The cryptocurrency market climbed to great heights during 2021 as it managed to pass US$3 trillion in total market capitalisation by November 2021. Bitcoin enjoys the highest market value of all cryptocurrencies, while Ethereum is the second-largest cryptocurrency and currently has a market capitalisation of ~US$370 billion. Some altcoins, such as the meme-inspired Dogecoin, have also reached the ranks of the top cryptocurrencies.
Meanwhile NFTs have become perhaps the hottest topic of discussion amongst cryptocurrency devotees. Hundred of millions of dollars has so far been spent trading in non-fungible tokens. Major fine art auctions have been a regular part of the NFT world and with NFTs being involved in in-game assets and futuristic visions such as the metaverse, the hype has only continued to grow.
Retail and institutional investors seem to be increasingly interested in the rapidly developing DeFi technology and this area is expected to grow exponentially in 2022. The introduction of Web 3.0 has fuelled interest in Decentralised Finance and the vast number of applications that can potentially spawn from it.
All of these exciting developments kept the topic of cryptocurrencies at the forefront of mainstream news during 2021.
Cryptocurrency 2021 Summary:
The year 2021 has proved to be a crucial turning point for cryptocurrencies. Though numerous events occurred last year that proved to be defining moments for crypto, the ones listed below are among the highlights:
- Bitcoin Surpassed US$1 Trillion in Market Value for the First Time
In early 2021, renowned institutional investors and big financial companies showed their interest in and support for Bitcoin. Tesla, Square, and MicroStrategy are big names that began buying bitcoin in 2021, helping to drive its price to all-time highs and its market capitalisation above US$1 trillion.
- Interest in NFTs Exploded After Beeple’s US$69 Million Sale
2021 proved to be the best year so far for the NFT market with a total trading volume of more than $23 billion. The trading volume of over US$500 million was recorded in blockchain-based metaverses and more than US$4.5 billion in trading volume was recorded on in-game NFT assets.
- Elon Musk Contributed to Dogecoin’s Record High
Much of the hype surrounding Dogecoin in 2021 can be attributed to Elon Musk. The Tesla and SpaceX CEO made numerous supportive and encouraging remarks about the meme-based cryptocurrency. In an infamous appearance on the Saturday Night Live program, Musk referred to himself as “The Dogefather”, prompting more media interest in Dogecoin. It only took a sequence of tweets posted by Musk and suddenly it seemed like everyone was buying the crypto coin.
- El Salvador Adopted Bitcoin as Legal Tender
In June 2021, El Salvador passed legislation that officially adopted Bitcoin as legal tender. Bitcoin can now be used to pay for goods and services in the Central American nation.
- Ethereum Launched EIP-1559 and Prepared for the Merge to Eth2.0
Eth2.0 has the potential to impact the Ethereum infrastructure and it is expected that cryptocurrency mining will soon be considered an outdated act.
- Over $600 Million was Stolen in a Record DeFi Hack
Most of the stolen funds were returned in the end but cryptocurrency theft continues to increase with a total of US$3.2 billion worth of cryptocurrency stolen in 2021, according to Chainalysis, a fivefold increase from 2020.
- China Banned Cryptocurrency — again!
Crypto-related services such as digital trading of assets, matching orders, issuing tokens, and other services were banned by China’s central bank in September. Eight other countries, Egypt, Iraq, Qatar, Oman, Morocco, Algeria, Tunisia, and Bangladesh, have also banned cryptocurrencies.
- The First Bitcoin Upgrade in Four Years Activated
The new upgrade will improve Bitcoin transactions by enhancing privacy and efficiency along with lowering the cost. It will also make the execution of smart contracts easier.
- Ethereum Competitors Earn Market Share
Avalanche and Solana, launched just a year earlier, managed to climb up to be listed in the ten most popular cryptocurrencies of 2021.
- DAOs Enter the Mainstream
Constitution DAO was able to raise around $40 million for an auction purchase of a U.S. Constitution rare copy and this way decentralized autonomous organizations or DAO was highlighted.
