In 2021, the crypto space was heating up with buzzwords like Metaverse, NFT, DeFi, scaling solutions, and more. Cryptocurrency prices have reached record highs, and investors worldwide are flocking to the crypto market. In November, the cryptocurrencies’ total value surpassed the market capitalization of Apple and Microsoft, topping $3 trillion.
Let’s look at the notable events in the cryptocurrency market in 2021.
Bitcoin hits new all-time high at around $68,000
Bitcoin has surpassed $60,000, up 97.78% from its price a year ago. This is partly due to many factors, including Tesla’s acceptance of the first digital currency as a form of payment and acquisition of $1.5 billion worth of BTC, and the IPO of the largest crypto exchange in the US, Coinbase. In addition, after years of speculation, exchange-traded bitcoin funds (ETFs) have made their debut on leading exchanges. In addition, Bitcoin received a significant confidence boost when El Salvador and Paraguay announced that they would accept the cryptocurrency as legal tender.
The largest cryptocurrency gained many adherents in 2021 while also experiencing many upsetting turns. This is all exacerbated by the shrinking supply of bitcoins for trading, as 75% of BTC is held in holders’ accounts.
NFT was on the rise
NFT mania began in 2021, with the market surpassing $2 billion in the first quarter alone. For example, Twitter’s CEO sold the first tweet in NFT history for $2.9 million. The New York Times got in on the game, even selling the article for over half a million dollars.
The art segment’s sales of non-fungible tokens (NFTs) fluctuated significantly from April 12 to December 15, 2021. On April 12, 2022, there were approximately 23.7 thousand NFT sales in the art segment over the previous 30 days. On December 15, 2021, total NFT sales in the art segment reached approximately 30.8 thousand.
As tech giants like TikTok and Reddit plan to expand their use of non-fungible tokens, we can expect to see more discussion around NFTs in 2022.
DeFi experienced an unprecedented growth
The DeFi market boomed in 2021 with 1,354.7% growth in one year! This resulted in the growing attention towards crypto-staking, liquidity farming, lending, DEXs, and other DeFi solutions.
In 2021, we saw that any financial product or service could be offered via the Blockchain to ensure speed, transparency, and cost-efficiency. This is exactly why DeFi token prices have skyrocketed.
Scaling solutions emerged to facilitate blockchain capabilities
In 2021, several blockchains introduced new methods to scale their respective ecosystems. This included the creation of frameworks layered on top of existing blockchains to enable newer capabilities such as DeFi, NFTs, and more. These efforts can be seen to allow a blockchain network to accommodate newer resources while minimizing transaction costs and processing time.
While Bitcoin’s Lighting Network and Ethereum’s Plasma are among the leading Layer 2 scaling solutions, Polygon (MATIC) has emerged to solve the problems of slow finality, scalability, and higher gas fees often associated with projects based on the Ethereum protocol.
Ethereum launched EIP-1559 and prepared for the Eth2 merge
Ethereum's developers have also been working on upgrades throughout the year in preparation for the network’s upcoming shift to a proof-of-stake consensus mechanism. In August, one of Ethereum’s London upgrades went live and included a change to reduce the Ether supply. It also contained EIP 1559, which changed how transaction fees are calculated.
In 2022, we should see the switch from a proof-of-work to a proof-of-stake model for Ethereum. Eth2 will make mining Ethereum obsolete, as it will change the Ethereum infrastructure.
The first bitcoin upgrade in four years was activated
Bitcoin’s upgrade, Taproot, which went into effect on November 20, 2021, was the first major upgrade since 2017. The upgrade introduced Schnorr signatures, which are designed to improve the privacy and efficiency of Bitcoin transactions and reduce their cost. Taproot is a major step forward for BTC as it allows the cryptocurrency to execute smart contracts.
Over $600 million was initially stolen in a record DeFi hack
In August, the Poly Network was hacked for $600 million. Experts say the hacker exploited a vulnerability in its code. Although the funds were eventually returned, this was one of the largest cryptocurrency thefts of all time.
According to the Crypto Crime Report produced by Chainalysis — a blockchain analytics firm — scammers stole more than $7.7 billion in cryptocurrency worldwide in 2021. This is an 81% rise from the previous year.
The year 2021 was notable for the emergence of rug pulls — a scam where developers abandon a project and make off with investors’ money. This type of scam was more popular in the DeFi ecosystem, accounting for more than $2.8 billion, or 37% of all cryptocurrency scam revenue, up from 1% in 2020.
China banned cryptocurrency
In September 2021, the crackdown on cryptocurrencies in China continued — the People’s Bank of China declared that all cryptocurrency-related activities are illegal, including services such as digital asset trading, token issuance, and derivatives. Abroad, crypto exchanges that offer services in China have also been declared illegal.
As a result, China’s share of the global hash rate fell to zero in July, down from 67% in September 2020. This led to a shift to the US, which became the leading destination for Bitcoin miners in October 2021.
Lawmakers have focused on regulating the crypto market
Over the past year, there has been an increased focus on regulating cryptocurrencies. Chairman of the SEC, Gary Gensler, has been outspoken in his support for creating a regulatory framework for the cryptocurrency market. Jerome Powell, Federal Reserve Chairman, and Janet Yellen, Treasury Secretary, have repeatedly warned against the use of cryptocurrencies, particularly stablecoins, calling the entire asset class volatile and speculative. In November, President Joe Biden signed a bipartisan infrastructure bill that includes tax return provisions that apply to digital assets, resulting in the wave of concern in the cryptocurrency community.
Ethereum's competitors gain market share
In 2021, trends such as DeFi and NFTs led to an increase in demand for Ethereum. Due to the significant rise in gas costs and network congestion on the ETH blockchain, a number of other blockchain projects have emerged to compete.
Binance Smart Chain quickly positioned itself as a decentralized financial alternative, leveraging PancakeSwap’s friendly user interface to attract millions of users. This DEX became key to positioning BSC as the second-largest Blockchain in TVL ($21.9, as of December 15).
Avalanche and Solana were launched in 2020 as platforms for smart contracts and building decentralized applications. Both AVAX and Sol achieved a top spot among the top 10 cryptocurrencies by market share in 2021 on Coinmarketcap. As of December 15, the industry’s TVL was measured at $189 billion, up 767% year-over-year. However, Ethereum still accounts for nearly 60% of TVL.
What can we expect in 2022?
The major trends of 2022 include gaming and the metaverse, which will continue to grow as Web 3 takes shape. Governments can no longer ignore cryptocurrencies, so we can expect more regulation and government involvement in this area. Many governments are looking into the benefits of launching their own central bank digital currencies (CBDCs) or so-called govcoins, such as digital dollars. China, for example, has almost completed testing its digital yuan pilot.
We expect the crypto world to become even more prevalent. It seems that more businesses are accepting cryptocurrencies as payment. Recently, WhatsApp announced a pilot project that will allow users to send crypto payments as easily as sending a photo or a message.
As confidence in cryptocurrencies as an asset class grows, we will see more institutional interest. According to PitchBook Data, venture capital firms have invested nearly $30 billion in cryptocurrencies this year — more than in all previous years combined. And a September survey of global institutional investors by Nickel Digital Asset Management found that 62% of those who have not previously invested in cryptocurrencies plan to enter the market in the coming year. All of this should help the crypto market mature and increase the adoption of digital assets.
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