Gemini’s latest institutional investor crypto research report suggests that despite recent declines in major crypto prices, several factors 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 crypto market amid easing monetary policies, improving regulatory conditions, and potential consumer applications.

The report suggests that some crypto supporters feel that the market lacks new participants despite the launch of spot Bitcoin (BTC) and Ethereum (ETH) ETFs and selling by long-term holders.

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

Gemini’s report suggests the crypto industry and its market capitalization are expected to continue growing due to external and idiosyncratic factors.

“Nothing is certain, but on balance, factors external to crypto as well as idiosyncratic to the asset class point the way to continued growth for the industry and its market capitalization,” the report read. 

Global monetary policy

One significant point highlighted in the report is the shift in global monetary policy. Previously tight monetary policies are being relaxed, like in the case of the European Central Bank and the Bank of Canada cutting rates and a friendly bias emerging in interest rate markets.

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

“In the US, the last time these conditions emerged was in the first few months of 2019, as the Fed halted its tightening cycle, shifting its outlook in a dovish direction,” per the report. 

Recent moves by central banks to shrink their balance sheets and manage inflation have led to higher long-term real interest rates. Now that these rates are leaning towards the lower end, it’s creating another favorable factor for the crypto market, reminiscent of the conditions that boosted crypto assets back in early 2019.

Political and regulatory developments

In the US, there’s a notable shift towards bipartisan support for crypto-friendly legislation. The upcoming elections should further influence this trend, with a potential Republican victory expected to introduce more favorable regulations. 

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

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

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

Liou highlighte that nearly half of individuals who have yet to invest in cryptocurrency — 47% — express concerns about the future of the industry, indicating a strong need for increased government regulation to address ongoing uncertainties.

“If the next Administration has a more friendly stance on crypto and carves out thoughtful regulation for the industry, that could usher in a significant number of those who remain on the sidelines due to regulatory uncertainty,” wrote Liou.

An example of this growing political shift came when U.S. Senator Cynthia Lummis proposed a plan for a strategic Bitcoin reserve to bolster the U.S. dollar and cement America’s global financial leadership.

On the international front, the possibility of China lifting its crypto ban and Hong Kong’s increasingly supportive regulatory environment are poised to positively impact the global crypto market. 

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

Infrastructure growth and new applications

While concerns exist about the abundance of crypto infrastructure development at the expense of end-user applications, the report argues that this scenario could pave the way for globally successful consumer applications. 

The rise of prediction markets, exemplified by Polymarket’s growing popularity, and the rapid growth of stablecoins underscore the potential for robust applications anchored by the expanding blockspace supply.

“Currently, we believe Polymarket users tend to skew towards retail and crypto users, which may have inherent preferences on certain topics like the upcoming election,” wrote Liou. “One advantage Polymarket has over traditional opinion surveys is that traders on Polymarket are committing real dollars in expressing their opinions and conviction, whereas traditional surveys may be fielding respondents with 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 could play a crucial role in global payment networks, leveraging the available blockspace.