbers. This will only grow as more use cases are developed along with economic expansion globally.

Even a 1,000x on the market cap would only get us part of the way to the present FOREX numbers.


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The potential of cryptocurrencies can't be underestimated and it will only take time before we reach the same height as forex but if crypto keep developing at this pace it will surpass forex

It is a huge market with a tremendous amount of liquidity. This is very important. We need to keep building LPs to start the process moving forward.

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If the regulators are not successful in controlling both the Eurodollar and the Forex markets, it's either ignorance or just simply posturing that makes lawmakers confident thinking they can regulate cryptocurrency.

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Agreed. There is a difference though.

The major players in both markets are the banks. So it isnt surprising they go without regulation.

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Yeah, I think that's the major difference why they are making too much noise about regulating the cryptocurrency, but are silent about the first two markets.

Hanging around the crypto space this far has shown me anything is possible with cryptocurrency and the disruption it is capable of causing.
We are at a Trillion crytpto market cap over time these numbers will escalate especially with tokenization of Real Estate which is of higher possibility.

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Real estate certainly has enormous potential. The FOREX market is much bigger. Simply swapping of currency is big business.

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Whether some people want it or not, cryptocurrencies will grow more and more in the years to come. Great post by the way Thanks for sharing!

Most don't realise how Crypto can scale up and are thinking in single digits when it comes to the trillions. This is where most have no clue what sorts of values they are holding right now and underestimate their bag values. Every day the earning potential could be quite staggering with a little patience and consistency.

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Forex is huge not sure we will see that replaced lol let's get back to that 3 trillion first before we start to really celebrate anything again. What we have seen though is a large growth spurt and then held a decent amount of that value as we hold rather steady at the 1 trillion dollar mark.

Gold is an 11 trillion dollar market so still a far away away from just that. A lot of growth room needed again for sure. I'm curious what will ignite it next.

It will exist as long as the USD is around, which it will be for a long while (contrary to what most of crypto believes).

That said, as LPs grow, the foundation of crypto is being laid. Liquidity is vital.

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I must say I simply forgot about the immense Forex market that crypto could separate. We already took a big piece of the stock pie, so why not forex also? And to take this one step forward I think that crypto can elevate both of them by innovating this space as well.

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I am not sure we took a lot of the stock pie yet but with the development of infrastructure, we can see a lot of things being targeted.

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This is one of the recent activities that many Ghanian youths do. It is good to see them embracing blockchain technology too. Thanks for this sir.

While Defi is great and the returns are great, it looks like it supports the farming of tokens and then directly selling them off. We kind of need systems where people are willing to hold the tokens but the price impact for those haven't really gone up for those.

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