Does 2021 feel a bit like groundhog year, or is it just me?
Looking back at 2020, I did a double-take.
Market crash? In crypto, check.
New all-time highs in Bitcoin and Ethereum? Check times two.
Leverage bombs? Oh ya.
Crazy virus and insane policies? Yup.
Stimulus? Uh-huh. Lots.
But 2021 also had so much more.
In the shadow of one of the greatest trading years on record for crypto, there was a whole lot more going on. DeFi blossomed. NFTs came into their own. And stablecoins went from the lower left to the upper right in circulation.
A couple of big names got multi-million dollar scoldings from the CFTC. Another is locked in a cage match with the SEC.
Ethereum finally upgraded its consensus mechanism, and Cardano found some legs.
There was lots of crypto love from institutions and some crypto hate from China.
Let’s look back at the year when crypto touched two, then close to one, and then almost $3 trillion in market cap in the same year.
Elon hearts Bitcoin
Looking back to January 1, 2021, Bitcoin was US$28,938.50 after a solid run. Ethereum was lagging. It eventually caught up and recorded a new all-time high.
Things were going according to plan. Crypto was on fire.
Saylor talked to Elon. Then Elon adds Bitcoin to his Twitter profile and $1.5 billion BTC US to Tesla’s balance sheet shortly after. BTC went from mid-thirty thousand to mid forty thousand.
Then in the high fifty thousand range Elon said BTC was a bit too high.
But that only caused a blip.
While Elon was talking down BTC, he started loving DOGE. He said DOGE was going to da moon, and it took off like a rocket.
In the meantime, Bitcoin printed a new all-time high around US$64,000. This was followed by a flash crash, Tesla selling 10% of their holdings and resistance exerting itself repeatedly at US$60,000.
Then Elon remembered the environment, and on the same day, China banned crypto mining. A giant leverage bomb went off, followed by cascade liquidations.
This resulted in a reminder of how you can still use leverage, even if you don’t use it directly.
Then Elon and Saylor gathered the North American crypto miners for a chat, and he liked it again.
But the damage was done. There was no immediate follow-through. That would come later.
Speaking of Saylor
MicroStrategy and Bitcoin ETFs
Microstrategy was busy talking about Bitcoin at every opportunity.
On occasion, they stepped in to show support for their thesis with a small buy. Other times they backed up a truck.
In the first nine months of 2021, they bought 43,573 BTC for $2.035 billion. They are using 13,449 of that BTC as collateral for senior secured notes.
MSTR is now a listed proxy for Bitcoin. It makes you wonder why anyone needs an ETF.
ETFs finally found favor with the SEC. The first big one was the cash-settled, CME-listed futures ETF by ProShares called BITO. Two others followed that one, and Greyscale is trying to figure out how to convert their wilting fund value into an ETF so they can play too.
Institutions were tripping over themselves to announce their participation in Bitcoin throughout the year. And big hedge fund names were making public pronouncements in favor of Bitcoin as they added it to their trading sheets.
Bitcoin had a very big year in 2021
Bitcoin had a big year in many ways. New all-time highs, some high profile advocates and owners, some flash crashes, and some Taproot.
Bitcoin ramped into Q2 only to be faced with the WWC (World Wide Crypto) tag team of Musk and China. With a one-two clothesline reminiscent of The Champ, they tagged Bitcoin and set off a waterfall of liquidations.
The liquidations took down the entire space, and the pain lingered for a while. But the Bitcoin community remained resilient and undaunted.
In the meantime, Bitcoin miners voted to approve Taproot, which was implemented in November 2021 with a new all-time high and little fanfare. And the Lightning Network got some love with the Wumbo update this year as well.
The layers in Bitcoin are expanding to accommodate a range of offerings, including DeFi and NFT’s.
But the most important thing about Bitcoin in 2021 is that it has demonstrated that the community and the software are both dynamic and antifragile.
Beeple rings the NFT bell
Do you remember where you were when Beeple rang the bell at $69 million?
That was the top tick for the space and woke everyone up. Then Jack’s tweet was picked up for a cool $2.9 million leaving Justin Sun empty-handed. Throughout 2021, NBA Top Shots was sinking transaction three-pointers one month after the next.
OpenSea stepped to the front of the line after years in the trenches and became the poster child for the NFT marketplace space. Their volumes have exploded along with revenues and a solid raise to follow.
Some of the original legacy NFTs have come into their own. One CyberPunk tapped $11.8 million at auction in June 2021.
Bored apes created a product with new flexibility and an identity potential. Now buyers assume these NFTs as a fundamental part of their identity. Some will never sell for fear of not being able to rebuy them. They don’t care about the monetary value. The intrinsic value of the NFTs is so much more than the money to these hodlers.
The innovation around the NFT space may just be getting started with numerous new products, value discovery projects, and services to support it. This space will be one to watch into the year ahead.
