Cryptocurrency highlights of 2020 and top 10 predictions for 2021

In 15 days, the turbulent and magical 2020 will usher in its final chapter.

This is a year that is worthy of review for all walks of life. For some people, 2020 is a disaster, while others think that this year is the best year in recent years. Especially from the perspective of the secondary market, 2020 is a bull market that has not been seen in more than a decade.

The cryptocurrency market is of course also like this. After riding on the high-speed train of commodities and technology stocks, Bitcoin has set a new high. The daily trading volume of Bitcoin in the U.S. stock market has reached 400 million US dollars, even exceeding this year's market darling pharmaceutical assets.

Bitcoin is obviously not the only highlight of cryptocurrency in 2020. In "2020 Year in Review", Blockchain Capital made a complete review of the cryptocurrency market for the whole year, from macroeconomics, to crypto finance, to prime brokerage and compliance, and finally made ten predictions for 2021.

As a top investment institution in the blockchain industry, Blockchain Capital's investment portfolio covers almost all the well-known names in the industry: Coinbase, the largest trading platform in the United States, Xapo, the custodian, Opensea, the largest NFT trading platform, Block.one, the parent company of EOS, CoinList, the largest compliant financing platform, and dozens of other well-known projects.

Combining the summary of Blockchain Capital and the compilation of BlockBeats, let’s review and imagine together.

Macro Environment

The macro environment in 2020 can basically be summarized in one word: loosening monetary policy. This is an unprecedented loosening of monetary policy.

As can be seen from the above chart, the Federal Reserve, the European Central Bank, and the Bank of Japan have seen a sharp increase in money issuance this year, with the Federal Reserve being the most obvious. The dollar issuance increased by nearly 90 degrees in mid-2020.

The interest rates of various central banks are also on a downward trend overall. The United States, Britain, and Japan have all used zero interest rates to stimulate the economy, and Switzerland has even implemented a negative interest rate strategy.

But even so, the global economy has suffered an extremely severe blow. The economic growth of China and the United States in 2020 has reached the lowest point in recent years. Compared with 2019, the global economic growth rate was only 2.4%, which is the lowest growth since the 2009 financial crisis.

Bitcoin

The effect of money release is visible in the capital market. Among all major asset classes this year, Bitcoin has the best market performance, setting a new record high, with a unit price close to 20,000 US dollars. In the eyes of Rhythm, everything stems from the epidemic.

The overall environment is loosening up, money is flowing into the capital market, and Bitcoin, which has the attributes of commodity, technology, and safe haven, has entered the field of vision of institutions. More and more institutions are buying Bitcoin through Grayscale Capital. At the same time, retail investors also have investment needs. Tesla and NIO, which have already reached historical highs in the US stock market, are daunting for them, and Bitcoin, which has long been priced at $10,000, is a good choice.

As a result, PayPal provided a channel for its 300 million users to purchase Bitcoin. With the support of institutions and retail investors, the price of Bitcoin has soared, but this is not a bull market for Bitcoin alone. A large number of assets have formed a "deep V" curve this year, and Bitcoin is just one of them.

Many people believe that this year's new high of Bitcoin does not seem to have the sound of the previous bull market, because we cannot focus only on Bitcoin. Looking around the world, almost all assets are rising. Bitcoin does not have such a strong recognition and is merely an asset allocation.

Ethereum and Decentralized Finance

Ethereum in 2020 has initiated two transformations. The first is the consensus transformation, which started the process of converting from PoW to PoS and started the original phase 0; the second is the value conversion, which transitioned from the value of the IC0 token financing era to the DeFi era.

In Lvdong’s view, the development of DeFi may also be related to the overall environment. The increasing number of underlying assets such as stablecoins has become the basis for the outbreak of DeFi.

The development of DeFi content this year cannot be summarized in a few words. I recommend you read two articles: "Multicoin Capital: A comprehensive understanding of the dependencies of the DeFi ecosystem", which is currently the most comprehensive review of the DeFi full stack; "2020 Crypto Financial Market Report", which is the full-year development of crypto finance compiled by the Rhythm Research Institute, which details the explosion of decentralized finance.

Stablecoins and CBDCs

Stablecoins have experienced explosive growth this year, growing from about $6 billion at the beginning of the year to more than $26 billion today, with USDT issuance exceeding $20 billion. Tether still firmly occupies the leading position in the stablecoin market.

The rapid growth of stablecoins has unknowingly affected the crypto industry. The rise of derivatives markets, liquidity mining and DeFi has enriched the use scenarios of stablecoins such as USDC and DAI, and infrastructure such as crypto wallets has also boosted the popularity of stablecoins. Data shows that stablecoins currently account for 40% of the daily settlement volume on the Bitcoin and Ethereum blockchains.

In addition to stablecoins, countries have also accelerated the development and launch of central bank digital currencies (CBDCs). As can be clearly seen from the figure below, countries around the world have different attitudes towards CBDCs.

Among them, several countries including China and Russia have formulated corresponding bills for CBDC, while the United States and Japan are still studying. In October this year, Federal Reserve Chairman Powell expressed the view that CBDC may improve the US payment system, and the Federal Reserve needs to evaluate the impact that CBDC may have on a series of key issues.

Broker Market

Since the beginning of this year, the transaction volume of centralized trading platforms has begun to explode. From the data, Binance, Coinbase and Kraken still maintain their leading positions in the market. Among the decentralized trading tracks that have developed most rapidly this year, Uniswap is the most eye-catching. On December 15, according to data provided by Hayden Adams, the founder of Uniswap, the total transaction volume of the platform has exceeded US$50 billion, firmly ranking first in the encrypted asset DEX segment.

