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Crypto 2020, year in review

We’ve had it all this year, haven’t we?

A mundane start to 2020 quickly descended into chaos and confusion. And that’s not even talking about the crypto market.

We’ve had viruses, shutdowns, travel bans, quarantines, and a lot of counting. We had a market crash, recovery, and so much stimulus you can hear the money printer go BRRRR.

In crypto, there was a crash delivered by excess leverage, a recovery, a halving, and a lot of constructive trading. There was some bad produce in DeFi. Stablecoins took off, and Dai took a bullet and then rose like a phoenix.

There were many lows and a few highs in 2020. Overall, we could call 2020 the year that wasn’t.

But for crypto, 2020 demonstrated that it’s ready for prime time.

Let’s have a look.

Cartoon meme of the US Federal Reserve printing dollars to save the market.

From crypto narrative to ghost cities

Do you even remember January 2020? I mean, it feels like a decade ago. What were we even talking about?

Crypto was pretty mundane back then. There was talk of the Bitcoin halving and debate about the results. All the usual narratives were being trotted out. Digital gold. Reserve currency. Gonna take over the world.

Then in February, all the air on the planet got sucked into a problem in China. People were dying. Body bags. Teams of people in hazmat suits walking through empty streets in Wuhan with weird fog machines.

A virus that was soon to sweep the world.

Then came a model out of Imperial College, London with ginormous death predictions. Massive worst-case scenarios started making the rounds on social media.

Governments panicked and started shutting everything down. Borders closed. People “sheltering in place.” Empty highways.

Vibrant cities became like ghost towns.

At first, nothing seemed to be going on. Then in March, things started to get…exciting.

Price chart of the Bitcoin crash and recovery in March 2020.

The crypto crash

The market started to fall, triggering margin calls. Then a crash.

Crypto fell right along with it, driven by an accumulated amount of leverage tinder in Bitcoin. On March 12, a lot of people had their heads handed to them as the market plunged. Maker’s Dai got destroyed as Ether crumbled and wiped out the collateral exposed by their flawed design. But they were saved by Jeremy Allaire’s USDC.

The Fed stepped in early and aggressively. The numbers were staggering. Trillions upon trillions of support. Everything rallied, and eventually, we were almost back to par.

The press discovered counting and gave the day to day play by play of cases and deaths.

And everyone wondered what was coming next.

What came next was Davey Day Trader.

The day trader that mocked Wall Street

Flush with stimulus checks and sitting at home, crypto, and discount brokerage accounts mushroomed. Millions of day trading accounts were opened as buyers saw the crash as the perfect time to get in one market or another.

The champion of this was the infamous Dave Partnoy. He mocked Wall Street to his followers, met the Winklevii and played around with some Bitcoin.

The flood of new accounts and stimulus money provided support in various markets. With the leverage kindling flared off in March, some market risk was removed. In crypto, particularly where leverage was new, the drop reminded traders of the value of risk management. And it also encouraged crypto traders to question whether they need leverage to trade.

As the market stabilized, crypto turned its attention to the crypto event of the year…

The Bitcoin halving

The Bitcoin halving was next. With all the downside risk removed, attention focused on what Bitcoin would do.

Taking place in May, there was lots of speculation about whether it would climb or fall. Whether it would be bullish or bearish.

Crypto day traders were long on opinions. Crypto miners were looked at in this scenario to see how it would play out. They were getting geared up for the 4 years ahead.

With all the dry leverage kindling removed in March, the Bitcoin market was set up for a solid swing trade into May. Which it did.

And then…well, it was pretty boring.

Shortly after, Bitcoin dived and recovered. The volatility dried up and the market went flat.

Then the trading in Bitcoin started to change.

Price chart of Bitcoins recovery, the halving in May and sideways trading.

MicroStrategy had a secret

After the halving, Bitcoin trading became more constructive. Volatility fell, and the market had the appearance of stability. The market backed and filled before a big advance. Then came a big announcement.

Strategy and consulting firm MicroStrategy opened the kimono announcing a big secret. They allocated $250 million of their reserves to Bitcoin. This was a big endorsement of Bitcoin specifically and crypto generally. Then they added $175 million more.

But this news provided another interesting discovery.

The fact that the broader market was unaware of this accumulation tells you a lot about the privacy in Bitcoin.

Square and Paypal

With MicroStrategy’s position on the books, other companies began announcing their positions.

Square, already involved in crypto, announced their $50 million Bitcoin position in October. Then came Paypal with their announcement that they were opening their network to internal crypto transactions.

I guess they didn’t need Libra after all.

The rally in the market that followed was said to be a result of these announcements. However, the Bitcoin market had been backing and filling and advancing in a bullish way for months already.

As of this writing, some volatility has returned to Bitcoin as it marches higher. Could we see new highs for Bitcoin in the weeks ahead? Time will tell.

In the meantime, the world’s computer is also having a hell of a year.

Ethereum and the year of the stablecoin

Ethereum had quite a year as well. The world’s computer has been hiving away on enhancing their platform. And its timing has been impeccable.

The entire Stablecoin market operates on Ethereum, and 2020 has been the year of the stablecoin. Volumes have exploded from $5.7 Billion to $22 Billion by Q3 of 2020. USDT remains the leader, but USDC has grown along with the trend.

