The new year has just begun, Bitcoin has climbed to new highs, and Ethereum has broken through $1,000. 2021 is off to a good start, so what kind of stories will cryptocurrencies have to tell in the next year? Where will the market go?
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1. Increase in institutional investors
Throughout 2020, institutions have bet on Bitcoin like never before.
In May, two months after the market crashed on March 12, billionaire Paul Tudor Jones publicly endorsed bitcoin as a potential inflation hedge. By the fourth quarter of 2020, dozens of institutions have also joined the camp of supporting Bitcoin.
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Note: The green line part is the time period of the US market, and the blank part is the time period when the US stock market is closed (such as evenings, weekends and Thanksgiving holidays)
This pattern changed at the end of the year - the chart below shows the price movement of Bitcoin during US market hours in December 2020, and while the price rose sharply during US market hours on December 16, the biggest volatility of the month occurred in Christmas and the following weekend, when investment markets such as the stock market are closed.
This may be due to Bitcoin big players taking advantage of the relatively low liquidity during the Christmas period to push the market in the direction they want. A similar situation was seen during Thanksgiving, when U.S. markets were also closed. Apart from the Christmas holidays, Bitcoin’s price volatility has been occurring during the U.S. time frame.
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(Change of Grayscale’s BTC holdings)
Likewise, open interest in Bitcoin futures on the Chicago Mercantile Exchange (CME) also ended the year at an all-time high. Unlike most other cryptocurrency futures products, CME is a regulated exchange, which is what makes it more attractive to institutional investors.
Therefore, the big question facing the Bitcoin market in 2021 is: Will these institutional interest continue to increase? Or is it going to plateau or decline at some point this year?
At least for now, institutions are accelerating their approach.
On January 4, Three Arrows Capital (Three Arrows Capital) disclosed that it holds a $1 billion Grayscale Bitcoin Trust.
On the same day, Skybridge Capital (Skybridge Capital) also announced that it holds $300 million in bitcoin, and also launched a new bitcoin fund for accredited investors.
Another big event for the new year is the upcoming Coinbase IPO. As one of the world's largest cryptocurrency exchanges, Coinbase has attracted the attention of traditional institutional investors. If the company is successfully listed, many new investors will also be attracted to the industry, which will only increase the interest of institutional investors.
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2. Ethereum enters the next chapter
When the price soared from $730 on January 1 to $1,200 on January 7, Ethereum became a star that cannot be ignored in 2021. Ethereum will also receive increasing institutional interest with the upcoming development process.
On December 1 last year, the first phase of Ethereum 2.0 was successfully launched. It will be many years before Ethereum fully transitions to PoS, but momentum around this transition is already growing. Ethereum 2.0-based staking has surpassed $2 billion at the time of writing.
Additionally, in late November last year, Coinbase announced that they would begin supporting Ethereum 2.0 staking in early 2021. The passive income brought by Ethereum Staking will also make more and more institutions motivated to invest in ETH.
CME Group (CME) announced plans to launch ETH futures by February 2021. Based on the successful experience of Bitcoin futures, Ethereum futures will become a reliable way for institutional investors to enter Ethereum derivatives.
During 2020, Ethereum has seen a significant increase in activity. The rapid growth of DeFi in the second half of the year and the surge of NFT activities at the end of the year pushed Ethereum to new heights, but also brought new restrictions.
Ethereum transaction fees surged to new highs throughout the second half of 2020. But a new protocol improvement could help fix that and help make ethereum's monetary policy more attractive to investors — EIP-1559 is proposed as a way to improve ethereum's transaction pricing mechanism. It proposes burning a portion of ETH transaction fees, which will effectively reduce Ethereum’s inflation rate.
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3. Regulation is coming
While we're seeing a lot of positive developments at the start of 2021, some potential dark clouds loom. Regulatory attention to the industry has increased as cryptocurrency prices have soared.
In 2020, the BitMEX executive team was arrested, and several other large exchanges were also subject to regulatory crackdowns. In December, the U.S. introduced the Stability Act as a way to regulate stablecoins, with potentially far-reaching implications for the rest of the crypto industry.
Late last year, the SEC filed a lawsuit against Ripple, saying XRP was an unregistered security. The Financial Crimes Enforcement Network (FinCEN), a division of the U.S. Department of the Treasury, has announced that it intends to require U.S. citizens to disclose overseas cryptocurrency holdings, in addition to adding rules on KYC reporting by exchanges.
Cryptocurrency regulation is nothing new, and in recent years, regulators have been targeting various areas of the industry. As more and more people pay attention to this industry, industry supervision will continue to be strengthened in 2021.
While there may be some pain in the short term, it's also a good thing in the long run. Regulatory transparency will not only make institutions feel more at ease, but also help drive out some bad actors in cryptocurrency and help the industry develop healthily.
With the advent of these changes, the cryptocurrency industry will reach a new height in 2021. I hope that everyone here will be present and witness history together.
