By any measure, 2021 was a historic year for the digital asset industry and one that will go down in memory for having broken new ground in several crucial areas. As the year draws to a close, it’s timely to reflect on the key trends fueling the current rapid development across the sector.
The Bull Market Returned
The bull market was already in evidence in 2020, particularly in the last quarter, but 2021 was when the markets finally moved back into new highs. After the first weeks of the year saw Bitcoin rally up to a new high above $40,000, things cooled off again briefly before going on to break even higher highs at $64k in April. However, the euphoria wasn’t to last, with a correction back down below $30,000 coming in by late July.
By October, the bulls were back in force, managing to push BTC up to new highs of $69,000 before the bears took over. The current outlook for the rest of the year remains undecided. However, most sources seem to agree that the bull market is far from over and that we can expect more price action early next year.
Furthermore, we’ve already noted that platform tokens seem to be subject to their own price forces this year, with several outperforming the rest of the markets. So even when things seem bearish, there’s plenty of opportunity on the markets if you look for it.
Meme Traders Created Market Chaos
It seems long ago now, but it was only at the start of 2021 when a group of Reddit traders caused uproar on Wall Street by buying up GameStop stock. By forcing the share price up, the traders managed to cause a massive short squeeze on hedge funds, forcing them to abandon their positions.
While the meme stocks craze started on the stock markets, the action soon spilled over into the crypto markets, with meme coins proving to be the biggest benefactors. Traders pumped Dogecoin up to its all-time high of $0.73 – gains of over 24,000%. DOGE would go on to spend most of the rest of the year as a top ten cryptocurrency. Fellow meme coin Shiba Inu (SHIB) would go on to have a run of its own in October, but by November, the meme traders had moved back onto stocks, including Avis car rentals and Bed Bath & Beyond.
NFTs Took Over Art and Gaming
Non-fungible tokens (NFTs) emerged in early 2018, but 2021 was unarguably the year that they made their debut to mainstream audiences. Signs of an NFT revolution had begun to appear in the digital art space by the end of 2020, but in the first quarter of this year, NFT art sales had skyrocketed from $31 million to over $500 million. One of those sales made global headlines when Christie’s auctioned an NFT-based digital art collection by Mike Winkelmann, AKA Beeple, for $69 million.
Over the intervening months, NFTs have gone on to become one of the most talked-about technologies of the year, embraced by celebrities, sports clubs, luxury brands, and more. Gaming, in particular, is proving fertile ground for NFT adoption. Twitch co-founder Justin Kan recently launched an NFT gaming marketplace on the Solana platform, while gaming industry veteran Peter Molyneux is reportedly going “all in” on NFTs in his next project, Legacy.
DeFi Continued an Epic Trajectory
DeFi was already the biggest news story in crypto in 2020, yet the trend continued unabated in 2021. The year started with around $20 billion of value locked in DeFi applications, going on to exceed $270 billion by the time the market reached its peak in November.
Whereas DeFi’s growth in 2020 was predominantly based on Ethereum, 2021 was the year that DeFi truly went multichain. Over the last twelve months, platforms including Binance Smart Chain, Avalanche, Polygon, and Solana began to see significant volumes of DeFi activity. None has yet overtaken Ethereum, but at the time of writing in December, Ethereum’s dominance in DeFi was down to 65%, compared to above 95% in January.
Bitcoin Became Legal Tender
On September 7, 2021, El Salvador made history by becoming the first nation in the world to adopt Bitcoin as legal tender, despite dire warnings from economists. Although it’s probably still too early to tell if the move will be successful in the long term, it’s certainly a ringing endorsement for Bitcoin and puts the world’s biggest crypto into the hands of 6.48 million Salvadorans.
Finally, regulation is another challenge, depending on the jurisdiction. In some formats, particularly where they It’s also led to increasing speculation that other countries may follow El Salvador. Studies have shown that the younger generation, in particular, supports the idea of Bitcoin as legal tender. However, the IMF has warned of “significant risks” in adopting Bitcoin as a national currency, so this may not be a story that’s set to repeat.
Institutions and VCs Flooded In
The bull run of 2017 was mainly fueled by retail speculators, while the accompanying ICO boom was a virtual free-for-all. In contrast, the 2021 bull run has been characterized by an inflow of professional investors. Wealthy corporate buyers like MicroStrategy and Tesla have spent 2021 buying up Bitcoin as a balance sheet asset, while financial institutions like Citi, Bank of America, and BNY Mellon are making inroads into cryptocurrency adoption to meet client demands.
2021 has also been a stellar year for VC investing across the board, and as a fast-growing tech segment, crypto has benefited from this trend. By early December, VCs had poured over $27 billion into crypto startups, over three times the amount invested in 2018, the next biggest year. Following trends already noted, NFTs and DeFi have been two of the biggest beneficiaries, although a $1 billion funding round from FTX indicates that exchanges still hold plenty of attractions for investors.
Metaverse Became Mainstream
Outside of the crypto space, few were talking about the digital metaverse before October of 2021. But even though Facebook had already previously announced its intention to focus on developing a metaverse, it was the announcement of a name change to Meta Platforms that seemed to represent a tipping point. Ever since then, metaverse seems to have become the latest crypto buzzword to penetrate the mainstream.
Most recently, the trend appears to have penetrated the sportswear sector, with Nike and Adidas both setting out their metaverse intentions. Nike acquired the virtual NFT footwear platform RTFKT, while Adidas has established several partnerships with high-profile NFT issuers. It seems certain that they won’t be the last to throw their hat into the metaverse ring.
Stablecoins Face Regulatory Uncertainty Against CBDC Threat
The pace of development in digital asset regulation remained as glacial as ever in 2021. Still, there are signals that we can expect changes to come, particularly in the arena of stablecoins. In September, SEC chair Gary Gensler compared them to poker chips, and in November, a US government working group deemed them at risk of becoming “systemically important,” necessitating regulation. In Europe, the draft Regulation on Markets in Crypto Assets proposes to limit the use of stablecoins such as DAI.
The developments regarding stablecoin regulations are particularly intriguing given the parallel progress in CBDC research. It seems inevitable that fiat-backed stablecoins will compete with any retail CBDC, so we can expect further developments in this area in 2022 – and not ones that will all necessarily be welcomed by the crypto sector.
With many still eyeing a new Bitcoin high, does that mean we can expect a resumption of the crypto winter in 2022? It seems unlikely. During the last market highs in 2017, the market was missing much of the professionalization that’s emerged since then. With institutional and VC funds flowing in, continued strong growth in segments like DeFi and NFTs, and the digital metaverse only just having made its debut, it seems unlikely that we’ll return to the big freeze of 2018.
There are also plenty of technical developments on the horizon, with the merge of Ethereum and Ethereum 2.0, the ongoing expansion of the Layer 2 ecosystem, and app functionality on high-profile platforms like Polkadot and Cardano set to ramp up. We’re anticipating a sunny outlook for 2022 as the blockchain and crypto sectors continue to thrive.