Crypto bros need to temper their hopes for 2025

While Trump is not interested in a digital dollar, other countries’ ardour is also cooling. Photo: Bloomberg

Crypto bros are heading into 2025 with great expectations. For the $135 million they have donated to President-elect Donald Trump and dozens of successful congressional campaigns, they want unhindered access to the global banking system and an end to lawsuits against the industry by the Securities and Exchange Commission. A strategic US reserve dedicated to Bitcoin will be the icing on their cake.

Don't be surprised, however, if the actual outcome turns out to be less than a libertarian feast.

For one thing, the European Union is going the other way. New EU rules, which kicked in 30 December, require large stablecoins — tokens that facilitate trades in Bitcoin, Ether and other risky digital assets by converting 1:1 into dollar, euro or other fiat currencies — to park 60% of their reserves in bank accounts. That level of entanglement with the banking system will end up "creating an incredibly big systemic risk," Tether Holdings Ltd. Chief Executive Officer Paolo Ardoino has argued. But noncompliance will make Tether's USDT, the leading stablecoin, difficult for European investors to access. Banks are ready to slip into the void with rival products. Traditional finance may score a win over crypto firms. 

And then there's Asia, with its own plans for harnessing the power of blockchains. China, in particular, wants to employ it to resist both the dollar's hegemony and Silicon Valley's utopian idea of decentralised finance. All in all, 2025 may end up being a potentially tumultuous year for firms at the intersection of money, banking and technology. Here are the five emerging trends to watch: 

An iron curtain is descending

The world of money is splintering into Western and Eastern blocs. The Bank for International Settlements' recent departure from mBridge, after Russian President Vladimir Putin identified the underlying funds transfer technology as a tool to sidestep sanctions, was a watershed moment. While Thailand, Hong Kong and the United Arab Emirates are all involved in the project — and Saudi Arabia joined in June — it's China that's helming the mBridge initiative.

A platform where financial institutions can swap digital currencies issued by their central banks to settle corporate clients' cross-border claims could preempt the kind of US scrutiny that put Huawei Technologies Co. founder's daughter under house arrest in Canada. Since then, the unease over weaponization of the dollar has only grown. An alternative mechanism that bypasses both the US currency and the SWIFT messaging system would curb Washington's policing powers. The estimated 36% to 40% of greenback demand that comes from its role as a "vehicle" for indirectly exchanging two non-dollar currencies might also diminish.

Money is moving freely and fast

Within the Eastern Bloc of money, there will be greater integration. India and Southeast Asia are moving toward interlinking their domestic payment systems; and other countries are free to join. Hong Kong tourists are paying for golf lessons in Thailand by scanning QR codes and debiting their bank accounts back home. All this experimentation is giving shape to Nexus. The open protocol for smartphone-based international payments in 60 seconds or less, which I described as consumer banking's next big thing three years ago, is attaining critical mass.

Digital twins are waiting to be born

The focus of innovation, however, will be on what Citigroup Inc. calls the "killer use case" of blockchain technology: a $4 trillion market for tokenization of financial and real-world assets by 2030. Here, too, Asia wants to demonstrate leadership. Hong Kong is exploring digital representations of everything from green bonds to electric-vehicle charging stations, while Singapore seeks to replace manual processes with "smart contracts," or self-executing computer code, to speed up fund management, private banking, and many other segments of its large financial-services industry. 

Enthusiasm for digital cash is ebbing

Yet some fads will fade. Central bank digital currencies, or CBDCs, may be one of them. In a 2024 survey by the London-based Official Monetary and Financial Institutions Forum, only 13% of central banks said that connecting CBDCs is best for improving cross-border transfers. That's down from 31% in 2023, according to OMFIF's latest Future of Payments report. Beijing sped up its e-CNY, a digital version of official Chinese cash, after Meta Platforms Inc.,  which at the time was called Facebook, announced its plans for Libra, a world currency, in 2019. Following Beijing's lead, other countries began to consider their own CBDCs. Well, Libra is long dead, the e-CNY hasn't quite taken off, and Trump isn't interested in a digital dollar. Other countries' ardor is also cooling.

Deposit tokens are coming

China may still promote the e-CNY as a tool to weaken the dollar's outsize sway in critical areas, such as the global oil trade. Western central banks, however, will be content to restrict their CBDCs to wholesale use: Financial institutions can swap these coins to settle claims on one another. Consumer demand for cheap cross-border transfers will be met by linking up domestic payment systems with the Nexus protocol. Or — if there's enough demand for money that moves according to pre-programmed rules — by putting bank deposits on the blockchain.

These will be claims on the issuing financial institutions, so not really a sovereign liability like cash withdrawn from ATM. And yet, most people will treat them as such. Unlike stablecoins, tokenized deposits won't have to maintain 1:1 reserve backing. Deposit insurance will be enough to keep users confident about the value of money in their e-wallets. The prevailing power balance will be preserved: Crypto bros will be freer than before to provide speculative assets. But what we call money may well continue to be controlled by traditional banking institutions in 2025.

Sketch: TBS

Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services in Asia. Previously, he worked for Reuters, the Straits Times and Bloomberg News.

Disclaimer: This article first appeared on Bloomberg and is published by a special syndication arrangement.