Welcome to the last Digital Bytes for 2023. This week we review both the predictions Digital Bytes has made this time last year and which of those came to fruition. Having consulted some of our Digital Bytes readers for their own predictions, we will dust off our crystal ball next week and gaze into the future to try and give some thoughts of what 2024 has to offer.

Our 2023 predictions posted in Digital Bytes last December

(with predictions listed and outcomes in bold italics)

The financial excess of the last 14 years cannot be hastily unwound and there is still far too much excess cash pushing up prices. Commodity prices have fuelled inflationary pressure so forcing up interest rates and destroying the value of debt instruments (so called low risk investments). A note of caution from the biggest asset manager in the world, Blackrock, which has $9.57trillion under management, is: "We think long-term government bonds won’t play their traditional role as portfolio diversifiers due to persistent inflation."

(Unfortunately, inflation has proved to indeed be more stubborn, resulting in interest rates being higher than many wish and the Bank of England forecasting that, due to inflationary concerns, interest rates are unlikely to be reduced for a while yet.)

Chromway is a Swedish firm which conducted an ICO in 2018 and has been in discussions with various jurisdictions about digitising its land registry. Whilst its capitalisation has fallen from a high in November 2021 (in excess of $700million) to a current low of $40million, it is still trading and now is exploring projects in the metaverse. ‘Adapt and survive’ springs to mind….

(Correct, given the performance of Polkadot, up 100%, and Solana, up 922%, in the last year.)

The Law Commission for England and Wales is due to make an announcement in 2023 regarding its thoughts on digital assets from a legal standpoint and its legal rights/obligations. This will then allow UK regulators to focus on those digital assets that truly fall within their remit, as opposed to the FCA defining cryptos as being: “… cryptographically secured digital representations of value or contractual rights that use some type of distributed ledger technology (DLT) and can be transferred, stored or traded electronically”. Expect to see other jurisdictions offer greater legal clarity and then regulatory clarity on a wide range of digital assets. The Luna Capital, Three Arrows, FTX, etc, fiascos have only served to remind us of the need for stronger governance in the crypto sector, and 2023 is likely to see much greater regulatory scrutiny.

(The Law Commission provided legal certainty around digital assets: “The Commission's recommendations for reform and development of the law aim to provide a comprehensive legal foundation for digital assets” This clarification is important given that 80% of all global trade is conducted using English and Welsh law. Furthermore, in 2023, we saw the ‘Electronic Documents Act’, which Lord Holms of Richmond, suggested “was the most important law you have never heard of ”.

Coingeko lists 90 stablecoins (or what ought to be called ‘pegged’ coins) with a current value of almost $140billion. As we see more equities, debt instruments and funds being digitised, there will be greater need for digital methods of payment. Expect to see a number of jurisdictions issue their own CBDCs too. The FED’s recent finding on analysing a wholesale focused CBDC - project ‘Cedar’- to be a “….wholesale cross-border digital currency transactions supported by blockchain technology can deliver fast and safe payments”. It is hard to believe that the FED coin will be upon us soon.

(Stablecoins have rarely been out of the news as different jurisdictions roll out consultative documents and legislation. Even in December we saw two new € stablecoins from Society General and another from DWS and the market maker, Flow Trader: “According to Mastercard’s New Payments Index 2022, 33% of consumers in South America have used stablecoins for everyday purchases.”)

Private companies, such as public ones, often need capital to expand and thrive. Globally, there are 213million private companies compared to 41million listed companies. Look out for more blockchain-powered platforms to help make the buying and selling of private companies much easier.

(As highlighted by Kaleido: “The world of private equity, where groups invest in non-public companies, is undergoing a transformation thanks to the growing popularity of asset tokenization. Tokenization has shown potential to fundamentally alter how private companies raise funds, as it gives new investors avenues to enter markets that were previously inaccessible. Another example is the work that the Dutch bank, ABN Amro, has been doing using blockchain to create smaller debt issuance projects for smaller private companies.)

As the user experience (UX) becomes easier and more people wish to have greater control and access to their digital data (whether that be assets, currencies or health data) we will see a rise in digital wallets and self-custody. It has already been estimated that in the crypto sector alone, the market size for digital wallets will grow by 24.4% p.a. to 2030.

(Self-custody continues to rise, as a recent survey by Coinbase revealed 70% of crypto investors now store their own assets and not use a third party.)

We have already seen a number of global asset managers such as KKR, Abrdn, AllianceBernstein, JP Morgan and Franklin Templeton announce they are to offer digitised share classes, and expect to see many more. After all, currently most funds trade once a day with the dealing price calculated by the asset management firm. A digital share class enables investors to trade a fund 9 to 5, or potentially 24/7, with the price that investors can buy or sell being calculated by independent marker makers (not dissimilar to Exchange Traded Funds). Which version (the existing once a day pricing or 24/7 dealing in a fund) offers investors more choice and treats customers fairly? It is understandable why compliance, as opposed to sales departments, could well drive digitised fund expansion going forward.

(In our article on 5^th December 2023,“Asset managers: digitize or die?”, Digital Bytes highlighted a selection of asset managers in a wide variety of countries that are about to, or have already announced, they will be digitising their funds. Given that, funds are worth in excess of $145trillion globally, by 2025 (according to PwC), expect to see many more funds digitize.)

Accenture has announced it is to hire 150,000 people by using the metaverse. This is a sign of how the metaverse is increasingly being used by all types of businesses and not simply the on-line gaming community.

(According to Forbes, although whilst the naysayers still question the metaverse: “The metaverse is rapidly gaining traction, and businesses need to take notice”. Analytic Insights highlights eight crypto projects set to flourish in the metaverse.)

