Most people have heard of cryptocurrency by now, thanks to the year 2021 – not just Bitcoin and Ethereum, but also altcoins like SHIB and DOGE, plus terms like the metaverse and NFTs.
We hope to outline some of the important themes and data that marked the last year’s advancement in crypto markets in this review.
When thinking of a “year in review,” industry performance, as with other financial assets, is frequently the first thing that springs to mind. Bitcoin (BTC) and Ethereum (ETH), the two most valuable cryptocurrencies by market capitalization, gained 60 percent and 407 percent, respectively, outperforming traditional macro assets.
While Ether, the primary asset of the Ethereum blockchain, has a long way to go before conventional investors develop an opinion, Bitcoin entrenched itself in the eyes of all expert investors when its market value surpassed $1 trillion in 2021. Furthermore, Bitcoin remained mutually independent with all macro assets, which could make for an attractive value proposition for the coin as portfolio managers plan their portfolios for 2022.
However, in the fourth quarter, Bitcoin’s correlation with the S&P 500 increased, indicating that investors are exchanging Bitcoin and stocks as high-risk assets.
The Tech Development and Adoption of Bitcoin
Aside from market performance, 2021 was a watershed moment for Bitcoin in terms of technology and adoption. El Salvador declared Bitcoin to be legal cash in June, and a law requiring Bitcoin to be accepted as a form of payment throughout the country entered into force in September.
The government made many Bitcoin purchases from the president’s telephone as a result of this. Furthermore, Salvadorans who signed up for Chivo, the state’s official Bitcoin wallet, received a free $30 Bitcoin; a pledge was made to use the Lightning Network, Bitcoin’s commerce layer, to enable a more seamless Bitcoin economy. In 2021, the number of Bitcoin committed to the Lightning Network surged at an incredible rate, reviving Bitcoin’s electronic cash use proposition.
It’s no wonder that Bitcoin’s dominance, a measure of BTC market cap compared to the market capitalization of other digital assets, declined from 70.2 percent to 40.1 percent in 2021, thanks to Ether’s stronger asset price performance. Bitcoin’s decline is not solely due to ETHER; crypto projects have sprung out with various cases that aren’t directly competitive with Bitcoin.
From EIP 1559 through the approaching shift to proof-of-stake, Ether has had huge catalysts. Both events are crucial in the development of a story for Ethereum’s native asset, as well as the evolution of Ethereum as a technology. EIP 1559 established Ether’s position as “gas” in the ecosystem, requiring that it be consumed and burned in return for building on or engaging with the network. The “Merge” to proof-of-stake is an effort to form a more scalable, secure, smart contract network without the use of miners or a lot of energy.
The initial coin offering (ICO) boom and bust in 2017 and 2018 was sparked by Ethereum, and the first wave of decentralized finance emerged from the ashes (DeFi). Ethereum-based projects like Compound, Aave (previously Lend), and Uniswap found its footing in 2019 and 2020. DeFi ventures were able to collect billions of dollars in cash for effective decentralized trading and lending markets by using the cryptocurrency bull market and liquidity mining) as propellant.
Furthermore, the rise of non-fungible tokens (NFTs), which propelled Ethereum into the limelight, can also be credited for a significant amount of its rise. NFTs are one-of-a-kind tokens that can be used as digital depictions of digitally or physically native goods, with evidence of ownership verifiable on the public blockchain. As a result, NFTs are attempting to serve as the first version of collectible, digital ownership on a blockchain. In 2021, the NFT sector’s darling was OpenSea, introducing a digital art market to investors in the retail industry.
Capital Investments in Cryptocurrency
Capital flooded into blockchain and cryptocurrency businesses from the worlds of regulation and institutions. These companies received $23 billion in funding in 2021, which is more than the total amount obtained between 2017 and 2020. In December, cryptocurrency financial services business NYDIG raised $1 billion in fundraising, and crypto exchange, FTX, raised more than $1 billion in two rounds of funding.
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