Bitcoin close to $ 70,000 (roughly 52.11.600 rupees), “memecoins” worth billions of dollars, a blockbuster listing on Wall Street and a major Chinese raid: 2021 was the wildest year yet for cryptocurrencies, even by volatile standards of the sector.
Digital assets started the year with a rush of cash from investors large and small. And Bitcoin and its relatives have rarely been in the limelight since then, as the language of the cryptocurrency has become firmly anchored in the investor lexicon.
Here’s a look at some of the key trends that dominated cryptocurrencies this year.
1. Bitcoin: Still No. 1
The original cryptocurrency held its crown as the largest and most well-known token – albeit not without a multitude of challengers to bite its heels.
Bitcoin rose over 120 percent from January 1 to a then record of nearly $ 65,000 (about Rs 4,839,600) in mid-April. This was driven by a tsunami of cash from institutional investors, growing adoption by large corporations like Tesla and Mastercard, and increasing adoption by Wall Street banks.
Investor interest was piqued by Bitcoin’s supposedly inflation-proof properties – it has limited supply – as record-breaking stimulus packages boosted soaring prices. The promise of quick profits at record low interest rates and easier access through rapidly developing infrastructure also helped attract buyers.
Emblematic of the mainstream embrace of Bitcoin was the listing of the major US exchange Coinbase in April, valued at $ 86 billion (roughly Rs. 640344.82 billion), the largest to date by a cryptocurrency company.
“It has moved into the area where it is traded by people who place bets on government bonds and stocks,” said Richard Galvin of crypto fund Digital Capital Asset Management.
However, the token remained volatile. It plunged 35 percent in May before climbing to a new all-time high of $ 69,000 (about Rs 5,137,500) in November as inflation spiked in Europe and the United States.
Prominent skeptics remain, with JPMorgan boss Jamie Dimon calling it “worthless”.
2. The rise of the memecoins
While Bitcoin remained the go-to place for investors dipping their toes in crypto, a slew of new – some would say joking – tokens have made their way into the sector.
“Memecoins” – a loose collection of coins from Dogecoin and Shiba Inu to octopus games that have their roots in web culture – often have little practical use.
Dogecoin, which was launched as a Bitcoin spin-off in 2013, rose over 12,000 percent to an all-time high in May before plummeting nearly 80 percent in mid-December. Shiba Inu, which refers to the same Japanese dog breed as Dogecoin, has briefly made its way into the 10 largest digital currencies.
The Memecoin phenomenon was linked to the “Wall Street Bets” movement, where retailers coordinated online to amass stocks like GameStop Corp and suppress the short positions of hedge funds.
Many of the traders, often stuck at home with cash during the coronavirus lockdown, turned to crypto even as regulators warned of volatility.
“It’s about raising funds,” said Joseph Edwards, research director at crypto broker Enigma Securities.
“While assets like DOGE and SHIB can be purely speculative in and of themselves, the money that goes into them comes from an instinct of ‘Why shouldn’t I make my money, savings?’
3. Regulation: The (big) elephant in the room
As money poured into crypto, regulators worried about what they saw as the potential to enable money laundering and threaten global financial stability.
Long skeptical of crypto – a rebel technology invented to undermine traditional finance – watch dogs called for more powers over the sector, with some consumers warning of volatility.
With new rules emerging, the crypto markets were shy of the potential risk of crackdown.
When Beijing restricted crypto in May, Bitcoin yielded nearly 50 percent, dragging the broader market with it.
“Regulatory risk is everything because these are the rules of the road people live and die by in financial services,” said Stephen Kelso, global head of markets at ITI Capital. “Regulators are making good progress, they are catching up.”
As Memecoin trading went viral, another, once obscure corner of the crypto complex also moved into the spotlight.
Non-fungible tokens (NFTs) – strings of code stored on the digital blockchain ledger that represent unique ownership of works of art, videos, or even tweets – exploded in 2021.
In March, a digital work of art by US artist Beeple sold for nearly $ 70 million (approximately rupees 521,339 billion) at Christie’s and is one of the three most expensive works by a living artist to be sold at auction.
The sale heralded a rush for NFTs. Third quarter sales reached $ 10.7 billion (approximately rupees 79690.39), more than eight times the three months prior. When the volume peaked in August, the prices of some NFTs rose so quickly that speculators could “flip” them in days or even hours to make a profit.
Rising crypto prices, spawning a new cohort of crypto-rich investors – as well as predictions for a future of online virtual worlds centered on NFTs – helped fuel the boom.
The popularity of cryptocurrencies and NFTs could also be related to a decline in social mobility, said John Egan, CEO of BNP Paribas-owned research firm L’Atelier out of reach.
While some of the world’s leading brands, from Coca-Cola to Burberry, have been selling NFTs, the still patchy regulations have resulted in larger investors largely shying away from them.
“I don’t see a situation where licensed financial institutions are actively and aggressively trading (these) digital assets in the next three years,” said Egan.
Interested in cryptocurrency? We discuss everything about crypto with WazirX CEO Nischal Shetty and WeekendInvesting founder Alok Jain on Orbital, the Gadgets 360 podcast. Orbital is available on Apple Podcasts, Google Podcasts, Spotify, Amazon Music, and anywhere you get your podcasts.
Cryptocurrency is an unregulated digital currency, not legal tender and is subject to market risks. The information provided in this article is not intended as financial advice, trading advice, or any other advice or recommendation of any kind offered or endorsed by NDTV. NDTV is not responsible for losses that may arise from an investment based on perceived recommendations, forecasts or other information contained in the article.