Crypto market will continue to expand over the next two years, according to Gemini

Gemini’s latest institutional investor crypto research report suggests that despite the recent declines in major crypto prices, there are several factors that could drive crypto expansion over the next one to two years.

In the report shared with Crypto.news, Gemini researchers present a positive outlook for the cryptocurrency market in light of easing monetary policies, improving regulatory conditions, and potential consumer applications.

The report notes that some cryptocurrency advocates feel that the market is lacking new entrants despite the launch of spot Bitcoin (BTC) and Ethereum (ETH) ETFs and long-term holders selling.

Another pessimistic view is that the previous crypto rally was fueled by an extraordinary global pandemic and that current demand does not match the significant supply of block space generated by new scaling solutions.

Gemini’s report states that the cryptocurrency sector and its market value are expected to continue to grow due to external and idiosyncratic factors.

“Nothing is certain, but overall, non-crypto and asset class-specific factors suggest that the sector and its market cap will continue to grow,” the report said.

Global monetary policy

A key point highlighted in the report is the shift in global monetary policy. Previously tight monetary policies are being relaxed as the European Central Bank and the Bank of Canada cut interest rates and a friendly trend emerges in interest rate markets.

This environment could lead to a depreciation of the US dollar, potentially benefiting cryptocurrency prices as they rise against the weakening currency.

“These conditions last occurred in the US in early 2019, when the Fed paused its tightening cycle and shifted its outlook to a more moderate direction,” the report said.

Recent moves by central banks to shrink their balance sheets and manage inflation have led to higher long-term real interest rates. Now those rates are trending lower, creating another positive factor for the crypto market that is reminiscent of the conditions that buoyed crypto assets in early 2019.

Political and regulatory developments

There is a notable shift towards bipartisan support for crypto-friendly legislation in the US. The upcoming elections should further influence this trend, with a potential Republican victory expected to usher in more favorable regulations.

Regardless of the election outcome, Democrats are starting to embrace crypto, and presumptive nominee Kamala Harris is getting crypto advice from leading tech experts.

This political shift, combined with significant advocacy within the industry and widespread adoption of crypto assets by Americans, suggests a more supportive regulatory climate with more institutional and retail investment opportunities.

“The election outcome and the perceived outcome of the election could have a significant impact on the cryptocurrency market,” Patrick Liou, Director of Institutional Sales at Gemini, told crypto.news in an interview. “Gemini recently conducted primary research for our upcoming State of Crypto campaign, which showed that 73% of people in the US who own cryptocurrencies plan to consider a candidate’s stance on crypto when voting for the next US president.

Liou highlighted that almost half (47%) of those who have not yet invested in cryptocurrencies are concerned about the future of the sector, indicating a strong need for increased government regulation to address ongoing uncertainties.

“If the incoming Administration takes a more crypto-friendly stance and enacts thoughtful regulations for the industry, this could bring a significant number of jobs that have been on the sidelines due to regulatory uncertainty,” Liou wrote.

One example of this growing political shift occurred when US Senator Cynthia Lummis proposed a strategic Bitcoin reserve plan to strengthen the US dollar and solidify America’s global financial leadership.

Internationally, China’s potential lifting of its crypto ban and Hong Kong’s increasingly supportive regulatory environment are positioned to positively impact the global crypto market.

These changes could play a critical role, especially if Bitcoin gains global recognition as a strategic asset.

Infrastructure growth and new applications

While there are concerns about the abundance of crypto infrastructure development at the expense of end-user applications, the report notes that this scenario could pave the way for successful consumer applications on a global scale.

The rise of prediction markets and the rapid growth of stablecoins, exemplified by the growing popularity of Polymarket, highlight the potential for robust applications supported by the expanding supply of block space.

“We currently believe Polymarket users are skewed toward retail and crypto users who may have natural preferences on certain issues, such as the upcoming election,” Liou wrote. “One advantage Polymarket has over traditional opinion polls is that traders on Polymarket spend real dollars to express their opinions and beliefs, whereas traditional polls may include respondents who have less skin in the game.”

Stablecoins in particular are on a rapid growth trajectory with significant capitalization and increasing integration into layer 2 solutions on Ethereum. These stablecoins can play a significant role in global payment networks by leveraging the available block space.