The ability to automate transactions and use smart contracts is expected to grow, with some predicting a growth of over 25% in 2023 compared to 2022. According to Glassnode, demand for blockchain developers remains strong with salaries typically starting at over $100,000 p.a.

(According to ARK’s research: “As the value of tokenized financial assets grows onchain, decentralized applications and the smart contract networks that power them could generate $450 billion in annual revenue and reach $5.3 trillion in market value by 2030.”)

The Harry Enfield character who sang about ‘Loads of Money’ represented what some saw as the ugly face of capitalism. Although there has existed the attitude of those "who die with most toys, win", greed or profit at any cost is being replaced with a more collaborative, inclusive style of business. There are many examples of firms using open-source software, greater interest in sustainability, and even new business structures such as decentralised autonomous organisations (DAOs), where being inclusive and building communities is a corporate objective alongside making a profit.

(The law firm, Ashurst, drew our attention to the IMF: “Harnessing the digital transition is a key theme of the IMF's 2023 Annual Meetings. CBDCs could help to increase inclusion.”)

There is a current loophole in the US whereby firms can potentially issue NFTs to raise capital; a concern is that could such a way of raising capital be seen as a security by the SEC. In the same way that many organisations that issued ICOs, the regulators may target the issuers of some NFTs.

(NFTs have arguably not been a huge topic of conversation. Yes, they have faced their fair share of challenges and critics regarding plagiarism but, nevertheless, NFTs have not been banned - yet organisations continue to experiment as how best to deploy them. In the US, the SEC has successfully fined a company for its engagement with NFTs.)

There has been considerable time and money invested in DLT/blockchain projects in the last few years and in 2023 we are likely to see these being rolled out and begin to gain widespread adoption. According to Market Watch, the “blockchain distributed ledger technology (DLT) market size was valued at $1480.33 million in 2021 and is expected to expand at a CAGR of 27.48% reaching $6353.19 million by 2027.” Look out for companies such as PEXA - “80% of conveyancing completions in Australia” are now run via the PEXA blockchain-powered platform which has handled over 11million real estate transactions in Australia to date.

(There continues to be more and more organisations using blockchain in many jurisdictions and industries globally. Blockchain Research considers: “Bear market/bull market, adoption of #blockchain technology continues unabated. Not having exposure to one of the largest structural trends of the next decade could be costly. 5 million daily #crypto users today, is likely to be 100m in less than 5 years.” )

Jurisdictions issuing digital visas will continue to rise as countries compete to attract typically mobile young, bright and ‘digital-savvy’ people. Click here for a selection of different jurisdictions granting digital visas. Our article - ‘The rise of digital nomads and decentralised autonomous organisations (DAOs)’ - revealed that digital nomads could be generating over $5.5trillion of income tax globally by 2030. Hence, the interest in enticing these mobile, digital-savvy high earners.

(In the UK, The Guardian newspaper has reported that “..one in nine (11%) US workers now describing themselves as one [digital nomad], predicting that, “ it expects the global number of digital nomads to top 40 million this year and rise to about 60 million by 2030.”)

SWIFT has announced: “Central bank digital currencies (CBDCs) and tokenised assets - digital tokens that represent ownership of all or part of a stock, bond, or even illiquid assets - could potentially be integrated into the financial ecosystem without causing disruption.” Given that SWIFT’s financial institutions’ customers have 4.5million bank accounts, does this mean that SWIFT already has the architecture to enable Peer-2-Peer transfers of digital assets? Will SWIFT, a platform known, trusted and utilised by 11,000 financial institutions, be adopted to trade digital equities, debt, funds, stablecoins, CBDC and other digital assets?

(“Without a doubt, SWIFT has the potential to be far more active in regards to digital assets trading and transmission and, while it issued this statement, Digital Bytes suspects there will be more to report in the future regarding SWIFT and digital assets: “ Brussels, 31 August, 2023 - Swift today released results from a new series of experiments that show its infrastructure can seamlessly facilitate the transfer of tokenised value across multiple public and private blockchains. The findings have potential to remove significant friction slowing the growth of tokenised asset markets and enable them to scale globally as they mature. While tokenisation is in its infancy, 97% of institutional investors believe it will revolutionise asset management and be a positive force in the industry[1], not least because of its potential to increase efficiency, reduce costs and, by enabling fractional ownership, open up opportunities to more investors.”)

Here is a selection of the most popular posts on LinkedIn during 2023 with the number of impressions in brackets:

• A report from the FCA confirms the demand for funds to be tokenised (2,985)
• Who will own the cross-boarder payment rails - DLT payments? Another FinTech taking a bite out of banks. DLT offers a more efficient way to make payments (3,501)
• In the last seven years since I have been engaged with blockchain and digital assets is, is what are the real use cases for the tech, and why would anyone both with digital assets? Well now (assuming you own one) it is possible to use your Rolex as collateral (21,523)
• Electronic trade document bill (3,833)
• Stablecoins and crypto to be regulated in UK (5,060)
• Tokenization enables real assets to be converted into blockchain-based assets (9,406)
• One in six asset managers to disappear in the next four years (2,493)
• Tokenization of tokenisation: ‘z’ v ‘s’, which should you use? (6,754)
• Jonny Fry joins ClearBank as Group Head of Digital Asset Strategy (12,521)
• Metaco acquired by Ripple (5,288)
• Tokenization of real assets (10,922)

Digital Bytes would be very interested to know what your predictions are for 2024.

And may we take this opportunity to wish you a peaceful and prosperous New Year which will hopefully be full of good times and much laughter.

This article first appeared in Digital Bytes (27th of December, 2023), a weekly newsletter by Jonny Fry of Team Blockchain.