This year in crypto. 2021: crypto adoption, Bitcoin resilience, NFT revolution and more...
Happy New Year, dear friends! Here we are, 2022.
Another year has passed, and what a year it was for crypto!
Bitcoin hitting incredible (and until recently almost unimaginable) heights of over $60k is only one of the indicators of the profound shift in people’s attitude to cryptocurrencies.
Whether it is to hedge from the inflation, to profit from cheap and easy money transfers, to access the world’s finance or to diversify a portfolio, more and more people are interested in crypto, and their interest triggers very different responses from companies, banks and regulators.
For us these responses are indicators of the public sentiment, and when compiled, they show a very interesting picture of 2021 – the one of steadily growing crypto adoption and great resilience.
Banks
Nowhere the love/hate relationship to crypto is more obvious than in the banking sector.
Crypto is definitely a major threat to the banks, exposing their obsolete red tape and siloed structures. It’s no surprise then that so many banks are hostile to crypto and do everything in their power to stop it: from lobbying to denying their clients access to crypto exchanges or closing accounts of crypto-related businesses. HSBC, BNP Paribas, Credit Agricole… the list of crypto haters is very long, especially in countries like France, where the banking sector is ruled by a handful of old money guys firmly decided to keep it from newcomers.
Some of the banks, however, start to understand that it’s impossible to fight against the tide, and try to jump on the crypto train. 2021 was marked by some of the world’s biggest banks developing their crypto offers: custody, exchange, derivatives… These offers are often restricted only to private (= the richest) clients, but it is a start, and it shows just how inevitable crypto is. Most of the banks that turned to crypto this year were American (Goldman Sachs, Citi, US Bank…), showing how a practical reasoning wins over a deeply rooted resentment.
Other banks try to sit on two chairs at the same time, investing in crypto ventures (Standard Chartered, UK) or plunging into DeFi (Société Générale, France), all while prohibiting their clients from sending money to a crypto exchange or closing an account of a crypto-related company without explanation. Could such a strategy last? We don’t think so, for at the end of the day each bank will have to listen to its clients… and the clients are getting angry.
This year’s story of Australian banks giving in to crypto can give as a pre-taste of what it is to come:
In September, the Australian Senate Committee heard the testimonies of two local crypto exchanges complaining of the bank bullying, mostly consisting in repeated denial and closure of exchanges’ accounts. In October, the Committee published a very bullish report calling for a crypto-friendly regulation, and in November the Commonwealth Bank of Australia (one of the banks that were bulling crypto companies) announced that it will become the first Australia’s bank to offer crypto services to its customers.
Payment services
Companies that make their living on processing payments realize crypto potential very well. This year both VISA and Mastercard announced their different crypto ventures and pilots, and PayPal, after making crypto-friendly statements in 2020, enabled crypto payments to all its network of merchants. The Philippino GCash and LatAm Mercadopago joined the club, while Twitter allowed crypto tips.
Crypto native payment apps, like Strike (the one used by Twitter in the US), have thrived too, exploiting the possibilities of layer-2 solutions like Lightning Network to allow easy, cheap and fast transactions. Lightning Network capacity has grown more than 3x this year: from 1000 BTC by the end of 2020 to over 3’300 BTC now, turning another page in the crypto adoption story.
By the way, have you noticed that “not enough transactions per second” argument has disappeared from the nocoiners’ arguments? 😏
Public companies
One of this year’s big bullish moves of the Bitcoin price was attributed to Elon Musk backing crypto and announcing buying $1.5Bn in BTC for the Tesla treasury. The trend started earlier though. In September 2020 Michael Saylor’s Microstrategy went into Bitcoin buying spree (still going on), soon joined by the Massachusetts Mutual. Many public companies have joined the club since then, including Jack Dorsey’s payment app Square and the largest Latin American retailer Mercadolibre.
Having crypto in these companies’ treasuries gives some crypto exposure to everyone holding their stocks, but there’s also another way of getting it – and this is via the crypto funds.
Crypto funds
Grayscale, the world’s biggest crypto asset manager, allows accredited investors to get crypto exposure by buying shares of its funds, and they are generally a good indicator of institutional investors’ interest in crypto. Ending 2020 with over $24Bn in AUM (asset under management), Grayscale reported having $43.6Bn in the end of 2021 (with the peak of $61Bn in November), spread across its different funds: Bitcoin and Ethereum of course, but also including other cryptos like LINK, MANA or BAT, added in 2021.
However, restricted funds like Grayscale’s are not always available to the general public or some conservative institutions - and that is why the issue of the ETFs, or exchange-traded funds, has been crucial for crypto finance in 2021.
The year started with the first Canadian ETF, which was a great success, generating $1Bn in trading volume in the first two months, and ended with the much-expected American Bitcoin ETF, which registered almost $1Bn turnover in its first day 🤯, marking the highest natural (not pre-planned) volume ever seen.
Regulation
Crypto has never been as much on the regulators’ minds as in 2021, and most regulators addressing the issue fall into one of the 3 categories: crypto deniers, hesitating and enthusiastic.
⛔ Crypto deniers mostly include authoritarian countries, like China, which banned crypto altogether this year, or Turkey, where its President once said “We’re at war with crypto”.
