The usage of Cryptocurrencies soared to new heights in 2020, and the trend will continue in 2021 also. This year began with Bitcoin touching a record of $41,000 due to increased demand from institutional investors.
- More Participation from Professional Traders — A significant rise in trading volume and liquidity would be witnessed with the participation of traders who deal in high-volume purchases and sales of crypto. This will lead to greater credibility and boost investors’ confidence. The halving of Bitcoin, which led to a reduction in supply, has also been one of the main reasons for its massive price rise. Institutional investors will divert their money from pension funds, mutual funds, hedge funds, and corporate investments to Cryptocurrencies.
- Stablecoins will Grow Faster — Stablecoins are highly appealing to investors due to their low volatility and utilization for efficient portfolio diversification. The circulation of Stablecoins increased by a massive 500% in 2020. It can be either fiat-backed, crypto-backed, commodity-backed, or seigniorage-share-backed. The market cap for Stablecoins is a whopping $34.65 billion with a huge trading volume of $144.43 billion.
The demand for Stablecoins like USDT, USDC, DAI, BUSD, and TUSD have skyrocketed now due to extreme fluctuations witnessed in the Cryptocurrency market. It can be used as a store of value, a unit of account, provides sufficient liquidity, low risks, is widely accepted in the market, and can be traded 24×7. Facebook’s Stablecoin named Diem is expected to launch this year and will compete with the likes of PayPal, Mastercard, and Visa. Diem can also be traded with Bitcoins and Altcoins with ease.
- More Clarity in Regulations and Taxation — Authorities are expected to pass progressive guidelines regarding the recognition of digital currencies. It will become more streamlined and organized. By paying taxes, Cryptocurrency exchanges can become a legal business, and it will also fetch a lot of revenue to the government. The Internal Revenue Service (IRS) of the USA has asked taxpayers to mandatorily disclose their financial dealings in any virtual currency. Exchanges will be asked to share information in a uniform and timely manner. With the Indian government going to come out with its Union Budget on February 1, speculations are going on that Cryptocurrencies will be treated as an intangible asset and be taxed accordingly. Taxes are already levied in the form of 20% on long-term capital gains and 15% for short-term capital gains, and an 18% GST may be charged on Bitcoin transactions according to the suggestions of the Central Economic Intelligence Bureau.
- The Emergence of Brand new Cryptocurrency Exchanges — With active financial support from venture capitalists, entrepreneurs are setting up their own Crypto ventures to make it big in this fast-growing industry. This will lead to better competition in the market. Users will benefit from newer features, trading facilities in a variety of assets, and advanced security measures. As of now, there are 294 different Cryptocurrency exchanges in the market, and this number will surely increase this year.
- More use of Bitcoin Payments— Some big companies like PayPal, Walmart, Amazon, and JP Morgan have already embraced Cryptocurrencies in their daily businesses. Users can utilize different digital currencies to transfer their funds, peer to peer payments, and purchasing various products. It can also be used as a hedging instrument against inflation and a downturn in the stock market. Cryptocurrencies are viewed as a viable investment avenue ahead of popular real-world assets like real estate and gold.
- Digital Currencies by Central Banks — To promote more trust and faith in authorities, Central Banks are planning to develop their own digital currencies for mass circulation in the market.
This will help prevent the use of cryptos by illegal activities like drug smuggling, money laundering, and terrorism financing. It will also lead to the traditional financial system becoming more digitized. Nations like China have launched a digital version of the Yuan fiat currency and testing its usage in cities like Shanghai, Beijing, and Shenzhen. The digital Yuan will compete with established payment companies like Alipay and WeChat Pay in the Chinese market. More than 40 nations are in various stages of digitizing their fiat currencies.
- DeFi will become more Mainstream — The DeFi space is already thriving, with more than $26.5 billion locked in different financial applications. The official launch of Ethereum 2.0 will help more DeFi solutions to reach the market, leading to a better user experience and a stronger network without any chances of congestion. More collaborations among various projects are expected to ensure greater interoperability in the industry. The total value locked is expected to rise to $100 billion in 2021, and DeFi tokens will get more demand in the market.
- Non-Fungible Tokens (NFTs) will get more loyal buyers — NFT’s have stormed the market representing different things like sports goods, artworks, and games. It can be used across different industries like real estate, event management, media, entertainment, and identity management. Non-Fungible tokens will take advantage of positive regulations, a better technical infrastructure, low transaction costs, and increased utilization of blockchain technology.
- Ripple’s future after the Lawsuit — One of the world’s highly demanded cryptocurrencies, Ripple, is dealing with a lawsuit filed by the Securities and Exchange Commission (SEC). Since Ripple was not registered as a security nor was it granted any exemption, the SEC’s case has forced Ripple to be delisted on the leading crypto exchanges like Binance and Coinbase. Despite that, it has witnessed high demand from investors in Asia who are using it for remittances.
This will have an impact on the global crypto ecosystem and investors’ confidence as they will be cautious before purchasing Cryptocurrencies.
Ever since Bitcoin emerged in 2009, the Cryptocurrency space has grown by several leaps and bounds this decade. The industry will have to face data privacy, scalability issues, and regulations by authorities to grow further. The market has matured a lot now and become highly resilient. The technical infrastructure and a loyal user base are already present, and the time is ripe for increased adoption of Cryptocurrencies by individuals and enterprises in 2021.