9 Crypto Predictions for 2021: What's next?
In 2017, when Bitcoin broke $20,000, there wasn’t much time to celebrate. The value of the world’s biggest cryptocurrency quickly fell through the floor — and by December 2018, it was languishing around the $4,000 mark.
With BTC ending the year close to $30,000, there seems to be a lot of optimism that such a dramatic decline isn’t going to happen again. With institutional investors piling into crypto like never before, this bull run feels a lot different.
1. Demand for DeFi will continue to rise
In 2020, we saw a ridiculous 15-fold increase in the value locked in DeFi protocols. Much of this growth was driven by the trend of liquidity mining, kick-started by some key players like Compound and Balancer, where protocols incentivized users to supply liquidity in exchange for governance tokens that appreciated quickly over time.
The community also saw a trend of developers forking existing protocols and platforms to build ones for more custom use cases or enhanced decentralization and privacy. The incredible capitalization of these existing platforms could also set them up to support more unique functionalities, including larger loans, differentiated lending products and more.
2. Governments will be exploring central bank digital currencies more seriously
Several governments and cross-governmental agencies demonstrated a serious commitment to exploring how CBDCs (Central Bank Digital Currencies) can better support economies, via pilots and in-depth case studies. With the impending Diem launch and other projects like Celo rolling out more products and functionalities, it’s likely that stable-coins will generally gain more traction as a viable vehicle for money transfer, spurring even more governmental interest.
China’s pilot with the digital renminbi (DCEP) has gone exceedingly well, and availability is targeted to expand next year, maybe even faster than we expect. In Japan, 30 banks are already investigating a digital currency offering, and the country may even see a full public rollout in 2021 itself. The Bank of England also continues to investigate applications for CBDC in retail, and could begin pilots next year as well.
3. Crypto will begin to see widespread mainstream adoption
Even the harshest critics of cryptocurrency and digital currency are beginning to see the immense value that can be generated by these technologies.
The explosive growth on DeFi protocols itself is too strong of an argument to reject. In Latin America and Southeast Asia, more and more people are using cryptocurrency to settle regular, everyday financial transactions. Additionally, as the community comes up with better primitives, tools and abstractions for building dapps, developers will be able to position these tools in more appealing ways to everyday consumers.
Given the convergence of all these factors, 2021 could be the pivotal year for driving mainstream crypto adoption.
4. Bitcoin, Ethereum will continue to grow immensely
In 2021, there will likely be a continuation of a bull market for crypto native token Bitcoin and also Ethereum.
Bitcoin
Bitcoin currently has a market cap of around $600bn, roughly one twentieth that of gold. But while gold has seen modest gains since the start of the pandemic, Bitcoin has risen at 10-times the pace.
The top hedge funds experts and bankers claim that Bitcoin could rise in price to cross the $100,000 mark by the end of 2021. According to the City Bank, it could hit as much as $300,000 next year, this is more than 15 times its current value.
Ethereum
Bitcoin is not the only crypto-asset that’s surging this year. Ethereum, the world’s second-largest digital currency, now has a market cap of over $117 billion and ETH is trading at more than $1,000 for the first time since early 2018 when it briefly surged to around $1,400 before crashing hard along with the rest of the crypto market a couple of years back.
While the media has so far focused on the price of bitcoin in 2020, the price of ethereum (ETH) rose at a more rapid rate compared to that of Bitcoin.
BTC: USD 7,195 → USD 29,001 (4.03x)
ETH: USD 129.6 → USD 737.8 (5.69x)
The on-chain fundamentals of Ethereum have also dramatically improved compared to that of Bitcoin. As DeFi (decentralized finance) activities, or financial services and products within the Ethereum ecosystem, exploded with innovative experiments in 2020, on-chain transaction fees of Ethereum have exceeded those of Bitcoin.
Ethereum looks set to break out in 2021. As its technological advantages gain steam, Ethereum investors could see $1,500 in the near term and $2,500 sometime by the end of 2021.
5. We Can Expect More Companies to Add Bitcoin (BTC) to Their Balance Sheets
Many companies have come forward to add Bitcoin to their balance sheet. Business intelligence firm MicroStrategy has now added billions of dollars worth of BTC to their treasury. Several other large firms have done the same or are planning to do so in the future.
It appears that this trend began to really take off in 2020. When awareness about the Coronavirus crisis became more widespread in late February and March 2020, and the global financial markets crashed to historic lows, many more individuals and businesses realized that they needed to explore alternative forms of investments and look for other ways to hedge against unprecedented levels of volatility and economic uncertainty.
6. Expect Bitcoin to Be Used More Often As Store of Value
While other digital currencies such as Bitcoin Cash, Litecoin, and Bitcoin SV (BSV) allow investors to diversify their investment portfolios, these assets have not proven to be legitimate alternatives or options when it comes to serving as a reliable long-term store-of-value (SoV). Only BTC, which has the world’s largest and most secure crypto network, and potentially Ethereum (ETH) now to some extent, have shown that they’re able to hold value and even appreciate in value dramatically over longer periods of time.