Predictions For Blockchain, Crypto Assets, DeFi, And NFTs For 2022
In 2021, the market capitalisation of all cryptocurrencies reached US$3 trillion, the highest in the history of digital currency. When 2021 began, the total value was not even US$800 billion but currently, Ethereum alone has US$80 billion locked as TVL by DeFi. NFTs, on the other hand, surprised everyone by becoming major parts of platforms such as Metaverse and GameFi. This was completely unexpected. Given the rapid level of development and technological advancement the cryptocurrency industry saw in 2021, it is reasonable to assume that this will continue in 2022.
The Impact of Rising Inflation
With the rise in inflation, the value of Bitcoins may rise due to scarcity. Therefore, the demand for Bitcoin might increase as a greater number of people are interested in investing in it as a store of value. This increase in demand could be a catalyst for an increase in the Bitcoin price and the increased investor demand could spill over into other “blue chip” cryptocurrencies such as Ethereum.
The Sustainability of Crypto Investments
The chances of a substantial increase in the costs of CO2 emissions are expected in 2022.
Generally speaking, the blockchain network operations are working on a greener energy mix than it was in the earlier days. Adoption of renewable energy resources by mining companies has been a major step forward; geothermal or solar energy, for instance, as these are cost-friendly as well as eco-friendly.
Web 3.0 Infrastructure – A Step Forward Into the Decentralisation of the Internet
One of the primary goals of Web 3.0 is to slowly eat away at the monopolistic control and power enjoyed by big tech companies, IT service providers, and a little further down the road, financial services firms.
Web 3.0 offers total decentralisation of the internet with the help of blockchain ledger services, thus increasing the privacy and security of your data and transactions. Decentralised wireless networks are another attractive feature of this new generation of the internet.
Additionally, Web3.0 lets you enjoy tokenised platforms and projects with community-based decision making, meaning the user will have a voice in their future development and direction. This new way of doing things prioritises the needs and wants of the user and provides them with a system of sustainable incentives which in turn builds user loyalty. Thus, users opt to stay on the network for longer than they had planned for.
More Legal Clarity Through Regulation and Prohibition
The regulatory challenges facing cryptocurrencies will be an issue that comes to the fore in 2022. The current unregulated nature of decentralised platforms has created a number of serious issues that will need to be confronted and dealt with. The use of cryptocurrencies in criminal activities such as tax evasion and money laundering, consumer protection from fraud and theft, and the opaque nature of cryptocurrency transactions are all issues that will have to be wrestled with by regulators in the near future.
It is reasonable to expect that western nations such as the USA, Great Britain, Canada, Australia and perhaps Western European countries will be the first to face these regulatory challenges, the outcome of which will largely determine the future of cryptocurrency as both a means of exchange and a store of value. If more nations ban or restrict the use of cryptocurrencies in 2022 and beyond, a great deal of confidence in the cryptocurrency market will be lost and prices will plunge as a result. Investors should expect more news in this area in 2022.
Will the Cryptocurrency Bubble Burst?
There is no doubt that cryptocurrencies and decentralisation represent the future of the internet in some form. Web 3.0, as it is being called, is as large and significant a revolution as the introduction of Web 2.0 was over 20 years ago. But the exact role cryptocurrencies will play in that revolution remains to be seen.
In many ways, the cryptocurrency boom of 2021 can be likened to the dot com boom of 1999. In both cases, optimism about the future of the internet caused a flurry of enthusiastic investors and irrational exuberance, driving valuations sky high and into bubble territory. In the case of the dot com boom, the bubble eventually burst and valuations plummeted. But the dot com bust, as it came to be known, turned out to be the absolute bottom for internet and technology stocks. Many companies went out of business, but the ones that lasted such as Amazon.com, Apple, Yahoo!, Cisco Systems and others, only grew from there. Perhaps the current cryptocurrency market bubble will end in a similar way, with a market crash resulting in the largely worthless meme coins ceasing to exist and the strongest cryptocurrencies surviving, to grow and prosper once again from the ground up.
