The next frontier of the digital economy

3Сommas Blog
5 min readAug 25, 2020


Many of you know how vital the macroeconomic background is for Bitcoin, but what about the rest of the cryptocurrencies and digital assets market? How do they fit into a sector that is often phased out by the sound of money tales and comparisons to digital gold?

As with many emerging industries, there are several age-old tailwinds behind the cryptocurrencies, some of which deserve the most attention, including rising digitalization, a global growth deficit, record low interest rates, and widening wealth inequality.


The first is perhaps the most obvious: more and more economic activity is getting digitalized. However, despite ongoing efforts, the digital economy’s growth is largely underestimated in official economic indicators as there is no standardized process for tracking its contribution to GDP. There are many challenges to quantifying the economic impact of free digital products and services, especially when considering how key indicators of economic activity (such as GDP) are calculated. If we cannot identify this, most likely, it will not be counted.

Take, for example, the rise of social media and search engines. We consume Facebook’s core product for free in exchange for our personal data, which is then aggregated, structured, and sold to a range of end customers. But how do you determine an average price that users would pay to access Facebook or Google for that matter?

In collaboration with Felix Eggers of the University of Groningen, Harvard Business Review attempted to develop a framework for accurately estimating the cost of free digital goods and services. They found that Facebook alone has generated over $225 billion in unrecorded value for consumers since 2004.

In addition, one can look at the consumer surplus, or the difference between the price consumers are willing to pay and the actual price paid associated with free digital products and services, to get a rough estimate of the value creation for the average consumer. A similar study by HBR found that the average value that US consumers post on Wikipedia is around $150 per year. That’s roughly $42 billion in consumer surplus that is not reflected in US GDP.

According to most estimates, the contribution of the digital economy to US GDP is between 5 and 8%. An updated report by the Bureau of Economic Analysis (BEA) showed that the digital economy accounted for 6.9% (~ $ 1.35 trillion) of the current dollar gross domestic product (~ $19.5 trillion) in 2017, up from 5.9% in 1997. While $1.3 trillion is certainly substantial, it is nowhere near as much as the contribution of such industries as real estate, government, or manufacturing.

BEA also found that the real added value of the digital economy grew at an average rate of 9.9% per year from 1998 to 2017, compared with 2.3% growth of the economy as a whole.

Given the global shift towards digitalization, this almost guarantees that digital economic growth will continue to outpace growth in economic activity all across the board. In addition, if policymakers have a chance to reverse the downward trend, they will likely need to create a more inviting environment that encourages technological innovation and change, rather than inhibits it.

Global growth deficit

If we talk about growth (or its lack), then the trajectory of world GDP for the next 5–10 years leaves much to be desired. Even before COVID-19 turned the world upside down, economic activity (especially in advanced economies) was relatively dire. Unsurprisingly, burgeoning assets have plummeted lately, although investors crave the continuation of the game.

The fallout from COVID-19 has left us with a massive lag in global growth compared to previous projections. Global GDP is expected to grow by 3.1% and 3.25% in 2020 and 2021, respectively, amounting to approximately $5.6 trillion in economic activity by the end of next year. However, current projections point to a 3.7% contraction in 2020, followed by a 5.1% growth in 2021 as the economy recovers.

These estimates also imply a ~ $ 4.6 trillion hole in the recent expectations. If the global economy shrinks 3.7% this year, as many analysts predict, global GDP will need to grow 10.5% in 2021 for us to revert to previous projections. Unsurprisingly, our baseline scenario assumes policymakers continue their current path to increasing fiscal aid financed by higher levels of debt monetization. Adaptive monetary and fiscal policies will continue for the foreseeable future.

As expected returns decline, investors will be forced to look for alternative ways to achieve above-average returns. Some of this capital will go to traditional alternative investments (private equity, hedge funds, venture capital, etc.). But we believe a significant chunk of it will make its way into crypto and digital assets, given how few sectors can now be better positioned for massive market expansion.

Record low rates

It would be an understatement to say that investors and savers are hungry for profit. Near-zero or negative interest rates will continue to put pressure on both large capital distributors and individual savers, especially given an ongoing inflationary pressure.

World politicians have made it clear that they will not raise rates in the near future. The Federal Reserve’s own scatter plot (which tracks Fed officials’ forecasts for the central bank’s key benchmark interest rate) suggests that short-term rates will remain at zero until at least 2022.

On the other hand, you can open a BlockFi account right now and start earning interest in USDC at a rate that is about 3x higher than the most generous savings bank account can offer. Of course, the risk associated with the former is inherently higher, but it is evident that “cryptodollars” or other fiat stablecoins will bring a higher savings rate than traditional banking counterparts in the foreseeable future. In addition, the increased protocol interoperability also provides more options for investors interested in participating in the digital asset market.

Rising wealth inequality

We touched on this topic in more detail in one of the previous articles, so we will not go into details today. But open trustless networks with tangible monetary potential offer unprecedented opportunities for most people and households who feel left behind. We left this for last because we believe that the highest potential for attracting the masses to cryptocurrencies is exceptionally far from being realized.

When it comes to opportunities in this area, Bitcoin gets most people’s attention outside of cryptocurrencies. Still, some of its biggest fellow travelers will also have a significant impact on the industry as a whole. We are still at the very beginning of this path.