Bitcoin nearing $70,000, “memecoins” worth billions of dollars, a blockbuster Wall Street listing, and a sweeping Chinese crackdown: 2021 was the wildest yet for cryptocurrencies, even by the industry’s volatile standards.
Digital assets started the year with a cash deluge from investors large and small. And bitcoin and its rivals have rarely been out of the spotlight since then, with the language of crypto becoming firmly entrenched in the investor lexicon.
Here’s a look at some of the key trends that dominated cryptocurrencies this year.
1. Bitcoin: Still No. 1:
The original cryptocurrency kept its crown as the largest and most well-known token – although not without a host of challengers biting its tail.
Bitcoin jumped more than 120 percent from January 1, to a then-high level of nearly $65,000 in mid-April. It was fueled by a tsunami of cash from institutional investors, growing adoption by major companies such as Tesla Inc and Mastercard Inc, and increasing adoption by Wall Street banks.
Investors’ interest has been Bitcoin’s alleged inflation-proof properties — it has limited supply — as record-breaking stimulus packages fueled rising prices. The promise of quick profits amid record low interest rates and easier access through rapidly developing infrastructure also helped attract buyers.
The emblem of bitcoin’s mainstream embrace was the listing of major US exchange Coinbase in April of $86 billion, the largest to date by a cryptocurrency company.
“It’s become the area where it’s traded by the kind of people who bet on Treasury bills and stocks,” said Richard Galvin of crypto fund Digital Capital Asset Management.
Still, the token remained volatile. It fell 35 percent in May and rose to a new all-time high of $69,000 in November, as inflation rose in Europe and the United States.
Prominent skeptics remain, with JPMorgan boss Jamie Dimon calling it “worthless”.
2. The rise of memecoins
Even as bitcoin remained the go-to for investors dipping their toes in crypto, an arsenal of new – some would joke – tokens were entering the industry.
“Memecoins” – a loose collection of coins ranging from dogecoin and shiba inu to squid games that have their roots in web culture – often have little practical use.
Dogecoin, launched in 2013 as a spin-off from bitcoin, soared more than 12,000 percent in May to an all-time high before falling nearly 80 percent in mid-December. Shiba inu, which refers to the same breed of Japanese dogs as dogecoin, briefly made its way into the 10 largest digital currencies
The memecoin phenomenon was linked to the “Wall Street Bets” movement, in which online retailers coordinated to pile into stocks like GameStop Corp, suppressing hedge fund short positions.
Many of the traders — often sitting at home with extra cash during the coronavirus lockdowns — turned to crypto even as regulators warned about volatility.
“It’s all about mobilizing finances,” said Joseph Edwards, head of research at crypto broker Enigma Securities.
“While assets like DOGE and SHIB can be purely speculative in their own right, the money that comes into them comes from an instinct of ‘why shouldn’t I make money off my money, savings?’”
3. Regulations: The (big) elephant in the room
As money poured into crypto, regulators worried about what they saw as the potential to enable money laundering and threaten global financial stability.
Long skeptical of crypto — a rebel technology invented to undermine traditional finances — watchdogs called for more power over the sector, with some warning consumers about volatility.
With new regulations looming, crypto markets have been wary of the potential risk of a shutdown.
When Beijing banned cryptocurrencies in May, bitcoin fell nearly 50 percent, dragging the broader market.
“Regulatory risk is everything, because those are the rules of the road that people live and die by in the financial services industry,” said Stephen Kelso, global head of markets at ITI Capital. “The regulators are making good progress, they are catching up.”
4. NFTs
As memecoin trading went viral, another, previously obscure corner of the crypto complex came into the spotlight. Non-fungible tokens (NFTs) — strings of code stored in the blockchain’s digital ledger that represent the unique ownership of artwork, videos, or even tweets — exploded in 2021.
In March, a digital artwork by American artist Beeple sold for nearly $70 million at Christie’s, one of the three most expensive pieces by a living artist sold at auction.
The sale ushered in a stampede for NFTs.
Third quarter revenue reached $10.7 billion, more than eight times higher than in the previous three months. When volumes peaked in August, prices for some NFTs rose so quickly that speculators could ‘flip’ them for profit within days or even hours.
Rising crypto prices spawning a new cohort of crypto-rich investors – as well as predictions for a future of online virtual worlds centered on NFTs – helped fuel the boom.
The popularity of cryptocurrencies and NFTs may also be linked to a decline in social mobility, said John Egan, CEO of BNP Paribas-owned research firm L’Atelier, which draws younger people to their potential for quick profits as rising prices traditional assets such as houses out of reach.
While some of the world’s top brands, from Coca-Cola to Burberry, have sold NFTs, the still patchy regulation meant that larger investors were largely turned away.
“I don’t see a situation where licensed financial institutions are actively and aggressively trading (these) digital assets over the next three years,” Egan said.
(Except for the headline, this story has not been edited by DailyExpertNews staff and has been published from a syndicated feed.)