Bitcoin approaching $70,000, “memcoins” worth billions of dollars, a blockbuster list on Wall Street and a massive crackdown in China: 2021 was the wildest year yet for cryptocurrencies, even by the sector’s unstable standards.
- Bitcoin: still number one
- The rise of memcoins
- The elephant in the China shop
Digital assets started the year with an influx of cash from investors large and small. And since then, bitcoin and its congeners have rarely been out of the spotlight, and the language of cryptocurrencies has firmly entered the lexicon of investors.
Here are some of the major trends that have dominated cryptocurrencies this year.
1. Bitcoin: still number one
The original cryptocurrency retained its crown as the biggest and most prominent token, though not without plenty of challengers coming on its heels.
Bitcoin soared more than 120 percent from Jan. 1 to a record high of nearly $65,000 in mid-April. It has been fueled by a tsunami of cash from institutional investors, growing acceptance from major corporations such as Tesla Inc (TSLA.O) and Mastercard Inc. and a growing spread among Wall Street banks.
Investor’s interest has been piqued by bitcoin’s perceived inflation-protecting properties – it has limited supply as record stimulus packages have boosted prices. The promise of quick profits amid record-low interest rates and easier access thanks to rapidly evolving infrastructure also helped attract buyers.
“It’s moved into the realm where people are trading it and betting on Treasuries and stocks,” said Richard Galvin of crypto fund Digital Capital Asset Management.
Still, the coin has remained volatile. The token fell 35% in May and then soared to a new record high of $69,000 in November as inflation soared in Europe and the United States.
Prominent skeptics remain, with JPMorgan boss Jamie Dimon calling the cryptocurrency “useless.”
2. The rise of memcoins
While bitcoin has remained attractive to investors diving into a crypto world new to them, a slew of new – some would say a joke – tokens have entered the sector.
Dogecoin, launched in 2013 as a byproduct of bitcoin, soared more than 12,000% to a record high in May before falling nearly 80% by mid-December. Sibainu, which takes its name from the same breed of Japanese dog as dogecoin, briefly joined the top 10 digital currencies.
The memcoin phenomenon was linked to a move on Wall Street in which retail traders coordinated efforts online to buy stocks such as GameStop Corp, pushing hedge funds out of short positions.
Many traders, who often sat at home with extra money during the coronavirus quarantine, turned to cryptocurrencies even as regulators warned of high volatility.
“It’s all about mobilizing finances,” said Joseph Edwards, head of research at crypto broker Enigma Securities.”While assets like DOGE and SHIB may be purely speculative in and of themselves, the money flowing into them comes from the instinct of ‘why shouldn’t I make money with my money, my savings?”
3. The elephant in the China shop
As money poured into cryptocurrency, regulators worried about what they believed could facilitate money laundering and threaten global financial stability.
Long skeptical of cryptocurrency, a rebellious technology invented to undermine traditional finance, observers have called for expanded powers in the sector, and some have warned consumers of volatility.
With the new rules in place, crypto markets have become wary of the possible risk of restrictions.
When Beijing imposed restrictions on cryptocurrency in May, bitcoin fell nearly 50 percent, dragging the broader market with it.
“Regulatory risk is everything because those are the rules of the road by which people live and die in financial services,” said Stephen Kelso, global head of markets at ITI Capital. “Regulators are making good progress; they’re catching up.”
As memcoin trading has gone viral, another previously little-known corner of the cryptocurrency complex has taken center stage.
Non-exchangeable tokens (NFTs) – strings of code stored in a digital blockchain ledger that represent unique ownership of artwork, videos or even tweets – exploded in 2021.
In March, American artist Beeple’s digital artwork sold at Christie’s for nearly $70 million, making it one of the three most expensive works of live art sold at auction.
The sale marked a panicked run at the NFT.
Third-quarter sales reached $10.7 billion, more than eight times the volume of the previous three months. As volumes peaked in August, prices for some NFTs rose so quickly that speculators could “warm up” them for profits in a matter of days or even hours.
The rapid rise in cryptocurrency prices, which spawned a new cohort of crypto-rich investors, as well as predictions about the future of virtual online worlds where NFTs take center stage, contributed to the boom.
The popularity of cryptocurrencies and NFTs may also be linked to a decline in social mobility, said John Egan, CEO of BNP Paribas research firm L’Atelier, when young people realize their potential for quick profits as rising prices make traditional assets, such as homes, unaffordable.
While some of the world’s top brands, from Coca-Cola to Burberry, have been selling NFT, still heterogeneous regulation has meant that big investors have largely stayed away.
“I don’t see a situation where licensed financial institutions will actively and aggressively trade (these) digital assets in the next three years,” Egan said.