Year in Review and Trends to watch in 2021
Bitcoin is closing the year with a 200% YTD performance and has literally crashed the previous all-time high of $20,000. The market cap of all cryptocurrencies soared from 180 to over $600B. Why?
Bitcoin halving in April this year has played its role as expected, but there are new mega-trends that are having a crucial impact on the massive growth of the crypto assets Market Cap:
A) Accelerated adoption of Crypto Assets by Institutional Investors and Large Companies (in the US above all) aiming both at investing, giving access to clients, employ liquidity\treasury
B) COVID19 and the massive injection of liquidity by Central banks around the World, bringing the US dollar to strong devaluation and rising expectations for growing inflation, together with negative yields on Bonds and many other fixed income products.
C) DeFi, i.e., decentralized finance protocols which allow P2P financial transactions of all kind and are self-governed by software. Even the most optimistic forecast made last year has been overcome by 2\3 orders of magnitude in terms of forecasts for this new phenomenon
Before looking at what happened this year, let’s get a taste of what 2021 could hold for us! Here are our bold predictions!
1. Institutional Adoption, Pandemic, mass Adoption
We can assume that all started with the big crash of every asset in march 2020, due to COVID concerns. While Bitcoin and all other crypto assets have been hammered more heavily than all other assets in the first days of the crash, they have recovered much faster and much stronger than the other assets.
Governments all over the World have been printing money increasing the monetary base in a way never seen before in order to protect economies, avoid panic, and avoid a freeze of all industries and consumer spending.
In some countries where inflation was already very high, people have been flowing to bitcoin to protect their purchasing power. But later on, key questions have been raised:
- How can an economy survive with unlimited printing of money?
- How can the US dollar -and other currencies- preserve their value in presence of such dilution?
- What happens when and if the stimulus comes to an end?
- How to survive in a World with negative yields for saving money?
- Is hyper-inflation kicking in sooner or later?
- Is the traditional financial market broken?
The crash, however, only caused a short-lived bear market, and in April Global Stock Markets re-entered a bull market, which would continue until now. With the assumption that even if those companies seem overvalued the only way to maintain the value of your assets is to move them away from cash and bonds as they offer negative yields and the purchasing power of 1 dollar will decrease over time very fast.
Others have increased their exposure to Gold, the safe haven asset since millennia.
Slowly, then suddenly, some large Institutional investors and leading personalities have been looking more into Bitcoin and its features:
- Finite supply
- Secure network
- Immutable properties
- Software based (not Politics based)
- Global Infrastructure (not Country based)
- Immediate settlement
- Easily transferable between people and places
- Censorship resistant
Looking at the list above, it is easy to see similarities with Gold, but only some:
-Gold has not a finite supply, it keeps being mined and we can even imagine that the current mining rate could change dramatically due to technological advancements, Elon Musk (is there Gold in Mars?) and other factors.
-Gold is hard to store, move around, transfer, custody or verify.
-Gold is subject to National Laws (small investors cannot own and store gold as an investment directly)
Now, all Gold in the World is estimated to be worth $11 trillions, almost 30 times the value of Bitcoin, and does not have all the features of Bitcoin. This year has been the year of reckoning for Financial Institutions and Large Investors. They finally started realizing there is a new, unique asset that not only can protect their assets, but it can also appreciate over time against all other investments: BITCOIN.
It is believed that Bitcoin was born -in the intentions of its creator satoshi Nakamoto- as a new currency, cheap to transfer and subject to minimal, programmable inflation. It has become something else: it has become GOLD 2.0, or Digital Gold. And the rush to buy has started this Fall, but this time from financial giants instead of retail investors as in 2017.
Institutions now investing or advising their clients to buy Bitcoin is large and growing; therefore we will limit our list to the most meaningful cases for the industry:
–Square, Revolut, Abra: payment, saving, and trading apps allowing now their customers to buy several crypto-assets directly from their account
-Paypal, with its 320M clients in the World, has started to offer crypto assets to its clients. Only in the Us for now but soon in the rest of the World.
-Fidelity, the largest asset manager in the World, now advise its clients to hold at least 1% of their portfolio in Bitcoin
-Michael Saylor, CEO of the Nasdaq listed Company Microstrategy, has decided to employ over 70% of the liquidity of its Company in Bitcoin. He has recently become a very well known public figure in the crypto industry and beyond and a strong advocate of Bitcoin. One meaningful quote: “Bitcoin is the World’s best Treasury Reserve Asset and emerging dominant monetary network. It is the Solution to the store of value problem, faced by every individual, corporation, and Government on Earth.”
