Key trends in the digital asset marketplace for enterprise participants
Despite potential headwinds ahead, digital assets for enterprise markets are off to a buoyant start in 2023 – inevitably leading to a host of predictions and forecasts for the sector over the remainder of the year. For those short on time and looking for the top-line exec summary, we’ve combed through the analyses – including market reports from Fidelity, KPMG, Circle, Messari, Coinbase, PwC and more – to bring you ten key takeaways of things to watch in digital assets for enterprise in 2023.
Citing Pantera Capital, the digital asset sector is provenly resilient, and the industry enters 2023 with a level of strength and durability that 2022 has given it.
Globally, institutional interest was up again in 2022, translating into increased familiarity, improved perception, and more digital asset investments across the institutional investor class (see Fidelity Investments’ excellent survey report for further details).
It was therefore no surprise to see some of the world’s largest custodians and asset managers, including BNY Mellon and Blackrock, announcing their own digital asset solutions for institutional investors in 2022, matched toe to toe on the retail side by established digital asset services from big-name fintechs such as Revolut and Robinhood, as well as first-mover banks (BBVA) and wealth managers (Fidelity).
To keep an eye on in 2023: which new names – including the more traditional – will publicly enter the digital asset space this year, and at what point does ‘first-mover’ become early (or late) majority in different areas of the ecosystem?
As this all unfolds, there are increasing indicators that provision of digital asset services to retail investors is at an inflection point in 2023.
In a landscape still heavily impacted by the high-profile failures of crypto custodian businesses such as Celsius or FTX, many picked up on the potentially emerging divergence in the digital asset custody landscape.
At one side of the equation, this has meant a sharp uptick in user ‘self-custody’ and the non-custodial wallet solutions that allow customers to manage their digital assets themselves; while on the other, an opportunity emerges for known and established incumbent providers to leverage their brand to provide trusted digital asset custody solutions. If a customer is going to hand over custody of their digital assets, why not do so with a provider they already know and have experience with?
Evidently, it’s a point not lost on the banking sector, with KPMG’s 2022 banking industry survey finding 92% planning to implement blockchain-based processes, and 85% digital wallets for their customers as an important precursor to active digital asset offerings.
To keep an eye on in 2023: market share of digital asset custody solutions assumed via financial services incumbents.
Turning from divergence to convergence, one recurring theme to many of this year’s industry outlooks was the ongoing integration of the ‘tradfi’ and ‘crypto’ worlds. As VanEck outlines, this has a broad technology and finance angle to it, with a key focus area on the tokenisation of real-world assets and adaptation of public, open-source blockchain infrastructure to suit enterprise needs.
As Messari’s 2023 Theses confirmed, much of this will also rely on the rails provided by decentralised finance (DeFi), which is only in the very first innings of its realised potential when contrasting the $15 billion DeFi sector against the almost $23 trillion of the global financial services industry. Expect ‘institutional DeFi’ to become a much more prominent term and quickly advance from isolated headline experimentation such as JPMorgan’s first DeFi trade.
To keep an eye on in 2023: rapidly advancing realisation of traditional financial use cases on the public blockchain.
Turning more to the most immediate term, multiple commentators noted the ongoing explosion in stablecoin usage. While the use of digital assets for payments is an idea as old as cryptocurrency itself, the surge of the stablecoin has plugged a short-term adoption gap in providing the advantages of a blockchain-based asset in terms of speed, cost and settlement while benefiting from the relative price stability of a referenced fiat asset (at this point, in time, almost exclusively the US dollar).
Circle’s 2023 State of the USDC Economy report provided some particularly worthwhile context to the $7+ trillion in value settled using stablecoins in 2022. In the ongoing utility debate, payments look like a plausible nearest-term digital asset win for use cases encompassing peer-to-peer and merchant payments; borderless money management; and low-cost remittance.
To keep an eye on in 2023: stablecoins finding more adoption and product-market fit as an additional payment option with new commercial opportunities.
Speaking to utility and adoption, many longer-term views pointed to the brand-dominated landscape of mass digital asset adoption in the years to come. PwC, for instance, envisages in its 2023 lookahead a future in which NFTs and Web3 are everywhere yet infrastructurally speaking invisible to the end user, leading to a surge in adoption. This will all be facilitated and routed through merchants, social media and consumer-facing companies that want a larger role in the digital economy. In this sense, the perspective mirrored that of Coinbase Institutional, which referenced NFTs as a future ‘differentiated form of marketing spend’ and Messari’s acknowledgement of tokenised fashion and the massive brand partnerships – featuring such names as Starbucks, Nike and Disney – that were forged in 2022. From an enterprise perspective, businesses and enterprise providers will be at the heart of these developments, and need to think carefully about the infrastructure they require to provide next-generation consumer experiences.
To keep an eye on in 2023: how do forward-looking brands seamlessly integrate web3 solutions to capitalise on new business opportunities?
