Digital Currency Market

Market Overview

The global digital currency market size was valued at USD 5.81 billion in 2023. It is estimated to reach USD 16.95 billion by 2032, growing at a CAGR of 12.64% during the forecast period (2024–2032). Increased adoption and acceptance of digital currencies, such as Bitcoin, Ethereum, and others, by both consumers and businesses drive market growth. As more individuals and organizations recognize the benefits of digital currencies, the demand for these assets rises.

Digital currency, which can also be referred to as electronic money or digital money, is any kind of money or asset that is mainly managed, saved, or transferred through digital computer systems, especially through the Internet. Digital currencies of all kinds are included, such as virtual currency, cryptocurrency, and digital currency issued by central banks. Digital currencies exist electronically as opposed to traditional currencies, which take the shape of coins or banknotes and may be used to transact via the Internet almost instantly for a much lower price.

Digital currencies can be stored in distributed databases, centralized electronic databases, digital files, or stored-value cards. They can be utilized to buy goods and services, facilitate cross-border transactions, and transfer ownership across government boundaries. Digital currencies can be either centralized, with a single point of control over the money supply, or decentralized, with control predetermined or democratically decided. Technological advancements have influenced the evolution of digital currencies, with cryptocurrencies such as Bitcoin paving the way for decentralized blockchain-based currencies.

Highlights

• Hardware dominates the offerings segment.
• Enterprises dominate the application segment.
• North America is the highest shareholder in the global market

Market Dynamics

Global Digital Currency Market Drivers:

Increasing the Adoption of Distributed Ledger Technology

Distributed Ledger Technology (DLT) has gained significant interest in the financial sector, particularly in the digital currency market. DLT, characterized by its decentralized record-keeping system, has witnessed widespread adoption, notably in digital currencies like Bitcoin. These currencies leverage decentralized ledger systems to facilitate secure and transparent transactions, eradicating the need for intermediaries and enhancing efficiency and cost-effectiveness in payment, clearing, and settlement processes. As per Statista, the global distributed ledger market, segmented by various use cases, is predominantly led by supply chain audits, projected to exceed 103 billion U.S. dollars by 2030—an impressive surge from 2020 figures. Other applications driving growth in the distributed ledger market include immutable records, digital identity, smart contracts, and proof-of-work.

Several factors contribute to this growth trajectory. Firstly, the emergence of cryptocurrencies like Bitcoin has propelled interest and investment in DLT, as these currencies heavily rely on decentralized ledger systems for transaction validation and security. There is also a growing demand for transparent and tamper-proof record-keeping, driven by concerns over data integrity and trust in digital transactions. Moreover, the increasing adoption of decentralized systems and the rise of smart contracts and automation further fuel the expansion of the distributed ledger market. These technologies offer enhanced efficiency, security, and transparency across various sectors, driving demand and adoption.

Global Digital Currency Market Restraint:

Lack of Regulations Governing the Creation and Valuation of Digital Assets

The lack of regulatory frameworks has created an environment ripe for exploitation, with market manipulation, fraud, and security breaches plaguing the digital currency space. Cryptocurrency exchanges, lacking stringent oversight, have become vulnerable targets for hacking incidents, resulting in substantial losses of digital assets and eroding market confidence. Moreover, the lack of regulatory clarity has hindered the seamless integration of digital currencies into traditional financial systems, constraining their utility for everyday transactions and investment purposes. The absence of clear regulations governing the valuation of digital assets exacerbates price volatility, exacerbating challenges for users and investors seeking market stability and predictability.

Addressing these regulatory gaps is paramount to fostering trust, stability, and legitimacy within the digital currency ecosystem. Clear and comprehensive regulations can mitigate risks, safeguard consumer interests, and promote greater transparency and accountability across the digital currency market. Regulatory initiatives to enhance security standards, prevent fraud, and establish investor protections are essential to instilling confidence and fostering broader acceptance of digital currencies. Moreover, regulatory clarity regarding taxation, compliance requirements, and legal frameworks can facilitate the integration of digital currencies into mainstream financial systems, unlocking their full potential as viable alternatives to traditional forms of currency and investment.

