2021 threw new challenges to the cryptocurrency industry – from the “tightening of the screws” in China to the NFT boom and new historical highs.
Calls for adequate regulation have become clearer. The active development of new sectors has attracted those who previously shunned digital assets: auction houses, large brands and players in the traditional market.
In general, 2021 was successful for the industry and allowed it to strengthen its position. We talk about the main events and trends of the outgoing year.
Solana, Terra and Avalanche made it to Olympus
Over the past year, there have been noticeable changes in the rating of the largest crypto assets by capitalization.
Back on January 1, the top three included XRP (excluding USDT), followed by Litecoin (LTC), Polkadot (DOT), Bitcoin Cash (BCH) and Binance Coin (BNB). Rounding out the top ten were Cardano (ADA) and Chainlink (LINK). The total market capitalization at that time fluctuated around $ 783 billion.
Within a year, the layout of the top ten changed – newcomers appeared in it. Solana (SOL) was fixed in the list – on the way to Olympus, the coin updated the maximum at above $ 250. Terra also joined the fight, moving Polkadot.
In November, the total market capitalization exceeded $ 3 trillion. At the same time, bitcoin updated the maximum at $ 69,000. This was facilitated by a number of positive factors, one of which was the recognition of digital gold as the state currency in El Salvador.
El Salvador recognized bitcoin as a currency
In early June, the cryptocurrency industry turned its attention to El Salvador. At the Bitcoin 2021 conference, the country’s President Nayib Bukele announced the legalization of bitcoin.
In the same month, the Legislative Assembly approved the bill. It cannot be said that the initiative has received universal approval. Skepticism was expressed in the IMF, and the residents of San Salvador came out to protest and destroyed one of the cryptocurrency ATMs.
Nevertheless, in September, bitcoin became a legal means of payment in El Salvador. This favorably affected the growth of the Lightning Network, as well as the integration of the latter with Twitter.
Another initiative of Bukele was the mining of the first cryptocurrency on geothermal volcanic energy. In test mode, production began in October.
The decision also caused a mixed reaction. Experts recalled that the country is experiencing a shortage of water resources, and the use of volcanic energy will be more expensive than burning oil. This was a continuation of the environmental discussion around mining, which was activated by Elon Musk.
Elon Musk became a mouthpiece for the meme of cryptocurrencies and raised the issue of ecology
The person of the year for the industry was Elon Musk, whose tweets directly affected the market and investor sentiment. Globally, the entrepreneur was also recognized as a person of the year – in TIME and the Financial Times.
Its active support turned the Dogecoin meme cryptocurrency into a phenomenon of the year: it broke into the top 10 assets by capitalization and appeared in the listing of top exchanges.
Musk breathed life into Dogecoin clones – Shiba Floki and Shiba Inu. The latter even reached the top 10 in terms of capitalization.
However, Musk’s explicit support was provided by Dogecoin. In particular, he stated that DOGE can “easily” win against bitcoin.
Digital gold, on the contrary, was criticized by the billionaire, although at the beginning of the year the situation was developing in a favorable way. In February, Tesla disclosed an investment in bitcoin in the amount of $ 1.5 billion, and in March, Musk announced the start of sales of electric cars in the US for BTC.
It is not known whether anyone took advantage of the offer, but in May the company abandoned the initiative due to concerns about the impact of mining on the environment.
Musk’s criticism has influenced investors’ opinions. In May, 23 mining companies from North America merged into the Bitcoin Mining Council (BMC), calling their goal to reduce CO₂ emissions. Musk was present at the first meeting, but his participation in the organization ended there.
In the first report, BMC estimated the share of green energy in the global BTC mining industry at 56% for the second quarter. The community criticized the work, pointing to bias, limited sampling and questionable methodology.
Since then, the role of the environmental argument has grown tremendously. It was successfully used in Beijing, where they plan to achieve carbon neutrality by 2060.
China expelled miners from the country
The problems of miners in China began in the spring with accidents at coal mines in several provinces. This provoked a sharp decline in the hashrate: if at the beginning of the year the country dominated the production of BTC (53.3%), then in April the share has already decreased to 46%.
Experts disagree on the correlation of the hash rate and the price of the first cryptocurrency. But no one doubts the impact of Beijing’s repression on the industry.
Since May, the authorities have been methodically tightening the screws. The main arguments in the fight against cryptocurrencies were:
Local officials have begun to “squeeze” industry representatives out of the country. The aggravated situation with regulation in the PRC made local mining companies think about changing jurisdiction and led to their mass exodus. The main destinations were the United States, Kazakhstan and Canada. Russia also strengthened its position, despite the lack of regulatory certainty.