There is some NFT action on Bitcoin using Blockstream’s Liquid, but the majority of the NFT action is on Ethereum.
2021 was a big year for Ethereum too
Ethereum has had quite a year as well. It lagged the big move in Bitcoin early in the year but went through a series of new all-time highs in early 2021.
Then came the big upgrade.
London went live, and Ethereum moved from proof-of-work to proof-of-stake. The hard fork was years in the making and by all accounts a success.
Ether was transformed from an inflationary coin to a flat to deflationary one.
Ether made another all-time high on the rollout before retreating.
Ethereum also had another big milestone. The CME Group announced the start of Ethereum (Ether) futures. The futures add a new dimension to Ethereum and make it increasingly attractive to the financial industry. They also increase the likelihood of other financial products, including ETFs, in the future.
And that’s not the only reason the financial industry is attracted to Ethereum. Ethereum’s DeFi sector had a stellar year too.
DeFi and Uniswap
Uniswap version 3 was launched and various other DeFi protocols gained traction in 2021.
DeFi value exploration has expanded beyond automated market making, DEXs, and yield farming to lending, collateralizing, and insurance.
The total value locked (TVL) has expanded as communities coalesce around various projects like Uniswap, Sushiswap, Curve, Yearn, and many more. Starting the year at $13.34 billion US, the Net Value Locked (excluding double counting) has grown to $86.76 billion US by November with lots more room to grow.
While mainly centered on Ethereum, other blockchain platforms have evolved into challengers.
Polkadot had a big year while Cardano moved into the next phase of their rollout and started marketing. Solana and others continue to build out their communities and offerings.
DeFi and NFTs will be expanding across chains into a wild world of free expression, exchange, and opportunity. This is value discovery at its best.
US Dollar Coin (USDC) and stablecoins
Across chains, stablecoins have been on a tear since 2020. That continued in 2021. USDT Tether, the leader in the space, gained more ground while challengers made solid gains on their market dominance.
USDC has taken off since 2020 and made big gains in coins in circulation through 2021. Started by Jeremy Allaire’s Circle in partnership with Coinbase, USDC has made inroads into traditional finance. For example, VISA now accepts USDC for settlement. And USDC is increasingly being seen as part of a vast and growing alternative financial system. They boast 36 billion in circulation and 1.3 trillion transferred on-chain.
And speaking of Coinbase, who could forget Coinbase infiltrating the NYSE like a trojan horse by getting listed.
There were also some black eyes handed out in various parts of crypto during 2021 too.
Tether continues to court regulatory scrutiny culminating in $41 million in fines. In addition, IFinex, the company associated with Tether that runs Bitfnex, got a $1.5 million slap on the wrist.
And they weren’t the only ones.
Bitmex ran into the US regulatory wall in 2021 with a fine of $100 million. And while the CFTC has been busy, the debate about how and what to regulate and who should do it is growing.
XRP is still engaged in a cage match with the SEC. The only question is who will tap out first.
Crypto leverage blew itself up in 2021
One area of contention that came to light is leverage.
Several liquidations had a material impact on crypto markets. Then, after several smaller smackdowns, one material drop in May took the entire market down.
The market cap for crypto was cut in half as valuations were torpedoed.
The topic of leverage prompted some prominent exchanges to cut back on the amount of leverage offered. One of the big proponents was FTX which did a huge raise and assumed a leadership position in the worldwide crypto futures playground. Binance also cut back leverage.
While leverage remains and continues to be used, abused, and liquidated, it does not have the same prominence it did at the beginning of the year.
2.851 trillion crypto market cap
As the year developed, the pain of the drop was absorbed, and the naysayers were wrong again.
Crypto didn’t die.
Elon and Bitcoin kissed and made up. A bunch of miners left China for greener pastures in North America.
DeFi activity made North America a center of crypto activity.
And Bitcoin began marching higher again.
Then came the next new high in Q4 with Taproot for Bitcoin.
Ethereum’s rollout of London went without a hitch, and Ether tagged new highs.
DOGE went from a joke to a very lucrative comedy.
Litecoin got a kiss from fake news about Walmart.
And the entire space went from $2 trillion in market cap to almost $3 trillion.
Crypto is ready for the next stage. Are you?
You could argue that 2021 is the year that crypto became truly mainstream. Crypto is now influencing policy and payments. It is part of many conversations about finance and freedom.
Crypto has even found its way to reserve currency status in El Salvador with Bitcoin.
With years of development and experience under their belt, the platform herd is starting to blossom. Cross-chain activity and compatibility are being developed, expanding the reach and interconnection of crypto communities.
The proliferation of DeFi and NFTs will expand from Ethereum to Bitcoin, Cardano, Solano, and many others in the years ahead.
Or at least that’s the story.
But what is clear, is that the naysayers were wrong. Crypto is here to stay. The only question is what role will it play in 2022 and beyond.
And are we ready for it?
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