But stablecoins aren’t the only place where Ethereum has nailed it. DeFi has taken off as well.

DeFi, DEX, and groceries

While shelves were empty in stores during 2020, DeFi had all kinds of groceries. Sushi, Yams, and Spaghetti. What will they think of next?

DeFi has exploded with various staking protocols and DEXs like UniSwap, Compound, and several others.

There have also been a few problems.

Quite a few spectacular rises have been followed with massive blowups. It turns out that code review is pretty important.

I doubt any crypto traders will be having yams at Christmas if they were long Yam when it crashed.

Then there was Harvest Finance and YFDEX, and several others. The area remains highly speculative, and the risks of violent moves, failures, and scams are always present.

From stimulus to CDBCs

Governments have had their hands full in 2020. When they weren’t managing world record stimulus, they were looking at payment systems and digital currencies.

Several central banks are looking at updating their payment systems to be ready for the future. The future showed up early in 2020.

Talk about CBDC’s has continued to expand. The Bahamas was first, announcing their CBDC in October. China is testing its version now. Canada is working through it. The US is ready to rock and roll, but they have some issues to sort out first.

2020 has brought to the fore the inefficiencies of government at all levels, especially in financial matters. Stimulus appears to go to the wrong places too often and too slowly. A CBDC would allow central banks to direct resources to citizens, which means no citizen will be unbanked at some point.

But it then raises the question of the role of the Central Bank in the political process.

Crypto funds and crypto regulation

The foundational funds in crypto continue to grow. Greyscale attracted a lot of resources throughout the year. Various crypto hedge funds like Panterra performed well. 3IQ finally got listed on the TMX, and many others started to attract serious institutional money.

Part of it was led by the ongoing steps taken by various regulators.

Custody solutions from Gemini, Fidelity Digital Assets, and others were joined by efforts to allow all Federally regulated banks to become custodians for digital assets.

Various regulators are opening up innovation sandboxes to let crypto and fintech players have some fun without getting the strap.

Crypto disrupting fintech? 

Federal regulators are in court to open up banking licenses nationwide for new payment companies. This looks like fintech, but several of these new fintech initiatives will be net positive for crypto.

One other interesting development is the movement on the subject of accreditation. The SEC has begun to recognize that being deemed unaccredited by the law excludes many from lucrative opportunities. Its recent shift is long overdue because, as we’ve argued, crypto is driving a new vision of financial literacy.

Together, various fintech and crypto bills and legal changes make the potential for crypto to become more mainstream soon.

And speaking of regulators, there were some high profile spankings handed out in 2020.

Bitmex got itself into some trouble with the US SEC. OKEx and Huobi found themselves on the wrong side of the Chinese authorities. And Canada’s Coinsquare lost their founders after a SNAFU with the OSC.

Bitcoin futures and options 

The crypto futures and options markets continue to grow.

The CME Group and BaKKT lead the way with expanding volumes and open interest across contracts. In 2020, the crypto market’s pricing structure continued to mature.

The crypto options market continues to evolve. As Bitcoin futures grow, it brings along the Bitcoin options provided by Bakkt and others.

Crypto miners are having a wild year. The economics of crypto mining, the increase in professional management, and new equipment means the space is changing. Miners are increasingly becoming part of the power grid to help manage excess power. They are also in the process of creating cash flows that can be converted into unique financial products for investors.

Bitcoin has traded in tandem with gold all year. It could be argued that it’s digital gold. However, we are convinced that the transformational quality of Bitcoin makes it much more than digital gold.

Then came the 2020 election. 

A wild and crazy year wouldn’t be complete without a contest for leadership of the free world.

The constructive trading in Bitcoin probably drove day traders crazy, but it set up swing traders for some big moves. Bitcoin traded higher into the election and advanced strongly as the election weeks’ drama played out.

The question is, are all-time highs in the offing? Is a top tick coming? Or is Bitcoin and the rest of the crypto market going to act like the stock market. Those trying to get their taxes in order to start tax-loss selling at the end of the year.

Just thinking out loud here, but can a digital currency have a Santa rally? Or should we call it a Satoshi rally?

If you were looking for more excitement at the end of 2020, you won’t be disappointed.

2020 ain’t over yet

The US election may remain contested till mid-December.

Depending on what the final verdict is in the courts, there could be significant policy changes for 2021.

New lockdowns are being proposed and implemented.

More stimulus is on the table, so that money printer gonna go brrr a bit longer.

With people back at home and potentially flush with new stimulus, will that money find its way into the market?

And Bitcoin’s volatility has returned with an upside bias as it touches highs for the year.

Price chart of the Bitcoin lifting off it’s base to highs for the year

Nobody knows what’s going to happen. But how much more action do we need?

Crypto passed the 2020 test, and it got an A-

2020 was a tough year. It was crazy, and it still is. And there’s more to come.

But what is clear is that crypto, for all its flaws, has demonstrated it’s either ready for the mainstream or very close.

And the good news is that the code in the best projects is COVID proof, touchless and private. So it’s perfect for our monetary future. You just have to make sure you avoid getting beaten up by rotting groceries in DeFi.

Crypto got a solid A- this year.

Imagine what next year has in store.

 

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