Cryptocurrency adoption trends and predictions for 2021

The crypto industry has had a stellar 2020, fueled by Bitcoin’s record-breaking rally. During this unprecedented moment of turmoil, the digital asset space seems to have proven its resilience, making a solid case for its status as a safe haven in an increasingly uncertain world.

Among other developments, institutions continued to expand cryptocurrency adoption in 2020. So, is this trend expected to continue in 2021, and what factors will influence cryptocurrency adoption across various sectors of the industry in the year ahead?

Influx of institutional funds

It has become somewhat commonplace to attribute at least part of Bitcoin’s (BTC) recent momentum to the influence of investment banks and hedge funds entering the Bitcoin market en masse, and yet the trend shows no signs of abating.

From the big statements leading the influx of big money to decisive changes in the political landscape, there is plenty of evidence that the big names in traditional finance will become increasingly bullish on Bitcoin in 2021. Meltem Demirors, chief strategy officer at digital asset investment firm CoinShares, told Cointelegraph:

“The shift in views around Bitcoin is profound! Larry Fink talked to Mark Carney on a conference call about Bitcoin being digital gold and said he believes Bitcoin is the future; Guggenheim Chief Investment Officer Scott Minerd said Bitcoin will rise to $400,000. In the past, it was industry players who made these bold statements, but now it’s the powers that be and the giants in the capital markets who have allocated trillions of dollars to Bitcoin.”

Demirors further predicted that the incoming Democratic administration in the United States will facilitate even more money flowing into Bitcoin than in 2020. “$5 trillion is waiting to be deployed,” and all of that money needs to go somewhere to fuel the cryptocurrency market.

Dave Hodgson, chief investment officer of NEM Group, also believes that the current US monetary policy is the main driving force for institutional funds to flow into Bitcoin: "If the United States continues to expand 'quantitative easing' (inflation, printing more money), it seems to be a wise and even conservative fiscal choice to diversify assets, and BTC will face a liquidity crisis."

The argument that Bitcoin is gradually replacing gold as a hedge against inflation remains persuasive. Eric Richmond, COO of cryptocurrency trading platform Coinsquare, told Cointelegraph: "In 2021, pension funds, family offices, hedge funds, macro investors and companies will allocate part of their portfolios to Bitcoin, and Bitcoin will continue to be an alternative to gold."

Mass adoption

In 2020, cryptocurrency became more accessible to retail investors than ever before, in part because popular payment companies such as PayPal and Square offered digital assets to their large user base. Diversification of access points and increasingly intuitive interfaces will help more everyday users join the ranks of cryptocurrency holders, traders, and investors in the year ahead.

Miles Paschini, founder and director of cryptocurrency investment app B21, shared his views with Cointelegraph that 2021 could be the year when widespread cryptocurrency adoption begins, adding: “Tools for investors and users of payment systems will become more user-friendly, and banks that once shied away from cryptocurrencies will begin to adapt and offer integrated services.”

In addition to existing tools and platforms, new services that will introduce a large number of users to crypto assets will continue to emerge. Facebook’s Diem will be one of them, Simon Peters, crypto market analyst at trading platform eToro, told Cointelegraph:

“Facebook has 2.7 billion users worldwide. Facebook’s Diem, which will be launched in January, could provide an important entry point for cryptocurrencies. If Diem is listed on cryptocurrency exchanges, it can be used to exchange for Bitcoin and other altcoins, which could drive new groups of people to explore cryptocurrencies.”

Peters added that if it proves cheaper and easier to buy crypto with Diem than with fiat currency, Facebook’s payment service could become another factor driving mass cryptocurrency adoption in 2021.

Decentralized Finance

Unlike other areas of the crypto industry, DeFi applications have exploded in 2020, and many experts expect the sector to continue to grow and the public's understanding of the space to deepen in the coming year. Erick Pinos, head of Americas ecosystem at blockchain platform Ontology, told Cointelegraph that cryptocurrencies allow its users to make money: "The opportunities to make money in DeFi are endless thanks to decentralized exchanges, lending, insurance, derivatives, mutual funds, etc." Overall, Pinos expects trading volume and product development efforts to continue to revolve around DeFi next year.

At the same time, a major factor limiting the growth of the DeFi sector is the regulatory pressure that will inevitably arise in the process of connecting the traditional financial sector and the decentralized financial sector. At first, this may bring considerable pressure to this emerging field, but the rewards of compliance will eventually be huge.

Lowering the barriers to using DeFi protocols by making them user-friendly will also help expand the number of people using these investment tools. Will Liu, head of the decentralized protocol SAGA, predicted: "In 2021, DeFi will take on a more standardized and easy-to-use form, and I believe it will be a good choice for individual investors for a long time."

Will Liu also believes that other hot trends in 2020, especially the various use cases of non-fungible tokens, will continue to gain attention in 2021. For example, NFTs for digital and physical artworks will attract the attention of some large auctions, while NFTs for personal data protection will benefit from the continued development of data laws.

Ethereum

Ethereum infrastructure supports the activity of DeFi, so the explosion of DeFi in 2020 has promoted the overall use of the protocol. At the same time, the Ethereum community has experienced some noteworthy milestones this year as it seeks to improve its network, and the process has not always been smooth.

Hodgson believes that due to the uncertainty of the completion date and expansion time of ETH2.0, the issues surrounding the network upgrade have caused some users to experience a certain degree of "project fatigue." However, Hodgson believes that once these issues are resolved, Ethereum's adoption rate outside of DeFi-related activities will increase. Richmond then added:

“Ethereum’s transaction volume exceeded $1 trillion in 2020, and this amount will continue to grow in 2021 as many new projects come online. Ethereum supports all major crypto products such as stablecoins, DeFi, crypto lending, and NFT applications. Since crypto assets are critical to the development of these products, investors will definitely continue to adopt this type of asset to access these products.”

Use cases beyond finance

In cases not directly related to currency trading, cryptocurrency adoption will also see key gains in the coming year, according to some industry insiders. Medical technology may be one of the most obvious areas to benefit, as the crisis caused by the pandemic has highlighted the need for innovation in this field.

Chrissa McFarlane, CEO and founder of medical technology startup Patientory Inc., told Cointelegraph: “Throughout 2020, one of the solutions that has gained more mainstream audience interest is offering tokens that incentivize users to stay healthy while providing them with access to their own medical records.”

These accounts paint a picture of the crypto industry, which is expected to attract more people and institutions than ever before in 2021.

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