In our last blog post, we highlighted the milestones and industry trends that dominated the cryptocurrency and blockchain arena in 2020. Decentralized finance, institutional investments, and Central Bank Digital Currencies (CBDC) were some of the trends at the forefront of 2020.
Cryptocurrency Market Trends and Blockchain Outlook 2021
The cryptocurrency market increased from nearly $200 billion in January 2020 to almost $650 billion in December 2020. The price of Bitcoin is at an all-time high with nearly a week left in 2020. The coronavirus pandemic has further escalated the mainstream adoption of digital currencies. With leading enterprises like Amazon and Starbucks exploring blockchain in different capacities, the industry forecasts predict substantial investments in this technology. The worldwide spending on blockchain solutions alone is expected to increase from $1.5 billion in 2018 to $15.9 billion by 2023.
Are these movements likely to continue moving forward? What are some new trends that will continue to dominate the cryptocurrency markets in 2021? In this article, we explore a broader outlook for blockchain technology and cryptocurrency market trends in 2021.
1. Increase in importance of stablecoins
One of the cryptocurrency trends that will continue to be at the forefront of the industry in 2021 is stablecoins. Stablecoins are digital currencies pegged to the value of fiat currency such as the Euro or U.S. Dollar. The market of stablecoins has increased from $5.3 billion in January to nearly $26 billion as of December 2020.
The popularity of stablecoins is rising in response to its prominent use-cases such as cross-border remittance and payments.
2. Crypto Assets shift mainstream
In the second half of 2020, many financial services firms launched products pertaining to cryptocurrency assets. Moreover, JPMorgan Chase, (which once held a negative stance towards cryptocurrencies) announced the deployment of its own crypto token, the JPM coin.
Crypto assets services by firms like Visa and PayPal have started offering gateway solutions for bridging the gap between fiat and cryptocurrencies. This leads to wider acceptance of crypto coins for merchants, businesses, and e-commerce. This will eventually drive additional mainstream crypto adoption in 2021.
3. Traditional financial firms offering digital assets investments
In the later half of 2020, many traditional financial institutes invested in digital currencies, and began to offer crypto assets along with other financial instruments.
Grayscale Bitcoin Trust, an asset investment firm, holds more than $1 billion in crypto assets. The ease in availability of crypto assets, similar to traditional financial instruments, allows mainstream adoption of cryptocurrencies.
4. Deployment of practical applications of blockchain technology
Businesses ranging from startups to multi-billion dollar organizations have shown an avid interest in applications of blockchain technology. Recent reports reveal that the number of blockchain patents filed in blockchain technology increased 3X in 2020 as compared to 2018. Moreover, much of these patents belong to Fortune 500 companies.
Patents filed by Walmart, Nike, Alibaba, and more may see production in 2021 as live blockchain applications. Additionally, blockchain technology may also be used by the governmental agencies for different purposes, including secure storage, identity documentation, increased transparency, and reduction of frauds in governmental processes.
5. Tax Clarity
2020 witnessed a certain degree of regulatory clarity in digital assets as various countries approved a legally compliant structure for storing and holding crypto assets. A report by PWC suggests that a growing number of governments are drawing crypto tax guidance.
Tax guidance on parameters such as digital assets as a means of exchange, investment class, trading, exchanges, mining, and insurance will become more clear in 2021. The aspect of tax guidance induces trust in cryptocurrency investments.
6. Infrastructure for retail clients to buy cryptocurrencies
One of the reasons for retail clients to remain aversive towards cryptocurrencies is complexities associated with storing and exchanging digital currencies. However, in the last few years, supportive infrastructure has made it relatively easy for retail investors to manage digital assets.
The year 2020 already saw a record-breaking number of Bitcoin wallets as addresses reached an all time high. The infrastructure for accessing crypto assets has also expanded with institutions like Square offering gateway solutions to cryptocurrencies.
7. Permissioned blockchains trends in 2021
Permissioned blockchains facilitate opportunities for B2B use-cases for enterprises. As enterprises leverage blockchain technology for their internal operations, it is likely that there may be an influx of permissioned blockchain development solutions in 2021.
Additionally, the interoperability between applications facilitated by blockchain networks like Polkadot and Cosmos will further enable customized blockchain solutions for enterprises. The use of blockchain further enables security, transparency, trust, and reliability within an enterprise operations.
8. Banking and financial ecosystem continue to dominate in 2021
Decentralized finance has been one of the top cryptocurrency trends in 2020 and financial use-cases will continue to dominate in 2021 as well. Moreover, the impact of Covid-19 has further escalated the need for innovative fintech solutions driven by technology.
Digital currencies have advantages with cross-border remittances, low fees, and instant payments. The adoption of cryptocurrencies can streamline digital payments and enable an innovative infrastructure for a decentralized financial infrastructure.
9. Escalating CBDC Projects
As discussed in our last blog post, CBDC remained one of the top crypto and blockchain trends in 2020. China launched its own CBDC and 80% of banks across the globe are already experimenting with the concept of CBDC.
This process is further likely to intensify in 2021 as well. Governments and private banks are likely to launch their own CBDC, intensifying the use of digital currencies. In 2021, we will also witness the launch of private currencies such as diem.
10. Non-Fungible Tokens
The non-fungible token sector, which allows assets to be tokenized on Ethereum, started capturing attention in the second half of 2020. Non-Fungible tokens are used for digitizing assets including land, art, gaming assets, and more. These assets, in the form of tokens, are sold at third-party marketplaces that allow buyers and sellers to directly connect with each other.
The year 2021 likely holds promises and transformation in the crypto and blockchain industry. Crypto trends that dominated in 2020 will find a more strong structure in 2021. Additionally, many more blockchain projects will be deployed in 2021. Furthermore, we are also likely to see a strong hold of traditional financial instruments as well as institutions occupying a firm role in the industry. All in all, there seems to be a number of upcoming movements in the crypto and blockchain industry in 2021.