Bitcoin (BTC) and other cryptocurrency platforms such as Ethereum (ETH), Litecoin (LTC), Bitcoin Cash (BCH), Binance Coin (BNB), Chainlink (LINK), and Polkadot (DOT) are being increasingly adopted by a diverse group of users across the globe.
Many more institutions and fairly large publicly listed companies like MacroStrategy Incorporated (Nasdaq: MSTR), entered the crypto space in 2020, which was marked by great socio-economic uncertainty due to the COVID-19 outbreak.
The digital assets market cap currently stands at over $860 billion, with Bitcoin dominance reaching nearly 70% – which means that the flagship cryptocurrency has captured the majority of the nascent market with a market cap of over $585 billion at the time of writing. The Bitcoin price continues to set new all-time highs and is presently trading at around $31,667, according to CoinGecko data.
What Does the Current Crypto Bull Market Mean for the Digital Assets and Blockchain Industry?
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 we have seen similar prices during the historic crypto market bull run of 2017 (and now much higher BTC prices), there’s a lot that has changed fundamentally since that time. It can be argued that the late 2017 and early 2018 rally was based on a lot of speculation and driven by many eager retail traders.
But after the Bitcoin and larger crypto market crashed badly during the extended bear market of 2018, most of the companies and platform developers began re-evaluating their strategies. At that time, there were a number of serious issues that needed to be addressed before the crypto market could rise again and gain more meaningful adoption among the masses.
As most industry participants would know, there were numerous scams carried out under the guise of initial coin offering (ICOs) and this trend continued later on (for the most part) in the form of initial exchange offerings (IEOs). Like ICOs, IEOs were more about “speculation and trading” than fundraising and project development, according to an extensive blockchain industry report.
These fraudulent activities led to losses worth billions of dollars for unsuspecting investors. The crypto space has endured some of the largest scams ever orchestrated including Bitconnect, the multi-billion dollar PlusToken scam, among many others. These malicious and highly damaging activities made it abundantly clear that the crypto industry was badly in need of a proper and clear regulatory framework.
Expect More Progressive Crypto Regulations in 2021
As we head into 2021, leading digital asset exchange Binance has announced that it plans to continue taking regulations more seriously, but multiple warnings from regulators suggest otherwise. This year, we can expect a lot more regulatory scrutiny, especially from regulators like the US Securities and Exchange Commission (SEC) and also from UK’s Financial Conduct Authority (FCA) – which has also begun to crack down on unauthorized businesses pretending or posing to be licensed.
As the digital assets and distributed ledger technology (DLT) industry continues to mature, we can expect that regulators will develop a much better and clearer understanding of these open-source protocols. With more awareness of how these technologies will impact the broader financial markets, regulators like the SEC and the US Commodity Futures Trading Commission (CFTC) can begin drafting more suitable guidelines for blockchain and crypto-assets.
It’s worth noting, however, that some recent regulatory actions taken by FinCEN, like their proposed new rules for self-hosted cryptocurrency wallets, seemed quite rushed and unjustified according to many industry professionals. Despite these challenges, it does seem that we can look forward to more productive dialogue or progressive discussions as we move forward.
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.
— Brendan Blumer (@BrendanBlumer) January 5, 2021
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.
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.
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).
More DeFi Hacks, Security Breaches Could take Place in 2021
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.
Expect More Efforts Directed Towards Greater Decentralization, Autonomy
The trend towards greater decentralization is being supported by various new platforms that are part of Web 3.0, which is an evolving set of standards for the Internet of the future. While Ethereum has played a leading role in the development of Web 3.0 protocols, there are other blockchain interoperability solutions being launched such as Cosmos (ATOM) and Polkadot (DOT). These DLT platforms aim to provide improved interactions and a lot more compatibility between separate or independent blockchain networks.
Although many Ethereum supporters claim that it’s not really necessary to have multiple chains, or even think only a very limited number of blockchains are needed to deploy decentralized applications (dApps), many developers are also chain agnostic, meaning they would rather let the end-users decide and choose which blockchains they’d prefer to work with, which could be many different ones at the same time.
It also makes sense that individuals and businesses would benefit from more choices like EOS, Tron, NEM, NEO, Kadena, Zilliqa to name a few, especially considering that Ethereum transaction fees have skyrocketed recently and the blockchain has become quite unusable due to large amounts of network traffic.
How to flex you are rich? You say, "I just sent some #ETH to …" Must be a huge amount to be worth the fees.
— CZ Binance (@cz_binance) January 4, 2021
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 – like the fairly recent one experienced by Ledger (a leading cryptocurrency wallet provider).
As reported, Ledger’s customer data, which included millions of user emails and other personal details, were leaked on a web forum. Although user funds weren’t stolen due to the hack, Ledger customers received many threatening emails that tried to extort money from the victims. Clearly, these are very serious issues but they do teach us that everyone must learn to take more responsibility for how they interact online and the type of information they’re sharing with different service providers.