Crypto, however, isn’t at war with anyone – it’s literally just a computer protocol run by people scattered all over the world, and it can very well continue thriving without the regulators’ blessing 🤷
Thus, Bitcoin hashrate that fell dramatically after China has banned crypto mining in May, has completely recovered since - and it’s not trivial at all, taking into account that 65% (!) of the world’s hashrate was produced in China before the ban.
Or take Nigeria. In early February its Central Bank prohibited all financial service providers from facilitating crypto-related transactions, but it only led people to hoard crypto on peer-to-peer exchanges like Paxful and even risking their money by buying crypto via Telegram and Whatsapp channels. Nigeria is now ranked 6th in the 2021 world crypto adoption index compiled by Chainalysis.
Many crypto deniers put their hopes on CBDC, or Central Bank Digital Currency, trying to make people believe that it will solve all the fiat currency’s problems. However, unlike the Indonesian Central Bank, we don’t think that “CBDC is a tool to fight crypto”. CBDC is the same old fiat, but with faster transactions and allowing the Central Bank to connect directly with the people (imagine all the privacy issues!) 🤦 It will not protect the currency from over-printing or other politically inspired action. However, this does not stop Central Bankers from promoting CBDCs as the solution to all problems, and after 2021’s e-yuan and e-naira, 2022 can bring us more CBDCs
🤔 Most countries are still trying to find their stance, balancing between hostile Central Banks (of course!) and the needs of people and businesses. The US is a good example of such duality, with, on the one hand, enthusiastic local authorities in Texas, Florida, Wyoming, NYC… and on the other hand, strong anti-crypto lobby on the Federal level. In one of the previous newsletters we wrote about these crypto hostile officials circulating from the Treasury to the Fed and back, not shying away from taking millions of dollars in “speaking engagements” from the banks…
The US crypto industry, unsurprisingly the biggest in the world, has taken a big blow by the end of this year, when controversial crypto provisions were added to the Infrastructure Bill, so dear to the President Biden. When/if enacted, they will heavily handicap the DeFi industry by putting impossible reporting obligations on the companies, so several pro-crypto Senators have already submitted amendments to these provisions.
The dichotomy of the American authorities is, in our opinion, a very good representation of how crypto could make its way in other countries’ regulatory field: a rising pressure from the people and businesses vs the old guys not willing to let go of the power. American crypto regulation is something to definitely follow in 2022, as crypto is becoming an increasingly important electoral issue.
👍 Crypto-enthusiastic countries are led by a small Central American state of El Salvador, which famously recognized Bitcoin as legal tender and started buying it for its Treasury. Sure, in 2021 such bold move was only possible with a daring pro-crypto President firmly ruling a small country, but it gave others an example.
Who knows, maybe in 2022 other countries decide they need crypto as an alternative reserve currency (dollar has been showing its weaknesses for quite some time already), or as a way to bypass economic estrangement ( Bitcoin already recognized as a legal payment means in Cuba in September)... We believe this is totally possible.
NFTs and Metaverse
There’s so much more to crypto than money, and this year has given us a peak into what’s to expect.
NFTs are clearly the revelation of the year. Their trading volume exploded in 2021, reaching $23Bn (source: DappRadar), which is a mind-blowing 9’100% increase compared to 2020’s $250M.
🖼️ Art is still the most expensive NFT category: Beeple’s NFT Everydays auctioned off at Christie’s in March for over $69M still holds the record as the year’s most expensive.
🦧Collectibles have reached whopping heights too. The most expensive Cryptopunk was sold in June for over $11M, but as a collection Cryptopunks have beet beaten by the 2021-born Bored Apes Yacht Club, which has shown how much of a potential NFT collectibles could really have: not only in being a valuable memorabilia, but also an effective tool in building a community and creating a real economy around it.
🎮The most traded NFTs in 2021 have not been collectibles though. They were gaming NFTs developped by the Axie Infinity play-to-earn game. The category as a whole was a great success: according to DappRadar, an average of 1.4 million daily user active wallets are connected to the crypto games, generating not only blockchain traffic, but also a noticeable social impact: many people in countries like the Phillippines or Venezuela can now even make a living playing crypto games.
The Metaverse is another notion that took a whole new importance in 2021, and it is directly linked to the NFTs. As centralized metaverse is being developped by Facebook (now Meta), decentralized metaverses like The Sandbox or Decentraland have seen a spike in interest. Using NFTs to sell plots of land and other items in these worlds will make sure that the metaverse is censorship-resistant and the users truly own their digital property.
Markets
With so many projects using different blockchains - from Ethereum to Solana, passing by the Binance chain, Polkadot, or the emerging Terra - it’s not surprising that Bitcoin dominance fell from over 70% in January to 40% in mid-May, and stayed on that level ever since.
The global crypto market cap has grown from $758Bn in 2020 to $2.37 Tr now, and this is a massive 216% increase. Let’s relish this moment for a bit, before we plunge head first into 2022, which, we are certain, has its set of surprises for us.
Wishing all of you the best in 2022, let’s dream big and dare to change the world ! 🎊
With love,
D.Center ❤️