According to well-known investor Raoul Paul, there’s no other asset besides Bitcoin (and Ethereum to a certain extent) that can potentially deliver 10x or higher returns within a span of a few years. Paul, who now holds the majority of his net worth in Bitcoin and Ethereum, believes that these assets provide an excellent risk-to-return ratio.
Beyond the pure financial value that can be generated by decentralization and cryptocurrency, large financial institutions are also beginning to see significant potential in the underlying blockchain technologies and some key ways they could support existing financial systems. Traditional securities bookkeeping has a poor record of ownership, significant manual oversight for compliance and long/slow trading workflows. Digitizing bookkeeping using blockchain and cryptography could make things significantly cheaper and more secure.
Using cryptographically verifiable keys can provide a more trusted record of ownership, and digitization also naturally leads to faster workflows and more automations. Such a change is likely to be slow, because it challenges a longstanding paradigm within the financial industry, but it definitely generates a significant amount of value for the space and banks are beginning to keep their eye on it.
7. Expect Ethereum-dominated DeFi to Gain More Users and Use-Cases
In addition to cryptocurrencies being used as a hedge against the traditional financial markets, which have seen historic levels of money printing by reserve banks across the globe, we can expect the Ethereum-dominated decentralized finance (DeFi) space to continue to grow rapidly. In early January 2020, the entire DeFi market had only around $600 million in total value locked (TVL) into various DLT-enabled smart contracts. At present, there’s more than $14 billion in TVL captured by various DeFi protocols such as Aave, Maker, Uniswap, Compound, Synthetix, SushiSwap, Balancer, Yearn.Finance, among many others.
Some of these platforms like Aave (AAVE) have even managed to acquire an electronic-money license from the UK’s FCA and have handled billions of dollars in deposits. Uniswap, a leading Ethereum-based non-custodial exchange, is now regularly handling billions in trading volume and offers support for a wide variety of ERC-20 tokens. In 2021, we can expect these platforms to gain even more users and we might see DeFi startups launch even more creative projects.
DeFi mania, which really kicked off during the summer months of 2020, was fueled by a lot of speculative trading and investments. There were also numerous scams and hacks of smart contracts associated with these DeFI networks which have primarily offered borrowing, lending, yield farming, and liquidity mining options (among other use cases).
8. It’s Still Early Days, so Expect More Problems
Although it’s been over 10 years since the launch of the Bitcoin (BTC) protocol, which is the very first blockchain-enabled platform, the industry is still in its early stages of growth, development, and adoption. Since we’re so early, there’s a pretty good chance we’ll see many more technical issues and other types of problems with Internet-based platforms, including extremely damaging security breaches.
This year, we might see a lot more ways that individuals and businesses can borrow, lend, or invest in DeFi-based platforms. But we shouldn’t be surprised if this experimentation leads to many more scams and hacks. The decentralized finance and wider crypto space is still in its early stages of development, which means that these protocols haven’t been thoroughly tested.
Andre Cronje, an Ethereum / DeFi architect who’s focused on the development of Yearn.Finance and Curve.Finance (among other initiatives), has even stated that he builds software mainly for himself and anyone who wants to use it should take responsibility and take precautions as needed. In other words, these open-source protocols require users to accept greater responsibility for their actions and if they lose their funds, then there’s usually no recourse. There’s normally no centralized provider they can depend on to recover their lost or stolen assets, because these platforms are supposed to be decentralized.
9. More regulatory clarity
It took five years for the stable-coin supply to reach 6 billion. It took only four months after that for the supply to double to 12 billion, in the wake of the March crypto crash earlier this year. Hard on the heels of the stable-coin boom, the Financial Action Task Force (FATF) issued a cautionary statement. One can expect that given the continued growth of stable-coins — from a total market capitalization of little over US$5 billion at the start of 2020 to US$33.5 billion at time of writing — regulatory agencies will likely be paying more attention than ever.
The vast majority of crypto regulation thus far has been centered around distinguishing securities from commodities and ensuring that tokens follow appropriate guidelines per SEC (the Securities and Exchange Commission) and CFTC (the Commodities and Futures Trading Commission) rules. Not as much work has been done on crypto as an everyday store of value, and how stable-coins and other digital currencies can be used for retail, compensation and more.
Governments are interested in how crypto transactions would affect taxes, especially demonstrated by the U.S. Internal Revenue Service’s inquiry into digital financial activities. Above all else, the growing interest in using cryptocurrency, not exclusively as a means for trading, lending or investing, but as a literal replacement to cash and credit in our everyday financial activities will necessitate much more regulatory work from key agencies in 2021.
Regulations can cut either way. Countries such as India with a recent history of ambivalent stances towards cryptocurrency could take actions that impede the industry’s growth, and crypto companies have reason to be wary of a tightening regulatory environment that could put a halt to their work overnight. Consider the U.S. crackdown on BitMEX and what China recently did to OKEx as cautionary tales for crypto exchanges.
Recently, the Office of the Comptroller of the Currency (OCC) revealed that it will basically treat permissionless, DLT networks like SWIFT or other traditional providers when conducting cross-border transactions. This could potentially mean that international funds transfers, which can take several business days, could be completed almost instantly. Clearly, there have been many positive developments on the regulatory front which suggest that we can expect a more well-regulated industry in the foreseeable future.
