2021 was an eventful year for the crypto market. At the end of the year, the total value of all cryptocurrencies was $2.2 trillion, up from about $750 billion at the end of 2020.
During 2021, Bitcoin was adopted by larger institutional investors. Tesla bought bitcoin for NOK 12 billion in February, while Kjell Inge Røkke Aker bought new crypto investment, Seetee, Bitcoin for NOK 500 million in mid-March.
In April, Coinbase was listed on the New York Stock Exchange for $100 billion, a market capitalization that has since fallen to $70 billion. At the same time, several ETFs, which are actually index funds that track the evolution of Bitcoin and other cryptocurrencies, are listed.
2021 has been a big breakthrough, and the crypto market has matured much more than previous years. “The institutions are coming” turned into “the institutions are here,” Arcane Crypto analyst Sophia Blixtad wrote in an email to DN.
Arcane Crypto CEO Torbjørn Bull Jenssen agrees.
Big funds and banks keep coming in, and players like Visa, Mastercard and Paypal, among many others, are integrating their solutions with Bitcoin and other cryptocurrency networks, he writes.
The decline will continue
The two largest cryptocurrencies in the world, bitcoin and ether, make up 40 and 20 percent of the total cryptocurrency market, respectively. Bitcoin is up 65 percent in 2021, while ether is up nearly 410 percent. In other words, Bitcoin’s share in the cryptocurrency market has shrunk dramatically.
With the explosion of new offerings and uses, the decline in Bitcoin’s dominance is likely to continue into 2022. There will also be a correlation between higher returns and growth in adoption, Blikstad wrote.
Bitcoin’s exchange rate is now at $48,000, down close to 30 percent from a peak of $68,500 in November. Blikstad won’t be surprised if bitcoin hits $100,000 by the end of next year.
Blockchain technology is being adopted at a faster pace than people first adopted internet technology, and given its persistence — particularly against a rising inflationary economic backdrop and declining yields in bond markets and slower growth firms — increased adoption will continue to push the value of Bitcoin higher, Blikstad writes.
Extreme price swings are not uncommon in the cryptocurrency market. Blikstad believes in somewhat lower volatility, but still high in 2022.
– The value proposition has already been validated by key players, so the impact of various incentives, such as ETF approval, will be less. The structure in the market is quite different, the proportion of small investors is lower, who are more likely to panic and sell when the market sentiment is less optimistic, Blikstad wrote.
The national currency of El Salvador
In the summer of 2021, China banned bitcoin mining, and later cryptocurrency transfers as such. In contrast, the Central American nation of El Salvador made bitcoin the official national currency in September.
– Is this a quality seal, and if so, why?
“You can say a lot about El Salvador, but from a geopolitical perspective, bitcoin could give countries in emerging markets a cash alternative to avoid some of the negative consequences of relying exclusively on the IMF/World Bank for debt relief,” Blixtad wrote.
At the same time, in a successful attempt to get rid of any central authority, bitcoin has chosen to have a deterministic and inflexible monetary policy, thus establishing itself more as digital gold than a currency. Blixtad writes that it remains an alternative, and El Salvador can demonstrate its importance.
He does not learn from history
In 2021, the world also opened its eyes to the phenomenon of NFT, which stands for non-fungible token. NFT is practically a digital asset, like digital artwork. With Ethereum technology, you verify that only you own the business. According to Forbes, sales of NFTs totaled $23 billion in 2021, compared to less than $100 million in the previous year.
It has also generated thousands of new cryptocurrencies in the past year. According to Coinmarketcap, there are just over 16,000 tradable cryptocurrencies. The majority of these cryptocurrencies have no interest other than anything purely speculative. They are often called “shitcoins” – and if they get enough attention, “memecoins”.
An example is Dogecoin, which rose by several thousand percent after a series of tweets from Tesla CEO Elon Musk, in which he joked, among other things, that Dogecoin will become the official currency in March. Each Dogecoin is now worth $22 billion.
Bull Jenssen describes the whole thing as a bubble, and believes the inflated values will likely get a real crust over the next year.
A bubble has formed around decentralized finance and NFTs, and financial markets in general appear to be fragile. When the Defi-NFT bubble bursts, there is a risk that it will spread to Bitcoin. Bull Jenssen wrote that the same would apply if we were to go down sharply in the stock market.
Not all that sparkles is gold, and in the short picture, the projects based on Elon Musk’s Twitter account are being lauded rather than fundamental analysis. He also adds that we don’t learn from history and repeat the ICO bubble in 2017, but this time the acronym is NFT.
ICO stands for Initial Coin Offering. There were new blockchain projects that created their own tokens, which in turn were sold to fund the project. Many rose in value sharply, and an expectation was formed that crypto tokens for cryptocurrency in general would rise.
– Self-reinforcing vortex has become finished with maximum yields and well-ventilated ratings. In 2018, the air came out of the balloon and more than 90 percent of all ICOs fell more than 90 percent, says Bull Jenssen.
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