2021 has come to an end. With that, a new year lies ahead. And it should be an interesting year too, rife with challenges and market changes for crypto.
With that – how did cryptocurrencies fare this year?
We think they performed well. In fact, many large cryptocurrencies registered record highs in adoption, day-to-day use, all while showing significant breakthroughs.
We’ll be discussing some of those changes below. To start off…
First: Altcoins and Decentralized Finance (DeFi)
Decentralized finance gained widespread popularity in 2021, with altcoins attracting many investors away from financial regulations.
Both saw massive growth in 2021, with the biggest altcoin gainers being Terra (LUNA) and Solana (SOL).
LUNA’s total value went up by 13,000%, while SOL gained 9500%. The growth of the crypto ecosystem and the extra investments added a lot of value to those markets. Both gaining such fast popularity has set them as “Ethereum competitors” by many analysts.
Currently, Solana ranks 5th in the DeFi world, totaling $11.45 billion in value. LUNA has currently overtaken BNB (Binance Coin) for 2nd place, reaching $18.9 billion at the end of 2021.
Second: DeFi’s Growth Positively Correlated with the Wider Crypto Market
Established cryptocurrencies saw fierce competition from altcoin markets.
For example, Ethereum’s TVL share was at 97% in January 2021. But as of this year’s end, it’s less than 63%. In fact, the growth of DeFi has led to authorities investing more time and attention to the crypto world in general, and in an attempt to curb their growth.
Still, DeFi market limits are still a small portion of the total crypto market pool. Even then, it showed positive growth, with many predicting banking integrations in 2022.
Third: The Rise of NFTs
Short for “non-fungible tokens,” NFTs came into prominence by 2021, even though they were founded in 2014.
NFTs are a method of digitizing assets into unique crypto tokens. This makes their unique ownership easy to verify and hard to replicate.
So far, NFTs are used to represent digital art collections, extremely rare products, game ownership, unique shares, etc. Digital art seems to be the dominant product with NFTs, surpassing 91% of sales volumes.
As for total value, NFT sales were historical last year, totaling $14 billion by December.
For the first half of 2021, sales were driven mainly by individual artists entering the market with their collections. The second half saw the rise of mainstream names and brands.
Giants like Coca-Cola have made their presence known in NFTs. In fact, the wearable Decentraland bubble jacket skin was auctioned by the company using NFTs. Visa is another, purchasing its first NFT in 2021.
NFTs were also a force that affected the gaming world. Their introduction now provides a tool that lets gaming companies execute metaverses using blockchain properties (which is a problem for regulatory authorities).
Thus far, venture capital funds invested into NFTs have been outstanding. 2021’s Q3 saw around $2.1 billion entering the market. A majority of them only deal with Andreessen Horowitz, one of California’s biggest and most popular venture capital funds.
So far, it’s likely that much venture capital will flow into the market. With 2021 showing so much growth, it’ll be difficult for competitors worldwide to resist investing in NFTs.
2021 has been a good year on the regulatory side. Official sources in the US are easing on crypto, outlining that they aren’t a threat to US financial stability. To that end, the US Congress has approved 35 bills that tackle cryptocurrency regulations, central bank digital currencies, and blockchain policies.
Regardless, stablecoins seem to still be under the US government’s radar. The PWG (President’s Working Group on Financial Markets) has stated that stablecoins are an acceptable payment option, though they do require “appropriate oversight.”
Regulations on stablecoins do not exist, and as of now, their total market capital has exceeded $162 billion. This could change however with a new bill proposed by Senator Lummis.
The proposal aims to bring a comprehensive bill this year that will regulate stablecoin clarity, allowing regulators to better understand it as an asset class while offering better consumer protection.
Will This Affect Cryptocurrency Adoption?
We don’t think so. With 2021’s developments, the crypto market size has increased exponentially compared to 2020.
In fact, the 2nd quarter of 2021 saw an 880% increase in global adoption compared to the same quarter last year. That was an extra $30 billion added to crypto markets.
Most of the growth seems to come from high capital institutions. This is apparent with the still low ownership rates on crypto, which are at 3.9% globally.
Currently, ownership rates are the highest in Venezuela, Russia, and Ukraine – with around 10% of their populations owning cryptocurrencies.
Why Low Ownership?
The reduced ownership rates aren’t bad news. They only indicate that market behemoths are accessing cryptocurrencies in droves.
This should serve to stabilize cryptocurrencies, further inviting smaller investors thus creating more market growth.
Plus, 2021 saw the cryptocurrency market value grow by 586% in total compared to 2020, going from $364.5 billion to $2.5 trillion. Tokenizing assets is also occurring on a large scale and may become standard practice by 2030.
Continued growth is also expected to accelerate in many assets tied to Web3, such as GameFi, NFTs, etc.
But on the topic of GameFi…
GameFi is Increasing in Popularity
The GameFi sector started with a play-to-earn model piloted by Axie Infinity, an approach that revolutionized the industry. It allowed income potential for gamers while enjoying video games.
It’s considered the next step in blockchain growth. It’ll allow users control over their in-game assets through NFTs, with DeFi taking that a step further, allowing interest to be earned on those tokens.
Currently, play-to-earn is one of the largest growing aspects of crypto. This would dominate the second half of 2021 in terms of join rates. In fact, since September, multiple gaming coins have shown higher growth rates than larger assets like Bitcoin.
With that, the sector is still in its inception. However, it’s still an attractive one to access those with little crypto market experience, which may be a main goal for the industry this year.