In addition to providing a platform for asset trading, the crypto brokerage business also includes sub-sectors such as staking, custody, execution, lending and solutions. With the development and growth of companies such as BisonTrails, Xapo, SFOX, Galaxy Digital and BitGo, the entire crypto brokerage market is gradually maturing.

The strong will always be strong. In 2020, there were also several acquisitions and IPOs in the brokerage sector of the crypto space. Teams such as Binance, Coinbase, and DCG have accelerated their pace of acquisitions, and the entire market structure has been consolidated.

The market has entered the early M&A stage, with the first signs of prime brokers

Compliance

In 2020, government agencies are still groping their way forward in regulating cryptocurrencies.

This year, the three-year-long Kik lawsuit came to an end, and Telegram also stopped development under a regulatory ban. As "ICO" disappeared, the US SEC is still "settling accounts". Projects such as EOS and Engigma had to pay tens of millions of dollars to settle with the SEC. Even John McAfee was involved in the lawsuit because of his previous platform.

In addition to token sales, offshore trading platforms and markets that have been identified as non-compliant by regulators have also begun to face civil and criminal lawsuits in the United States. The most typical case is BitMEX.

Regulators are paying more and more attention to manipulated markets. Regulators believe that commodity markets like BitMEX are highly susceptible to manipulation and conflicts of interest, and do not comply with regulatory requirements including KYC/AML; tools such as Helix that provide currency mixing services can easily facilitate or obfuscate criminal activities. Based on the above considerations, the CFTC and FinCEN have taken civil actions, and the Department of Justice has filed criminal charges.

In contrast, compliant or “regulator-friendly” entities such as Securitize, Kraken, Coinbase, TRM and Chainalysis have received support from regulators.

The following is a timeline of major global compliance practices in 2020:

Blockchain Capital believes that ICO regulations ultimately benefit service providers that do not issue tokens. This year, the federal court's practice in crypto-related cases also re-examined that as long as the following two requirements are met, it falls within the scope of an investment contract: (a) using funds obtained from the sale of tokens to accelerate the development of the network or protocol; (b) issuing tokens that have no actual use scenarios. It is worth noting that even if tokens are issued, they are not necessarily securities.

With the rise of DeFi this year, regulators have also put forward new requirements for token issuers. To avoid touching the "red line", the team can build the protocol before the token is issued; the issued tokens are used as compensation for protocol participants, not for sale; in addition, the value of the token is based on the governance rights of the protocol, and the role of the user is equivalent to that of a shareholder and director.

Decentralized protocols should be "software, not services". DeFi protocols provide interactive services to users around the world, and this operation is carried out through smart contracts. It is particularly important that smart contracts must be open source software and not subject to long-term technical or governance control by core developers. At least developers should not have the authority to "close the protocol"; according to the design, DeFi protocols should allow users to participate in governance.

application

In 2020, cryptocurrencies began to be known by more people. One of the most direct manifestations is that according to the official data released by MetaMask, from April to September this year, the monthly active users of MetaMask increased from 270,000 to 1 million, and the influence of Ethereum and DeFi is constantly expanding.

In addition to crypto-native applications, fintech portals are also "filtering" the market's interest in Bitcoin.

Some important use cases are worthy of praise, such as PayPal’s announcement to open cryptocurrency buying and selling services to 300 million users; Square’s Cash APP has witnessed the changes in the perception of Bitcoin among non-circle users; eToro has continuously strengthened cryptocurrency staking and asset expansion; and SoFi has been approved for the NYBitlicense, clearing the way for providing crypto trading services to more people, etc.

10 predictions for 2021

Predicting the future is a tricky thing. No one can be 100% correct, but there are still many people trying. Last year, Blockchain Capital made 11 bold predictions for 2020. Judging from the results, some have become reality, while others are still unclear:

A crypto company will be acquired for more than $500 million.

The value of assets locked in DeFi will exceed $2 billion; (achieved)

Libra will become an approved stablecoin backed by the U.S. dollar in the face of Chinese competition;

A federal judge will rule against the SEC’s actions in a crypto case.

According to the definition of network value, no Layer 1 protocol launched in 2020 can enter the "Top 10" position;

USDC will see 300% growth (measured by volume, issuance, market cap, and trading volume); (achieved)

The growth in demand for Bitcoin will push transaction fees above $100, further expanding transaction size;

The US Financial Crimes Enforcement Network and the Financial Action Task Force (FinCEN/FATF) will have stricter requirements for stablecoins than for paper money; (already implemented)

KYC/AML will become a new battlefield for DeFi regulatory compliance;

Privacy coins will be removed from mainstream trading platforms;

·The price of Bitcoin will hit a new all-time high. (Achieved)

Looking ahead to the new year, Blockchain Capital has made the following 10 predictions for 2021:

Coinbase will become the first IPO in the crypto space, with a market cap of more than $30 billion.

The industry will see two acquisitions exceeding $500 million and one exceeding $1 billion;

The market issuance of stablecoins pegged to the US dollar (Tether, USDC, Libra) will exceed $150 billion;

The combined market capitalization of the top three DeFi governance tokens will increase from 33% to 66% of ETH’s total market capitalization;

The outstanding balance in DeFi protocols will increase 10-fold to over $30 billion.

33% of crypto spot trading volume will come from DEXs;

WeChat and Alipay will support DCEP;

SEC approves first BTC ETF and first digital asset broker-dealer “custody” business;

Bitcoin’s market cap grew from 4% to 10% of gold’s market cap;

·Microstrategy will be renamed Macrostrategy ：）