Topics that will dominate the headlines in this very special year for crypto.
The year 2020 will be one of the books in the crypto world. Institutional adoption kicked off with multiple hundred-million-dollar investments in Bitcoin by prominent companies such as MicroStrategy and Square. The narrative of Bitcoin switched from speculative asset to store of value and hedge against fiat inflation during the pandemic. Mass adoption got more tangible with companies such as PayPal enabling crypto purchases for its 150 million users. DeFi applications dominating the summer and showcasing the practical advantage of decentralized finance. And of course, shortly before the end of 2020, Bitcoin, the mother of all cryptocurrencies, reached its previous all-time high from 2017 and even surpassed it, silencing all critics who had written off Bitcoin after the crash in 2018.
While the year 2020 was overly exciting, 2021 will be even more. To continue my tradition from last year, I will list several hot topics that I expect to make the headlines for this year in this post. As there are so many, I will post a second list later but will cover the most important ones in this post.
I hope you enjoy reading it!
At the time of writing, Bitcoin is reaching new all-time highs on a nearly daily basis. Even though the crypto space is maturing, and many other protocols have emerged, Bitcoin is still standing strong to be the most dominant cryptocurrency in the world by market capitalization. While some experts believed that altcoins would surpass Bitcoin by market cap, I think this will not be the case in the short and mid-term. Still, most people start their journey in the crypto space by purchasing Bitcoin and then later, moving to Ethereum and other protocols. Especially for institutions, Bitcoin’s deflationary nature is extremely attractive as a hedge against inflation and an independent store of value in the current economic environment. I believe that Bitcoin will continue making the major headlines in 2021 by reaching even higher all-time highs and being adopted by more and more retail investors and companies.
Stabelcoin usage will be another hot topic for 2021. These coins have proven themself to be especially useful to deal with the high volatility of “traditional” cryptocurrencies. Many applications, especially in DeFi, would not work without stablecoins. Besides DeFi, we also see increased demand and interest in stablecoins from governments and institutions. Many national banks are currently experimenting with stablecoins of their national currency so-called CBDC (Central Bank Digital Currencies). In this area, China is leading, which has been developing and testing its digital Yuan for six years. A total commercial roll-out can be expected for 2021. Also, the EU is currently thinking about implementing a digital Euro. Besides this, Facebook’s renamed Libra project (now Diem) will probably also be rolled out in 2021 as an example of an institutional stablecoin. In general, one can expect the usage, number, and market cap of stablecoins to increase in 2021. Most probably, other institutional players will also issue their own stablecoins to interact in their ecosystem, for example, as loyalty points.
Most people I know started their journey in the crypto space by creating an account on Coinbase and purchasing Bitcoin as I did myself some years ago. Coinbase is, besides Binance and Kraken, one of the world’s most prominent crypto exchanges. At the end of 2020, its plans for placing an IPO in 2021 were announced. Yes, an IPO and not an ICO! This will be interesting for several reasons. First of all, with the current very bullish market sentiment, the IPO is coming during an ideal time. Secondly, we can expect this to be the first of many IPOs by established crypto players. I guess that besides Coinbase, we will have IPOs plans for Kraken and BlockFi too in 2021. This development further shows the maturing of the crypto space and the transition to the traditional finance space, which will increase mass adoption. This will be a very interesting investment opportunity for people who do not want to invest directly into cryptocurrencies but want to profit from the crypto trend.
As mentioned in the introduction, this is a major trend that has started in 2020 and will continue in 2021. The main question here is: “Who will be next?”. Institutional adoption can be divided into two groups: investments and offerings. The first group is in regard to institutional converting parts of their fiat treasury into Bitcoin as a hedge against inflation and funds investing into cryptos such as MassMutual, SkyBridge Capital, and One River Asset Management for the upside potential. Secondly, it can be expected that more and more traditional players will adopt crypto in their service and product offerings. PayPal was one of the biggest names in 2020 that announced the trading of crypto for its users. In 2021 we will see more such announcements by fintech’s, banks, and other players that will begin to offer crypto for their clients. This will result in a network effect and will increase the mainstream adaption of crypto. Also, the Dow Jomes announced that it will provide cryptocurrency indices in 2021, another proof that people are taking crypto seriously also at Wall Street.
Another trend from 2020 that will also make the headlines in 2021 is an increased regulation in the crypto space. As lawmakers around the globe see that crypto is establishing itself as a new asset class and was not a short-lived hype, regulation will increase in 2021. Especially in the areas of taxation of crypto assets and licensing of players, one can expect the most action. In connection to more regulations, one can also expect an increase in crackdowns and fines such as the ones on multiple exchanges in 2020 for not operating within the regulatory framework. This can be a potential danger for crypto companies that have been around from the early times operating in the beginning in an unregulated manner. Generally, we can expect a global increase of cryptocurrency regulations and crackdowns on exchanges and projects such as the current case with Ripple and the SEC.
The summer of 2020 in crypto was about DeFi. Financial applications that were mostly developed on the Ethereum protocol that copied existing financial products or completely new ones. While the DeFi hype tuned down, and the later focus was on Bitcoin in 2020, DeFi has just started. It can be expected that we will see a lot more DeFi application in 2021 as the space is maturing and many projects have moved from the proof-of-concept stage to commercial. So get ready for a second DeFi summer in 2021. Also, newly launched DeFi application will be more user-friendly than the first ones where mainly focusing on the tech side and neglecting the UI/UX aspect. I also expect to see more DeFi applications being developed and launched on other protocols than Ethereum, especially Polkadot. While maybe a little too early for 2021, I am sure we will see traditional financial players connecting or developing their own DeFi applications in the near future.
In 2019 Switzerland was the world’s first jurisdiction to grant full banking licenses to two crypto projects making Sygnum the world’s first crypto bank. In 2020, the US, particularly the state of Wyoming, followed by creating a new type of license and granting crypto baking licenses to multiple projects such as Kraken and Avanti Financial Group. As the crypto space is maturing and the crypto community has moved from its anti-establishment beginnings to wanting to be connected to the traditional financial world, we can expect many more crypto banks to emerge in 2021. Besides this, it is also more than likely that existing banks will start to offer their clients crypto products by either working together with crypto banks, acquire them, or setting up their own operations. Especially with the above-mentioned increase in regulation, it can be expected that more and more players in crypto will try to apply for a license as being regulated will be an important USP in the future.
A trend that started in the last two years and will become even bigger in 2021 is the offering of crypto products that generate a yield. A good example is BlockFi who will launch a credit card in 2021 that will pay its users 1.5% of the purchases made back in Bitcoin. Other examples are debit, credit, and e-commerce rewards on crypto assets. This and other innovative products will attract the interest of many investors, retail, and institutional. Generally, in times like this, where there is no interest rate or even a negative, many crypto applications offer rewards that traditional financial products could only dream of. This could further accelerate crypto mass adoption if such reward generating services and products become breakout consumer products.