Institutions like JP morgan, Goldman Sachs, and Citibank have recently changed their view on Bitcoin. Ray Dalio, the legendary investor, has started to explore Bitcoin. Blackrock, the largest financial Institution in the World has stated that Bitcoin can be considered Digital Gold and has the potential to become a Global Asset.
Considering the recent wave of new venues to buy and hold cryptocurrencies -Paypal purchases, after 1 month from launch already exceed the current monthly issuance of Bitcoin, which at current price amounts to $600M- it is not difficult to see that a shortage of Bitcoin is coming creating additional pressure to the price.
And this is only the tip of the Iceberg: today most of this activity and new trends is happening in America. But soon, Institutions from all over the World will follow the same path.
There are approximately 100 million people holding bitcoin now. Let’s imagine a World when ten times as many people use it. And let’s remember that the supply is limited to 21M bitcoin (currently in circulation: 18.577.062 BTC): Facebook Market capitalization is $800B, and it has 2.5B users who only share data with the social network. People who participate in the Bitcoin network use their money. Which user is worth more?
2. De-Fi: Decentralized, Open Finance, and Ethereum
Ethereum, as an ecosystem, looks unstoppable. Competitors are lagging behind and the market has rewarded this dominant position: ETH performance has been almost 3.5X. in 2020
Ethereum mission is very ambitious: becoming the 1st World decentralized Operating System. Compared to Bitcoin, which stands on its own stability and security, Ethereum is a platform made for others to build new applications and services on the Blockchain.
Ethereum has already made possible, in 2020, the first mass experiment in the World of Decentralized Finance: several programmable protocols — called DAO, i.e., Decentralized Autonomous Organizations — have been launched on the Ethereum Blockchain, offering P2P and trustless lending, borrowing, trading, derivatives, now competing with CeFi (centralized finance) such as Coinbase and other Exchanges. Total Value Locked (TVL) in DeFi protocols has gone from $650M to over $15B in 1 year.
Just as the Internet commoditized information and data, once available to Large Media Companies enabling everyone to communicate to everyone else to few, DeFi is enabling everyone to exchange with each other money, democratizing finance and radically increasing the rate of innovation in financial services. These protocols will allow anyone to build new businesses on top of those protocols. They will enable the under-banked and the unbanked to access financial services currently reserved to a small percentage of the world population: this is happening already right now. We cannot overstate the importance of these innovations: financial markets can become permissionless and accessible for the first time in history. People and businesses will be able to borrow, trade, utilize derivatives in an open and global marketplace, in a trustless way.
Some early leading players are emerging in DeFi, but the Industry is too new to draw any conclusion. Most models need to be stress tested at a larger scale and need to prove resilience to newcomers and competitors. Hundreds of startups are launched and compete fiercely for this market. The next two years will be key for the maturation of this new Industry.
All this has been made possible only through the incredible Ethereum blockchain and community, which continually pushes ahead the boundaries of what is possible to achieve with Blockchain Technology.
Hereafter some Ethereum key figures:
- +130 millions total Ethereum accounts created
- +46 millions new active Ethereum addresses in 2020
- Ethereum’s developer community is 5x larger than any other crypto ecosystem
2021 will be an important year for Ethereum. The transition to Ethereum2.0 will bring additional progress in terms of speed, scalability, and application that will make it possible for most people to taste what a World built on open finance is.
DeFi has also revolutionized Initial Token offering: new tokens once depending on the possibility to be listed on centralized exchanges (often by paying huge some of money) now each token sale can start autonomously and each project can list its token on several decentralized trustless exchanges. This provides an important new tool to new applications and services, being able to list their projects, transfer their tokens in a permissionless way.
Last year we showed unicorns (Value: >$1B) in the blockchain\crypto industry, both Companies and Token, predicting that in 2020 we would see many more names in the list. Today there are 31 Unicorn tokens vs. only 12 last year. Almost three times as many.
This time we are listing the DeFi projects on their way to become Unicorns, noting that last year this list would have been empty:
There are years in industries where nothing happen. Then there is 1 year that counts like 10 years: 2020 has been this year for the crypto-industry. This year has been witnessing, despite the Global pandemic, an unimaginable recognition for Bitcoin, an incredible adoption rate and the start of a global Financial Revolution. The crypto industry’s network effect, now at 100 Million users, is proving its full power. There will be a transition from a trust-based World -requiring several layers of intermediaries, imbalances of power, unclear rules- to a progressively self-sovereign one. This is the greatest investment opportunity, for Humanity, in our times.