This chimes nicely with the analogy provided by Arca Funds in its 2023 outlook, which places the future development of digital assets squarely on enterprise applications. In this view, blockchain technology is likely to mimic the wave pattern observed in the adoption of the internet, with the first wave reserved for the native ‘dot coms’ and the second wave of mass permeation achieved through implementation from everyday businesses. By far the biggest slice in that enterprise pie – outlined in far greater detail in the Cambridge Centre for Alternative Finance’s Global Enterprise Blockchain Benchmarking Study – is the financial sector. As we saw in our own Crypto Acceptance report at the end of last year, financial institutions continue to experiment with blockchain as a lever for efficiency inside of their businesses and to conduct wholesale transactions, and this will likely continue to form a key pillar of the enterprise landscape.
To keep an eye on in 2023: how do businesses in all industries – and financial services in particular – explore and utilise blockchain within their own operations?
Returning to a more investment-focused view, consensus is that digital assets are here to stay, with powerful narratives and an optimistic long-term outlook provided for the two digital asset market leaders, Bitcoin (BTC) and Ethereum (ETH). As articulated by Messari and VanEck, primary Bitcoin narratives emerge against the backdrop of de-globalisation, de-dollarisation and a gradual splintering in the poles of power, and the search for new forms of commonly acceptable ‘outside money’. In contrast, ETH is fuelled by a more positive tech adoption narrative, with multiple commentators pointing to its improved ESG credentials, disinflationary trajectory and scheduled enabling of staking withdrawals as tailwinds for the asset in 2023.
Outside of the majors, analysts remain more uncertain, with Coinbase Institutional pointing to an unfolding process of ‘creative destruction’ – an analogue to PwC’s conceptualisation of the disruptive tech cycle, and a thorough cleansing of the industry in the downturn setting the scene for a new and generally more utility-anchored phase for the digital asset class.
To keep an eye on in 2023: do the major digital assets continue their early-year momentum or fall victim to macroeconomic headwinds in the latter half of the year?
In all of this, the landscape of this year is set up as one of careful information-gathering and self-education. Continuing its 2023 outlook, Arca Funds pointed to an evolution towards blockchain learning becoming an established – and needed – part of professional development and, per Deloitte, 78% of financial services executive teams believe there is a compelling business case for the use of blockchain, digital assets, and/or cryptocurrencies within their organisation or project.
Even if organisations are not yet making active moves in the space, digital assets are emerging as an area to be monitored, information gathered – and strategies to be honed as and when the opportunities present themselves.
To keep an eye on in 2023: how do organisations address business intelligence needs to keep abreast of digital asset opportunities and developments in support of their business strategy?
Of course, there remain certain hurdles that are accepted as well-known points of attention for any considered engagement in the digital asset space.
As any with an ESG mandate will be familiar, one of these is of course the imperative to decarbonise digital assets as quickly as possible and to have robust solutions available to compensate for any existing climate impact, something which has formed a point of focus at Zumo and which we have been engaging extensively with over the last year.
Unsurprisingly, the theme was picked up in multiple outlooks for 2023, with Messari offering a consideration of the headline opportunities – and challenges – and A16Z zeroing in on some of the broader blockchain energy positives that could be delivered in areas such as decentralised grids and carbon and REC marketplaces.
To keep an eye on in 2023: shifts in the blockchain climate narrative towards a net positive, and a broader choice of robust, effective mitigation solutions.
Finally, an outlook summary would not be complete without a consideration of the rapidly evolving – but still patchwork – global regulatory landscape for digital assets in 2023. Noted in almost every report and survey as ‘one to watch’, this is a multi-year proposition that won’t all be settled in 2023.
However, 2023 does promise to be a big year in bringing clarity to at least some of the ‘closest-by’ items such as, for instance, the issuance and use of payments stablecoins. Having declared itself a cryptoasset hub, it is a particularly big year for those based in the UK, as authorities prepare to draw the first strokes of a general crypto regulatory framework under the auspices of the Financial Services and Markets Bill. This promises to provide the UK with some first assembled rules of engagement similar to the EU’s Markets in Cryptoassets (MiCA) regulation – watch this space.
To keep an eye on in 2023: will jurisdictions with dedicated digital asset frameworks experience more or less innovation and adoption compared to other areas (e.g. the US) where enforcement action has been significant but a comprehensive framework is yet to be established?
All in all, we can be sure that 2023 will be another year of dynamic action and careful behind-the-scenes preparation in the digital assets sector. At Zumo, we believe the next wave of opportunity and adoption will be significantly institutionally and business-driven, and we look forward to engaging with our partners on the incredibly broad spectrum of activity currently underway under the enterprise umbrella as the sector charts its course for 2023.
Interested in defining a digital asset strategy for your organisation? Get in touch with us to arrange a no-obligation initial consultation on how we could help you effortlessly embed digital asset products into your existing platform.