It’s the first day of the year, and as countries all over the world move past the last vestiges of 2020 into 2021, here is a brief recap of the major happenings in crypto and what we can possibly expect for the new year, especially as most of the crypto market is in the green today on January 1.
- Black Thursday Market Crash
By now, most of us are possibly weary of hearing the words ‘new normal’ and ‘unprecedented’ as a result of the COVID-19 pandemic, which has severely affected political, economic and social issues as we know it. On the onset of the pandemic early in February/March, as the world scrambled to get their affairs in order to brave the worst of the pandemic, financial markets found themselves nose diving into the negatives, from equities, commodities, metals to bonds, and certainly, the digital assets market was not spared from the bloodbath. For several weeks, most coins were stuck deep in the red, and bellwether cryptocurrency Bitcoin even dropped to as low as $6,400 on what most traders now call the ‘Black Thursday’ market crash.
However, Bitcoin and other major altcoins were quick to recover, and for a short moment, Bitcoin which is known for its volatility was actually noted to be less volatile than crude oil. Oil demand and supply were dealt a heavy blow from global lockdowns, and the same went for gold, though the precious safe-haven asset fared much better than most other assets.
Juxtaposing Bitcoin with other traditional financial assets, the year’s worsening economic conditions have buoyed Bitcoin’s accelerated growth as it performed remarkably well in 2020. As negative price fluctuations continue to happen across a variety of assets, Bitcoin’s 400% year-to-date returns have converted many non-cryptocurrency believers into the market. It is now more widely known and accepted as ‘digital gold’, and while it has not been conferred the ‘safe-haven’ status just yet, it is undeniable that investors have shifted part of their portfolios into Bitcoin to either safeguard or increase their wealth in the last few months.
- Bitcoin Halving Event in May
The crypto community had been anticipating Bitcoin’s May 2020 halving event since 2019 where block rewards for miners fell from 12.5 to 6.25 BTC, cutting into miner profitability by 50% and more, considering how costly mining operations can be. Mining difficulty also increased from May 2020 onwards, substantially decreasing the speed at which new Bitcoin is mined and put on the market.
Theoretically, this is supposed to increase the value of Bitcoin should demand stay the same. While Bitcoin prices did not show significant rises or drops in the weeks following directly after the halving event, it would be fair to say that this contributed indirectly to the massive December 2020 Bitcoin bull run.
- DeFi Explodes, Giving Ethereum a Boost
Decentralized finance. Where would we be without the 2020 summer DeFi craze?
Hardly a novel idea before this year happened, it was during the worst of the pandemic that DeFi saw explosive growth, with new and exciting projects emerging quickly every week, offering its users millions of dollars and more in rewards as long as they staked their assets on any decentralized network. 100%, 200% and even 300% returns were commonly seen and this led to a massive influx of both old and new market entrants into the DeFi space.
Barriers of entry to launching and investing in a DeFi project had never been this low, as the summer saw multiple anonymous team projects coming up with new platforms almost overnight. These projects did not need to go through a technical or legal audit, and team members could even stay anonymous entirely, only interacting with its community with pseudonyms. Investors, on the other hand, did not need to even understand the project or the technicalities of the platform to stake their assets and start earning rewards.
Governance tokens where a platform’s community could have a say in major decisions of the project, such as setting user rewards and more, were also popularized during the summer. Platforms would distribute governance tokens to its users based on how much they have staked or how many trades they have made, and users would use these tokens to vote on selected processes and decisions as offered by the projects.
DeFi exemplified the entertaining aspects of crypto, with projects being named things like Yam.Finance, Sushiswap, SUN and more. Investors also participated in the market without having to think too seriously about it, and could earn huge rewards all the same, unlike the way crypto projects are traditionally built, such as with an Initial Coin Offering (ICO).
As 99% of DeFi projects are built on the Ethereum network, transaction fees spiked over a period of three months and network congestion was frequent. This, however, solidified the necessity for Ethereum and ETH, which helped to push the altcoin’s value upwards during that quarter.
What we can expect for 2021: While the DeFi craze has certainly cooled off, it would be unwise to write DeFi off entirely as there is still $14.4 billion USD worth of assets locked onto DeFi platforms. DeFi is waiting for a revamp of its current business model, and if any firm is able to rebrand DeFi and bring rewards back to its users, it would not be difficult for DeFi to emerge triumphant again in 2021. One of 2020’s top DeFi projects, Yearn.Finance (YFI), has proceeded with several mergers with other prominent DeFI platforms such as Sushiswap, and also data or aggregation services in the last two months, eager to boost its ecosystem and create what may possibly be a brand new product.
As it is in its current form, however, what awaits DeFi could be the fate of ICOs, a fundraising method which is no longer viable for crypto businesses due to poor rep and other factors.
- Ethereum 2.0 Confirmation & Launch
Ethereum 2.0 finally launched at the end of November last year, after years of talks and plans to upgrade the current Ethereum 1.0 system. Improving the efficiency and scalability of the network has always been on the forefront of the developer teams’ minds, but while designing and planning for the shift to Ethereum 2.0 seems simple enough, the actual migration and tech implementation is anything but. After years of delays, and in 2020, continued pushbacks of the Phase 0 launch date, Ethereum 2.0’s staking function was officially put into place.
Shifting from a proof-of-work to a proof-of-stake algorithm allows for greater inclusion of the community in the block rewards transaction process, and potential stakeholders only have to place 32 ETH on the network via a deposit contract to become eligible as one of the network’s many validators. This allows validators to cash in on the rewards for processing blocks, and is overall a much more open and transparent process.
