Constantinos Pavlides, CMO of gt.io dives into the biggest questions facing the crypto markets in 2021.
Will the crazy crypto rally of 2020 persist into 2021?
The crypto bull run of 2020 was very different from that of 2017. While the earlier rally had largely been driven by individual investors and whales, the 2020 surge was due to rising institutional interest in digital currencies.
This has given us hope that cryptocurrencies might finally receive the mainstream acceptance that they have sought for so long, which in turn could drive mass adoption.
Not just cryptocurrencies, blockchain technology itself witnessed a huge rise in popularity in 2020, with multiple industries expressing an interest in finding applications for the technology to enhance business operations and processes.
Credit for this should largely be given to the Covid-19 pandemic, which accelerated digital transformation across the world.
As a result, the size of the global blockchain market is now expected to rise from $4 billion in 2020 to a whopping $39.7 billion by 2025, growing at a CAGR of 67.3% during the 5-year period.
With such optimism in the cryptocurrency market, 2021 is likely to be another good year for the crypto market.
By institutional interest, are you referring to Central Bank Digital Currencies? How do you see CBDCs panning out in 2021?
Institutional interest goes much beyond CBDCs. But, yes, I do believe that one of the key factors that will drive interest in cryptocurrencies is an acceleration in CBCD projects in 2021.
The interest in launching their own digital currency has been rising among central banks across the world. So much so that the latest BIS report states that 80% of all central banks are looking at the pros and cons of CBDCs.
The Chinese government is ahead of the rest of the world in this regard, having accelerated their CBDC project due to the Covid-19 crisis.
They have already conducted multiple experiments among corporate and individual citizens and could be ready for a worldwide launch in the near future. The ECB is also gearing up to make a decision regarding the Digital Euro project by mid-2021. So, the race is on.
These projects are likely to accelerate in 2021, driven by increasing digitisation of economies across the world, diminishing use of physical cash and ease of cross-border transactions, which will help globalisation during a period when most economies are looking at ways to push recovery.
All this is good news, which is one of the key factors that drives the prices of cryptos.
What else could influence the crypto space in 2021?
Decentralized financial services or the much talked about DeFi projects could be one of the biggest trends in the crypto space in 2021. These projects have established the use cases of cryptocurrencies in the financial sphere quite effectively.
In fact, I firmly believe that DeFi success could be a key driver of the acceptance of digital storage of assets or tokenization.
DeFi projects have proved how successful smart contracts can be and not just for financial services. They are likely to be the next big trend for all of fintech.
DeFi began 2020 with a total value of locked asset worth $683.35 million, ending the year with the figure well above $14 billion, which represents growth of more than 2,000%.
The DeFi sector has huge potential to bridge the gap between traditional financial services and the unbanked through applications in lending, insurance, mutual funds, decentralized exchanges, and even derivatives.
All this also spells great news for Ethereum, the platform on which a large percentage of DeFi protocols have been built. So, a DeFi boom could also mean increasing investor interest in ETH.
On the topic of crypto investment, will the much-awaited cryptocurrency ETF see light of day in 2021?
Crypto enthusiasts have long yearned for a Bitcoin Exchange Traded Fund, similar to ETF available for mainstream investors. But, the US SEC has rejected or delayed its decision on such ETFs for a long time now.
VanEck, on the other hand, has been very persistent about its Bitcoin ETF offerings, pushing back repeatedly with the SEC for an approval.
If crypto ETFs do receive approval, it could open up the cryptocurrency world to a huge population of investors who are eager to participate in the market but unwilling to take the risk of buying and selling coins directly on exchanges.
On the other hand, we’ve found that during the peak of the Covid-19 pandemic, numerous retail investors showed an interest in cryptocurrencies, seeking a way to trade without needing to open exchange wallets or constantly buying and selling directly.
Contracts for Difference (CFDs) proved to be the vehicle of choice for such traders. In fact, we’ve experienced a significant rise in popularity for CFDs, not just for crypto trading but also as a means to participate in the forex and equity markets.
What about Bitcoin? Will it continue to rise from strength to strength in 2021?
What a dream run Bitcoin has had, at least through the latter half of 2020. The bull run has persisted into 2021, given that BTC price touched $40,000 in the beginning of January and hasn’t dipped below $30,000 since then. This rally has been largely driven by hedge funds and institutional investors.
PayPal and Square adding BTC to their payment options now allows customers to make payments in cryptocurrencies. Also, MassMutual, one of the largest insurers, bought Bitcoin worth $100 million in December 2020.
If financial giants are seen to be accumulating digital currencies, it provides confidence to retail traders to participate in the crypto market as well.
Bitcoin outperformed almost every other asset, with analysts making some seemingly wild predictions about its price target for 2021.
For instance, a Citigroup analyst estimated that BTC could be worth $318,000 by the end of the year, while Guggenheim analysts are looking at $400,000.
If Bitcoin soars, ETH can’t be far behind. What do you expect of this crypto for 2021?
Well, ETH began the year at about $740 and had crossed the $1,400 mark on January 19. Like Bitcoin, despite the price fluctuations, ETH is on an uptrend and has remained above the $900 mark so far in 2021.
The future of ETH seems incredibly bright, given that Ethereum is the platform on which smart contracts are executed. It is also the basis for dApps. So, real world use cases of cryptocurrencies are likely to stem from the Ethereum ecosystem.
We expect ETH to remain in the news through the year, serving as the foundation for DeFi projects, stablecoins and non-fungible tokens (NFTs).
The launch of Ethereum 2.0 has enhanced the scalability of the network, which spells good news for blockchain projects.
Then there’s CME Group, which has announced that its ETH derivative product is scheduled to be launched in February, regulated by the Commodity Futures Trading Commission (CFTC).
In light of this news, analysts forecasts of ETH reaching anywhere between $2,000 and $9,000 doesn’t seem too improbable. For individual investors looking for a piece of this pie, CFDs could once again prove to be the most viable means to participate in the cryptocurrency market.
Any last thoughts about how newbie traders could get in on the crypto action?
We’ve always believed that the best way to participate in any financial market for the first time is to first invest time in learning about the market and familiarising yourself with its intricacies through a demo account.
We also believe that CFDs could be useful in helping newbies start small. Since there is no need to purchase and take ownership of the underlying asset, traders can open positions with much smaller capital.
These suggestions hold true for the crypto market as well, especially given how volatile it tends to be. Understanding one’s risk appetite and then choosing the appropriate leverage is also an important part of long-term trading success.
All said and done, this is certainly an exciting time for the crypto space and I look forward to 2021 as another year of firsts for the digital asset class.