RBC Report Outlines Cryptocurrency as Potential $10 Trillion Market

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Cryptocurrency is approaching that point where every major financial institution has to do their due diligence in addressing what kind of impact it could have in future markets.

The Royal Bank of Canada (RBC), one of Canada’s largest banks, has done just that with a new report that labels crypto as a $10 trillion bull case. In this case, the report’s author, Mitch Steves, believes that the current crypto market cap of over $350 billion will rise exponentially and savvy investors still have time to get in.

The report, titled Cryptocurrency & Blockchain Technology: A Decentralized Future, goes through several cases as to why cryptocurrency will grow to a multi-trillion asset class. A big part of how decentralized currency can grow involves the building of a “world computer” which is essentially a secure and open-source market where clients can access their holdings easily.

Steves goes on to describe how the future of transactional services should ultimately be decentralized. There are risks right now, but the positives far outweigh any kind of potential negative, especially if technology continues to exponentially grow.

As cryptocurrency and blockchain technology is still in its formative years, there is an inherent opportunity to flip what a traditional and centralized development market environment looks like. This is known as the fat protocol theory, something Steves brings up but is not entirely new—Union Square Ventures described it back in 2016. Right now, when looking at internet-based companies like Facebook and Google, they are worth far more than the actual protocols they are built on, including TCP/IP, SMTP, and HTTP. The real flourishing has happened with the applications that sit on these protocols.

Screen Shot 2018-01-03 at 6.06.45 PM
A thin protocol vs. fat protocol illustration, from Union Square Ventures.

However, in a decentralized environment, the value will be in the protocol layer. Consider this: the cryptocurrency market is worth over $350 billion, but the biggest crypto and blockchain companies are only worth a few hundred million dollars, and even valuations like that can be wildly overstated. In a fat protocol environment, investors can buy protocol-based tokens, maybe over actual application-based tokens, which will allow for greater value capturing on scalability.

“We see that the protocol layer will capture more value than the applications,” wrote Steves. “As the application becomes successful, the protocol layer captures more value, which then creates more interest in additional decentralized application development.”

On top of this, the report states that the current cryptocurrency mining market will be here to stay as more companies invest in equipment, in addition to ASIC-mined as well as GPU-mined currencies driving up electricity consumption.

The report finishes by describing that even though scalability of blockchain networks is being addressed, it is still one of the major hindrances limiting expansion and integration, along with government intervention.

Reports like this one serve to provide a glimpse into how major financial institutions, especially those in Canada, see cryptocurrency as a real asset class. Though Steves is just one analyst, the idea that crypto could become a $10 trillion bull case, and that he was able to write in-depth about its scaling options and potential setbacks, bodes well for Canadians who one day hope to see bitcoin, ethereum and other kinds of currencies as legitimate investments.

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