Global Digital Currency Market Opportunities:

Widespread and Low-Cost Access to Digital Money and Phone-Based Transactions

The potential for widespread and low-cost access to digital money and phone-based transactions holds immense promise for providing financial services to the estimated 1.7 billion unbanked and underbanked individuals worldwide. This opportunity is particularly significant for emerging markets and low-income countries, where the adoption of digital money has the potential to revolutionize the financial landscape, promote payment system integration, and enhance interoperability.

Digital money offers the potential to significantly improve the financial well-being of people in emerging markets and low-income countries. For instance, consider a worker in the United States who receives her paycheck directly into a digital wallet. This digital wallet enables her to seamlessly send money to relatives in countries like Guatemala or the Philippines at a lower cost and with greater efficiency than traditional remittance methods.

Moreover, the transformative impact of digital money extends beyond facilitating cross-border transactions. It also empowers individuals and businesses in emerging markets to access essential financial services, such as savings, credit, insurance, and investment opportunities. By providing a convenient and accessible means of conducting financial transactions, digital money fosters financial inclusion and economic empowerment, unlocking new pathways to prosperity for underserved populations.

Regional Analysis

North America Dominates the Global Market

Based on region, the global digital currency market is bifurcated into North America, Europe, Asia-Pacific, Latin America, and the Middle East and Africa. 

North America is the most significant global digital currency market shareholder and is expected to expand substantially during the forecast period. The growth of the regional digital currency market is fueled by the presence of prominent digital payment companies and a rising inclination towards purchasing cryptocurrencies through platforms like PayPal. Over recent years, digital currencies have gained momentum in both the United States and Canada, witnessing increased investments from institutional investors and retail traders. Canada's cryptocurrency market, in particular, saw a significant development with the launch of the world's first Bitcoin exchange-traded fund (ETF) on the Toronto Stock Exchange in February 2021. This milestone underscores the growing acceptance and integration of digital currencies into traditional financial markets.

Furthermore, the presence of major industry players and innovative startups further reinforces North America's dominance in the digital currency market. Companies such as Visa Inc., Coinbase, and Ripple drive innovation, introduce new products, and expand digital currencies' utility across diverse sectors. Moreover, the growing acceptance of cryptocurrencies and the widespread adoption of blockchain technology across various industries—such as finance, e-commerce, and technology—contribute to the region's market leadership. These trends reflect a rising awareness and interest in digital currencies, paving the way for their broader adoption and utilization in the coming years.

The Asia-Pacific region emerges as the fastest-growing market for digital currencies during the forecast period, driven by key factors that contribute to its rapid expansion. One significant driver is the region's swift adoption of digital currencies, spurred by technological advancements and shifting consumer preferences toward digital transactions. China, in particular, is poised to lead the global digital currency market by launching its digital currency, e-RMB, also known as the digital yuan. Issued by the People's Bank of China, the digital yuan has gained remarkable traction within the country, boasting over 260 million users and facilitating transactions totaling 1.8 trillion yuan within a specific period. Moreover, India has witnessed a surge in cryptocurrency ownership, with a notable increase of 61.6 million cryptocurrency users since January 2022, totaling 286.2 million internet users holding cryptocurrencies. This surge underscores the growing acceptance and adoption of digital currencies among Indian consumers.

Segmental Analysis

The global digital currency market is bifurcated into type, offering, and application.

Based on type, the global digital currency market is segmented into central bank digital currencies and cryptocurrencies.

Central Bank Digital Currencies (CBDCs) dominate the type segment. CBDCs are a digital form of central bank money that is widely available to the general public, with a value tied to the issuing country's official currency. CBDCs are similar to cryptocurrencies, but they are issued and operated by the state, as opposed to decentralized cryptocurrencies. CBDCs provide central banks with a new opportunity to drive strategic payment innovation and establish stronger local governance over increasingly global payment systems. Moreover, CBDCs are viewed by central banks as a potential stabilizing anchor for local digital payment systems, and their establishment has the potential to enhance financial inclusion, lower transaction costs, and increase transparency and security in payment systems.

Based on offerings, the global digital currency market is segmented into hardware and software.

