Published: January 8th, 2021
Nobody could have predicted the rollercoaster ride of 2020. The world last faced a global pandemic over a century ago, and central bankers haven’t had to manage an economic crisis this stark since the 1930s.
It was an unprecedented year for cryptocurrencies too. Bitcoin’s price shot skyward when global markets began to turn around. BTC’s block reward halved, and the decentralised finance (DeFi) industry arrived with a vengeance.
Given all that’s happened, and how quickly it transpired, predicting what comes next isn’t easy. COVID vaccines may jolt the global economy into a hockey-stick recovery, or inflation could cause it all to collapse. Central banks printing presses are set to keep humming for the foreseeable future, and investors could race for the exit at any moment.
So of course, what comes next, and how it will affect the crypto space is anyone’s guess, but we’re willing to give it a try. We’ve reviewed what the analysts, academics, senior journalists and industry leaders have to say about the next 12 months, and made some educated guesses about the crypto market’s likely direction of travel.
While you might expect crypto leaders to be bullish about BTC’s prospects in any situation, the consensus is that Bitcoin’s price will continue to rise in 2021 — and may even break USD 100,000.
Analysts at Wall Street stalwart JP Morgan said this week they expect Bitcoin will continue to crowd out gold as an alternative currency. The market surge of the last nine months may be just the beginning, with a far more significant price rally on the cards this year.
BTC was trading at around $31,000 at week’s end, after crossing a new all-time high the previous Sunday. Its price has leapt by 500 per cent since it traded in the USD 5,000 range in March. Now JPMorgan analysts think it could rise as high as $145,000.
2020 saw several major investors take prominent crypto positions. Business intelligence company Microstrategy purchased USD 500 million worth of BTC, while high street insurer MassMutual bought $100 million. Investment banks and hedge funds are all expanding their crypto investments, and that’s going to continue.
Given the amount of scepticism so many institutional investors expressed in crypto, as recently as 2019, what gives? Analysts believe extensive government money printing in response to the pandemic will keep prompting institutional investors to use Bitcoin and Ethereum as a hedge against fiat currency debasement.
Chainlink co-founder Sergey Nazarov has said he expects the global economy’s worsening fundamentals and coming inflation caused by unchecked money printing will drive crypto asset adoption.
In disrupted times, investors look for instruments that can help them preserve their wealth. The economic uncertainty on the cards for 2021 creates a favourable environment for decentralised finance (DeFi) protocols, which offer higher crypto returns.
A spate of DeFi yield farming could happen if the emerging sector proves itself as an effective alternative to traditional finance’s low yield/high inflation combo.
Decentralised finance (DeFi) started the year as a ca. USD 1 billion industry. It finished 2020 valued in excess of USD 15 billion. Investors jumped into the fray to take advantage of lucrative returns on loyalty cryptocurrencies from companies like Uniswap. Protocols for synthetic assets, lending, and trading on Ethereum-based decentralised exchanges (DEXes) dominated.
But how will DeFi grow and evolve this year? It’s easy to predict more growth based on what happened in 2020. Pinpointing the opportunities and predicting who will benefit most is the hard part.
The major DEXes all focus on different asset types. Synthetic tokens follow Bitcoin's price or peg themselves to the price of heavily-traded company stocks.
One potential development is the arrival of more user-friendly DEXes aimed at a retail audience. DeFi applications might also take advantage of layer-2 scaling solutions to launch protocols that sit outside Ethereum (or any other blockchain) to avoid bottlenecks created by the blockchain's limits. Uniswap and Aave have already announced plans to launch a layer-2 solution in 2021.
Another trend analysts point to is the potential rise of social tokens, used by artists, content creators, and musicians to engage and monetise their fan bases. Hit hard by the loss of concert and touring revenue, plus the rise of user-generated content and DIY content creation platforms, A-list creators are looking for ways to break free from standard social media platforms. This year could well see more social token launches and experimentation with formats like tokenised meet-ups.
DeFi’s Ethereum-bias could also diminish in 2021, as BTC's price surge and popularity force protocols to gravitate toward its user base and market capitalisation. Developers will likely ramp up innovation around Bitcoin and discover new ways to build native DeFi apps on top of it.
Next year could see the launch of the first state-backed digital currency. China’s central bank digital currency, the DCEP, is currently being piloted and several other central banks have announced plans or trials of their own. While they won't have the private and distributed attributes of Bitcoin, governments with their own national digital currencies will try harder to discourage or marginalise competitors like Bitcoin.
That could push more people toward stablecoins, particularly for cross-border payments. They’ll be seen as easier and cheaper to use over state digital currencies, or traditional payments through the banking system.