However, not all players were able to leave the country. The largest pool for the extraction of Ethereum SparkPool, the Biki exchange and the BeePool mining pool had to announce the closure. Some companies, including Binance and Huobi, KuCoin, BitMart and BTC.com, stopped the registration of users from mainland China.
Qihoo 360, which specializes in cybersecurity, found that some industry participants went “underground”, using home Internet, dedicated corporate lines and data centers for operations.
According to Qihoo 360, an average of 109,000 IP addresses were used for mining in November. The provinces of Guangdong, Jiangsu, Zhejiang and Shandong were active. The company has developed a solution for government agencies to determine the IP addresses of miners, their location, type and frequency of connection, and also proposed methods for their suppression.
Simultaneously with the implementation of repressive policies, Beijing worked on the digital yuan (e-CNY or DCEP), taking another step towards total control over society.
China tested programmable money
In 2021, the PRC maintained its leadership in the development of CBDC. The digital yuan has withstood several tests in a number of provinces and cities, and the Central Bank of the country published a white paper.
Of particular note is the distribution of 12 million e-CNY ($ 1.85 million) among residents of Chengdu, the capital of the Chinese province of Sichuan. During the testing, the authorities limited the use cases: digital yuan was allowed to pay only for travel on the subway or buses, or rent bicycles through the mobile applications Tianfutong and Meituan.
The ECB has formed a group on the potential development and dissemination of CBDCUkraine adopted the law “On Payment Services”, which, among other things, regulates the general principles for issuing CBDC
In the bitcoin network, the activation of Taproot took place
An important event for bitcoin was the activation of the Taproot update, which is designed to increase the privacy, efficiency and scalability of the network.
The soft fork occurred on November 14 on block #709 632 – it was mined by the F2Pool mining pool.
Two hard forks took place in the Ethereum network – Berlin and London
On April 15, the Berlin hard fork was held on the main Ethereum network on block #12,244,000, within the framework of which four proposals for improvement were implemented:
- changing the algorithm for calculating the cost of gas (EIP-2565 and EIP-2929);
- New transaction types (EIP-2930 and EIP-2718).
Activation of EIP-1559, which implies the burning of part of the transaction fees, was planned in the London hard fork – it took place on August 5 at block # 12 965 000.
As of Dec. 29, more than 1.29 million ETH had been burned online, according to Ultrasound Money.
By analogy with Ethereum, the token burning mechanism activated the Binance Smart Chain network (BSC, during the Bruno hard fork). The developers of the Polygon project (MATIC) deployed the same solution in the Mumbai test network.
Coinbase and Robinhood entered the Nasdaq
On April 14, a direct listing of shares of the coinbase bitcoin exchange on Nasdaq took place. The opening price was $ 381, at the start of trading the rate rose to $ 429.54, but by the end of the year it fell to levels around $ 260.
Coinbase’s capitalization at the moment exceeded $ 100 billion, which made it the most capitalized exchange in the world – more than the NYSE and the Nasdaq itself.
Another high-profile stock debut was Robinhood’s listing on the Nasdaq on June 29.
In the US, approved bitcoin futures ETFs
In October, the U.S. Securities and Exchange Commission (SEC) gave the community a tacit but long-awaited gift: it approved ProShares’ bid to launch the Bitcoin Strategy ETF.
The regulator made a positive decision in relation to similar instruments from VanEck and Valkyrie Investments.
However, spot bitcoin ETFs are still either rejected or the decision on them is postponed.
Binance abandoned the decentralized model
For the Binance cryptocurrency exchange, 2021 was under pressure from the financial regulators of a number of countries. Warnings were issued by the authorities of the Netherlands, Italy and Malta, Poland, Japan, Thailand, Hong Kong, Singapore, South Africa and Malaysia.
Against this background, the company’s CEO Changpeng Zhao published an open letter. He explained how the exchange plans to ensure regulatory compliance and customer protection.
In August, Binance introduced mandatory user verification. A month later, Zhao announced the transformation of the exchange into a licensed enterprise with a centralized business, admitting that the idea of a decentralized organization interferes with work with regulators.
The court rendered a verdict in the case of Kleiman v. Wright
On December 6 in Miami, a jury put an end to the case of the self-proclaimed creator of bitcoin Craig Wright and the family of his ex-partner Dave Kleiman.