Hardware dominates the offerings segment. The digital currency market's hardware offerings include a variety of physical devices and components used in activities such as mining, storage, and transaction processing within the cryptocurrency ecosystem. Hardware is critical to the infrastructure and operation of digital currencies, providing the tools required for secure transactions, storage, and mining. Hardware is essential for mining, which involves figuring out intricate mathematical puzzles to verify transactions and protect the network. Application-Specific Integrated Circuits (ASICs), a type of mining gear, are essential to mining since they supply the processing power needed to handle transactions and safeguard the blockchain network.

Based on application, the global digital currency market is bifurcated into enterprise, government, and personal.

Enterprises dominate the application segment. Enterprises, which include businesses and organizations, play an important role in driving the adoption and use of digital currencies for various purposes, including cross-border remittances, payment processing systems, e-commerce transactions, online investments, supply chain tracking systems, and asset tokenization. Enterprises use digital currencies to simplify financial transactions, improve operational efficiency, and investigate novel financial solutions.

Moreover, enterprises are increasingly integrating digital currencies into their operations to take advantage of their borderless nature, faster transaction speeds, and lower transaction costs. Using digital currencies in enterprise applications allows quicker and more cost-effective cross-border transactions, streamlines payment processing, and creates new opportunities for online investments and asset tokenization.

Impact of covid-19

The COVID-19 pandemic has forced governments to close down inter-nation, inter-state, and even inter-city borders to promote social distancing as a measure to stop the spread of the disease. The WHO warns cash and bank cards may also aid disease transmission, and at present, digital payments offer the safest option. Hence, many are opting for online transactions, especially as retailers are refusing hard cash.

The pandemic has redirected authorities’ attention toward the expansion of online payment systems and contactless cards. Countries such as the U.S. and China are planning to promote electronic cash to fight against the spread of the deadly pathogen. Businesses and governments in the regions are significantly investing in digital currency because it cannot be misplaced and is widely accepted by business officials. The robust infrastructure of the U.S. financial market for electronic money facilitated through Visa and MasterCard, and China’s recent announcement of electronic Renminbi (e-RMB) are a couple of the best examples in the current scenario.

• Trade globalization
• Economic globalization
• Military and geostrategic globalization

The below chart represents the historical exchange rate of the U.S. Dollar to the Chinese Yuan.

China’s Digital Currency Market Post-COVID-19

• With PBoC’s support, the digital Yuan will be ‘tokenised’, and e-RMB will grow at a rapid pace, intensely competing with Alipay and WeChat pay
• In Shenzhen, Suzhou, Chengdu, Xiong'an, and certain 2022 Beijing Winter Olympics host cities, the digital money will be tested. Global brands including McDonalds, Starbucks, and Subway will test.
• The country targets a nationwide rollout in two or three years with an aim to reduce the amount of hard cash printing.
• The e-currency will disrupt traditional banking, replacing some part of physical cash owing to the ubiquitous presence of Chinese QR code-based digital wallets.
• Since May 2020, several provinces' civil officials will get half their monthly pay in e-RMB.

Rest of the World (RoW)

• Factors such as declining cash use and the rise of privately owned ‘stablecoins’ has compelled governments across the world to prioritize Central Bank Digital Currencies (CBDCs). The Swiss Financial Market Supervisory Authority (FINMA) confirmed in April that it had received an application for a payment system license from a Geneva-based association governing Facebook’s planned cryptocurrency Libra.
• Regarding CDBCs, both the Bank of England (BoE) in the United Kingdom and the Central Bank of France (Banque de France) are making progress.
• It is anticipated that the growing cryptocurrency investments from South Africa, the Middle East, and Africa would open up new markets for the industry worldwide.

Recent Developments

• September 2023 -India announced pilots for its Central Bank Digital Currency (CBDC) called the 'Digital Rupee.' The pilot on retail CBDC transactions has seen over 1 million users and 262,000 merchants registering. Experts believe CBDCs can be a transformative catalyst, reshaping financial inclusion and providing a safer platform for economic activities. CBDCs empower the unbanked by granting them access to the formal financial system and offering benefits such as micro-transactions, financial freedom, increased savings, and proper banking frameworks.
• September 2023 - Ripple announced its acquisition of Fortress Trust, a startup specializing in crypto infrastructure. The primary focus of Fortress Trust is to facilitate the interaction between large enterprises and digital currencies while also holding a Nevada trust. This acquisition is expected to bolster Ripple's existing lines of business and provide its customers with regulated services for both fiat and crypto in the United States.