The last year was hilarious for the blockchain market as COVID-19 accelerated the digital transformation. There is some evidence that 2021 will be even more deciding for the future developments in the crypto world and here are some upcoming crypto trends in 2021.
Between Gold & Casino
The king of all cryptocurrencies is, of course, Bitcoin and its dynamics will influence the whole market. Many events, both crypto-specific and mainstream, appeared as catalysts for Bitcoin’s price action. One of the reasons for such a huge growth in recent months is the support of institutional investors who are willing to hedge against the fluctuation in traditional asset classes. The total value of cryptocurrency assets under management across different financial firms gained significant value during 2020. Companies like Square, MassMutual, and MicroStrategy have used their balance sheets, while PayPal has started accepting cryptocurrency on its platforms and Elon Musk has announced that Tesla has purchased $1.5 billion in Bitcoin and will begin accepting payments in the cryptocurrency. Like gold, which retains its value but can be volatile in shorter periods, Bitcoin fills a role of a security blanket for investors who are anxious about the state of the world. With continuous lockdowns across the world, global recession, trillions of dollars printed by central banks, and rising inflation, Bitcoin is seen as a very successful inflation trade. The next big game for bitcoin is sovereign wealth funds and governments. Will they be ready to make a public investment in bitcoin next year? Norway’s sovereign wealth fund, for example, already holds Bitcoin through the stake in MicroStrategy.
Decentralized financial services (DeFi) projects could be one of the biggest trends in the crypto space in 2021. Lending, borrowing, structuring derivative products, and the buying and selling of securities through a decentralized open-source network could revolutionize the whole financial system. Most of the DeFi contracts incorporate stablecoins. The examples of DeFi usage include decentralized exchanges that act like peer-to-peer exchanges (Curve, Uniswap, Bancor, Kyber, and Synthetix are among them), loan contracts where interest rates are calculated algorithmically based on supply and demand (Compound, Aave, Maker are among some well-known lending platforms), asset management protocols for automates robo-advisory (Yearn.Finance, Melon, Set protocol, Zapper.fi and Insta.dapp) and many other solutions in the field of finance and insurance.
Hedge Your Bets
As mentioned before, stablecoins are useful mediums for DeFi. They are used as a hedge against volatility on the market. There are different versions of stablecoins- from fiat-collateralized to crypto-collateralized. Fiat-collateralized stablecoins maintain a fiat currency reserve, like the U.S. dollar, as collateral to issue a suitable number of crypto coins. The most well-known examples are Tether (USDT), USD Coin (USDC), Binance USD (BUSD), and TrueUSD (TUSD) that are pegged to the U.S. dollar on a 1:1 ratio. For other national currencies, there are also stablecoins on the market like Singaporean dollar-denominated token (XSGD Stablecoin) and the EURS stable coin. Crypto-collateralized stablecoins are backed by other cryptocurrencies. The example for this type is Maker‘s stablecoin Dai which is sent to the users in return for sending the underlying collateral, Ether, to collateralized debt positions. In 2021 we are expecting Facebook to launch its stablecoin, Diem (rebranded from Libra). It could motivate other companies to get into the game of issuing their coins as well.
Are Central Banks in The Game?
With all the new crypto trends and solutions, the governments also don’t stay behind the scenes and CBDCs (central bank digital currencies) could become the future of money and payments. CBDCs would make cheap, easy payments available, for example, from smart card to smart card or device, without a middleman. Countries like China, Hong Kong, Thailand, the EU, U.K., U.S., and Australia, are currently exploring the potential use for tokenized money. In 2021 all eyes are looking mostly at China and its digital yuan that will allow users to send money to each other by simply touching their smartphones. The US and Europe on another hand are some steps behind. Even though they have already started the research projects in this area, it may take them years to proceed with the implementation of digital currencies. For instance, the ECB chief Christine Lagarde denies central banks will hold Bitcoin and says that it is a a highly speculative asset, which has conducted some funny business and some interesting and totally reprehensible money laundering activity.
“Bitcoin is a highly speculative asset, which has conducted some funny business and some interesting and totally reprehensible money laundering activity.” – Christine Legarde, European Central Bank
Virtual Reality Shopping
NFTs (non-fungible tokens) are digital assets representing items that exist both in the virtual and real world. These assets are mostly tracked on a blockchain like Ethereum. They are practical for people who want to trade items since they don’t need to go through the onboarding process of a centralized platform to make them tradable. They can be instead tradable through protocols of a decentralized exchange. There has been a particularly significant growth of NFTs in the gaming and art industries. An interesting concept in the art area is programmable art where pieces of art can change dynamically depending on the price or ownership of the items. The popular art marketplace called Async Art allows users to own art collectively through NFTs. In the virtual reality spaces, this kind of works will attract more interest with time. In the gaming industry, it works similarly with its in-game items that can be purchased in a decentralized way without an amount limit. The games like Dark Forest and Axie Infinity already allow users to collect, discover and trade items with NFTs. One of the biggest purchases so far has been the $170 000 CryptoKitty (a virtual cat from a virtual pet game like Tamagotchis).
Ready to Pay More?
Today taxes in the crypto world is still more a myth and far away from the real picture. They are not widespread, hardly regulated, and sometimes undesirable by the mass population, but the governments have already started developing monitoring tools for cryptocurrency transactions. For example, Blockpit, the Austrian developer of solutions for digital assets, already provides software for cryptocurrencies. 2021 might be a year of significant change where crypto exchanges will be required to report on their customers’ gains to their customers’ local tax authorities.
Everyone is Rushing into Crypto
From large hedge funds like Renaissance Technologies and family offices to traditional financial institutions like JPMorgan, Citi, and Deutsche Bank — everyone is running there. Many banks begin to make their crypto plans public. We will see this trend accelerating in 2021
5G technology will in the nearest future decide how the mining is built, what DeFi applications will be in development, and what new services will appear on the market. The problem of trading for traders will be solved as with 5G they will not have to locate their servers close to the crypto exchanges anymore and the high-frequency trading segment will come to a new level.
Future of Crypto Trends is in Our Hands
In general, as the crypto trends continue maturing towards global worldwide acceptance — a positive outcome is expecting us in 2021. There are still many unresolved problems, but with the support of regulators, crypto companies, financial institutions, traders, and all of us these problems can be solved faster in the upcoming years.