From Existential to Irrelevance Risk

In the early days of cryptocurrency, existential risk was the dominant concern. We woke up in the morning wondering whether some government might ban it, or if some major stablecoin like tether could collapse, or if a major hack would wipe out an entire chain. But as crypto adoption advanced and became more integrated into the traditional financial system, these existential fears have largely faded. Especially with the approval of the ETFs in the U.S., the possibility of total collapse seems very remote.

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Crypto is not going away.

But the industry faces the next big risk on the way to a maturing asset class: irrelevance. The notion of irrelevance risk might just be the most pressing concern for the crypto market today.

Consider the comparison — however fraught with nuance — between crypto and emerging markets (EM). In the early 2000s, there was immense enthusiasm around the potential of countries like Brazil, Turkey, India, China, and Poland. EM assets were seen as the next big growth sector — remember the BRICs acronym coined by Goldman’s Jim O’Neill? One could walk into a meeting with a senior global portfolio manager and fluently discuss local markets in Indonesia, or politics in Mexico, or the bewildering monetary policy of the Turkish central banks. EM had so much promise, growth potential, and inefficiencies (remind you of anything?)

But, over time, interest in EM began to fade. Now, the sector is often relegated to smaller, more specialized teams, likely comprising a much smaller portion of macro funds’ asset allocation. Now, PMs spend their time on the big fish like semiconductors, AI, U.S.-European rates, and commodity cycles. Why? In short, EM assets just didn’t deliver returns.

Similarly, while there is still a great deal happening in the crypto space — such as bitcoin ETFs receiving inflows, Ethereum scaling solutions gaining traction, and Solana promising a faster, more scalable network — there’s a risk that none of this will translate into sustained growth. Just as EM had moments of brilliance but failed to capture long-term interest, crypto faces a similar challenge.

The good news is that the industry’s success depends more on its own efforts and less on exogenous factors such as regulation. Moreover, there are plenty of potential catalysts to jumpstart crypto’s future. Here is a non-exhaustive list:

• The rate differential between DeFi and traditional markets is improving as central banks continue cutting rates.

• Search for alternative returns as the Mag7 concentration broadens.

• Re-linking of BTC with the liquidity cycle.

• Less crypto-averse policymakers picked under the next U.S. presidency and a favourable regulatory trend in many other countries.

• Inflows picking up for BTC and (hopefully) ETH ETFs.

• Stablecoin projects scaling and calling attention to the sector.

• A few of the many games in development getting moderate traction.

Crypto doesn’t need a single breakthrough “killer app” to remain relevant but rather a series of incremental successes across decentralized finance, stablecoins, and innovative blockchain applications. Five-to-ten Polymarket-scale protocols with similar recognition might do it.

The future remains uncertain, but the possibilities for avoiding irrelevance are certainly within reach.

Note: The views expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.