What we can expect for 2021: Phase 1 is slated for development and launch sometime in 2021 after Phase 0 development stabilizes. Next, Ethereum 2.0 will be tackling the scalability issue in the next few phases, as a lack of scalability has been one criticism of the network since it was conceptualized and made available to developers. With every successful phase launched, ETH prices may just get a boost before and after the implementation of new phases, as investors increasingly decide to place their bets on the world’s second-most capitalized crypto asset.
- Flood of Institutional Support for Bitcoin – MicroStrategy, PayPal & More
Grayscale Investments, one of the earliest institutional supporters of Bitcoin, must certainly be glad they jumped onto the Bitcoin and crypto bandwagons way before it became vogue, as Bitcoin did this year. As such, Grayscale has been rewarded for its faith in the orange coin as it is the largest institutional holder of Bitcoin at present, despite the entry of other notable names such as MicroStrategy, MassMutual, Ruffer Investment, Mode Global, Square and more. MicroStrategy and its CEO Michael Saylor are one of Bitcon’s biggest MVPs of the year as it aggressively buys up Bitcoin.
PayPal’s role in starting Bitcoin’s bull run in November, however, is a key driving force behind Bitcoin’s massive surge in prices. A payments platform with access to millions of merchants and users, the company will be responsible for providing easy access to Bitcoin and other major altcoins on its platform. US PayPal users began trading, storing and utilizing their Bitcoin assets right on the PayPal app last month, and this will go a long way towards empowering those unfamiliar with cryptocurrency to understand and use them.
What we can expect for 2021: A greater number of firms in the financial sector are likely to enter the crypto market this year and existing investment behemoths for crypto will continue to increase their Bitcoin holdings. This will put pressure on the supply side of the market, as the number of liquid BTC in circulation is expected to decrease significantly. PayPal will continue to make its crypto service offerings available to more countries in 2021 outside of the US, thereby accelerating global mass adoption for crypto.
- New Record Highs for Bitcoin and Ethereum
Bitcoin went well and above expectations when the community was only hoping that the leading digital asset could reach and sustain itself above the December 2017 record all-time-high at $20,000. Not even most analysts and traders across the globe could have predicted its current historical ATH at $29,391 today, according to CoinMarketCap.
A number of factors contributed to Bitcoin’s rise, two of which have been explained above with Bitcoin’s May 2020 halving event and also unprecedented institutional support for the asset. Other crucial factors include political instability in the US and other countries that are experiencing political strife, but in the US particularly, negative interest rates, multiple stimulus packages, excessive printing of fiat currency and the drama of the US presidential elections have painted Bitcoin in a much better light as an alternative wealth-sustaining asset.
Ethereum, on the other hand, also reached a multi-year high of $754, and is at the halfway point to reaching its historical high of $1,432, recorded in January 2018. Ethereum 2.0’s launch and DeFi have both been indispensable in ETH’s performance this year, but more importantly, there is growing institutional interest in ETH as the BTC market becomes overcrowded with players.
The investment behaviour of Grayscale Investments is usually a good indicator of where investors can possibly place their bets next, considering that the firm had the foresight to bet on Bitcoin much earlier than any other retail or institutional investors did, and Grayscale is prepared to bet big on ETH. Currently, it has an Ethereum Trust, and is slowly adding to its assets under management while it is increasing its Bitcoin holdings as well. It would be wise to look beyond Bitcoin and find the next wealth-generating crypto asset before it gets too expensive to buy in, just like Bitcoin.
- The Regulatory Whip
Financial regulators worldwide have tightened regulations and laws overseeing the crypto industry immeasurably in 2020. Countries such as Japan, Singapore, Hong Kong and South Korea have already implemented, or are in the midst of implementing stringent laws that would see all crypto-related businesses obtaining approval from respective financial authorities in order to operate legally in different jurisdictions. Other countries are considering outright crypto bans, such as in the case of Russia and India.
In the US, however, the Securities and Exchange Commission (SEC) has had a good year as it records a streak of consecutive victories against major crypto-companies such as Telegram with its TON ecosystem and Gram token, and also Canadian networking app Kik and its Kik token. These are only two of the more prominent companies the SEC has taken on for the illegal sale of unregistered securities with their respective token sales in 2020. Right before 2020 closed on what was supposed to be a high note celebrating Bitcoin’s new price milestones ended on a sour one as SEC filed a $1.3 billion lawsui against Ripple Inc., which is behind the fourth-most capitalized asset in the crypto market currently, XRP. It is accusing Ripple for selling unregistered securities over the span of the past seven years, since 2013.
This has dealt XRP and also the crypto industry in general a significant blow, as the SEC seems to have been given immense authority to bring charges against crypto companies for any sale which happened in the last seven or more years in the future. The XRP vs. SEC battle in 2021 will certainly be one for the books in crypto history.
What we can expect for 2021: XRP and the SEC are scheduled for a first pre-trial meeting in February next month, but the battle will possibly be drawn out for more than six months. In the meantime, major exchanges and firms are already dropping XRP transactions and trades, the most recent of which includes Binance.US and eToro. XRP’s price has been on a steady spiral downwards, and it is unclear if it will be able to recover to its previous growth level in the short term even if it does manage to triumph in this legal battle.
Previously, the US Congress discussed several draft proposals that would clarify crypto regulations and also detail SEC’s role more clearly due to long-time criticisms of the SEC being given unlimited power and authority to go after crypto businesses. If regulations, at the very minimum, are confirmed in 2021, companies will be able to navigate regulatory waters and their business developments with increased ease.
Lacklustre performance of the crypto market in the past three years have eroded investors’ faith and confidence in crypto assets, and all it took was a month of miracles in December to have investors raring to go in the market. We have entered a new era for the digital assets market, and all eyes are on Bitcoin and crypto to see what new milestones they can achieve in the upcoming year.