The litigation has been going on since 2018, when Kleiman’s brother accused Wright of embezzling 1.1 million BTC. According to the decision, the latter must pay $ 100 million in compensation to W& K Info Defense Research for the conversion of “appropriated” bitcoins. Other claims against him were rejected by the jury.
John McAfee committed suicide
On June 23, the cryptocurrency community learned about the death of John McAfee in Spain. A well-known 75-year-old businessman was found dead in a prison cell – presumably, he committed suicide. This happened a few hours after the country’s Supreme Court allowed his extradition to the United States.
The court’s decision was criticized by Edward Snowden, and the widow of the entrepreneur Janice McAfee doubted the version of suicide.
The Metaverse Boom and GameFi
One of the trends of 2021 was metaverse and GameFi projects. The rise of game tokens fell on the summer, and the flagship of growth was AXS from the blockchain game Axie Infinity.
The sector received a powerful impetus from Mark Zuckerberg – on October 28, he announced the reorientation of the company to create its own metaverse and rebranding in Meta.
Against this background, the prices of project tokens from the GameFi spheres and virtual worlds have increased:
- Axie Infinity (AXS);
- Enjin (ENJ);
- The Sandbox (SAND);
- Decentraland (MANA).
Bank of America did not rule out that the metaverses will become a driver of growth in the cryptocurrency industry and contribute to the adoption of digital assets, and Grayscale predicted a potential increase in the annual income of web3-metaverses to $ 1 trillion.
Another trend of 2021 – NFT – opened the door to the industry for those who have not previously encountered cryptocurrencies. Non-fungible tokens have been issued by musicians, athletes, football clubs, museums, fashion houses, car brands, artists and content creators.
Works by Banksy and Pokras Lampas, works of art from the Hermitage collection, a summary by Steve Jobs and the 118-year-old archive of the South China Morning Post newspaper were transformed into the NFT.
However, interest in the sector was caused not so much by the opportunity to enter the digital space or expand interaction with fans, but by the amounts spent on NFT. Memes, stones, tweets, magazine covers and music albums collected thousands and millions of dollars at auction.
In March, auction house Christie’s set a record by selling “Everydays: The First 5000 Days” by artist Mike Winkelman (Beeple) in the form of NFT for $ 69.3 million.
Sotheby’s was active in the sector. Under the hammer went a set of NFT Bored Ape Yacht Club from Yuga Labs for $ 24.4 million The auction also put up for sale the works of digital artist Murat Pak and Quantum artist Kevin McCoy – one of the oldest NFT.
In January, the trading volume of non-fungible tokens barely reached $ 32 million, and in August the figure reached a record $ 1.5 billion.
Among the drivers of growth was the hype around the CryptoPunk project – a collection of 10,000 NFT images released back in 2017. In March, an unknown person bought one of nine alien punks #7804 for 4200 ETH ($7.5 million at the time).
In August, interest in the project was fueled by Visa. Payment giant CryptoPunk #7610 cost 49.5 ETH (almost $150,000).
At Christie’s, nine non-fungible tokens from the collection went under the hammer. Including commissions, the purchase amount was $16.96 million.
The most expensive token in the history of the collection was a rare “covid” CryptoPunk #7523. In June, Sotheby’s sold it for 4520 ETH – $ 11.8 million at the time of the transaction.
Cryplogger did not stand aside and put up for auction its own NFT in honor of the seventh anniversary of the magazine. They went under the hammer for 6.74 ETH.
The NFT boom has sparked a rise in fraud in the sector. The almost zero level of regulation and the peculiarities of the art industry have made it a convenient tool for money laundering.
The Rise of Ransomware
2021 will be remembered for a series of high-profile hacker attacks. Among the victims of extortion:
The activity of hackers attracted the attention of official Washington. In June, it became known that investigations of ransomware attacks in the United States received the same level of priority as terrorism cases. The Biden administration did not stop there and decided to prepare a number of measures to combat cryptocurrency payments to hackers.
Despite significant barriers, in 2021 the industry strengthened its position on all fronts. This is evidenced by many factors, some of which we have mentioned in this final material.
The foundation for mass adoption has been formed – retail and institutional investors, corporations and states are investing in bitcoin (so far only one thing, but this is only the beginning).
We have a long way ahead, new ups and downs, but it is already undeniable that the cryptocurrency industry is one of the most dynamic and interesting areas in the digital economy of our time.
Stay with Cryplogger. Happy New Year!