Analysis

Crypto in 2020: What Were the Most Important Trends of the Year?

Experts speak on the year in Bitcoin, Proof-of-Stake, DeFi, and more.

2020 was a big, crazy, and important year for cryptocurrencies. After the COVID-19 pandemic caused chaos in the global economy, it seems that more and more people started taking cryptocurrency more seriously than ever before.

As a result, both capital and attention were showered onto the crypto space: now, nearing the end of the year, Bitcoin has held sustainable price levels close to $20k; the DeFi space has held onto an influx of new funds and new users, and major corporations have announced huge investments into cryptocurrencies.

If the past can tell us anything about the future, 2021 may be a very exciting year for crypto. So, before we look into the future, let’s peer into the past. Here are 5 of the most important crypto trends of 2020.

Bitcoin’s Status as a Hedge against USD Inflation Is More Widely Accepted

Perhaps the most significant thing that happened in 2020 is the fact that more and more people seemed to begin to see cryptocurrencies, particularly Bitcoin, as a hedge against inflation.

Indeed, Brandon Mintz, Chief Executive of Bitcoin Depot, told Finance Magnates that “one of the most alarming developments of the last year was the revelation that the Fed printed an incredible amount of money – more than 20 percent of all dollars were printed in the last year.”

Brandon Mintz, Chief Executive of Bitcoin Depot.

A number of analysts believe that “this leads to fear of hyperinflation and instability,” he added. “On the other hand, BTC is on an aggressive growth trajectory.”

“There is a finite supply of BTC and it’s been referred to as digital gold, similar to the days when the value of the dollar was directly linked to the fixed supply of gold in federal reserves,” Mintz explained.

“This means that, despite its reputation for volatility, BTC could be more stable than the dollar at times, especially for savvy individuals looking to diversify their assets. As the adoption rate increases, the value will only continue to rise.”

Investors Are Showing Increased Interest in Bitcoin as a Portfolio Optimizer

Beyond Bitcoin’s increasing popularity as a possible hedge against inflation, Steve Ehrlich, Chief Executive of crypto broker Voyager, told Finance Magnates that crypto is becoming more popular as a portfolio optimizer.

“At Voyager, we’ve seen retail investors rushing in to convert their cash into crypto, to build their digital asset portfolio and build wealth by earning compounding interest,” he said, adding that “we expect this adoption to skyrocket in 2021 by all the trends we are witnessing.”

With PayPal and other major financial services also introducing digital assets, Grayscale buying more Bitcoin than is being minted on a weekly basis, mass adoption of crypto is no longer a hopeful dream, it’s a reality which is coming to fruition,” he explained.

“It’s also anticipated that the U.S. Dollar is expected to continue to weaken into 2021, and more dollars being printed to stimulate the economy, which will in turn likely push Bitcoin’s price into record-breaking territory.”

“Defi Has Grown from USD$1 Billion in ‘Locked’ Assets to over $14 Billion in This Year Alone.”

Another very important part of 2020 was the advent of the decentralized finance space, also known as DeFi. During the months of June and July, money poured into DeFi; as a result, the prices of tokens associated with DeFi platforms skyrocketed.

To a large extent, token prices have corrected since then. However, the growth that has occurred in the DeFi space is impressive nonetheless.

“Defi has grown from USD$1 billion in ‘locked’ assets to over $14 billion in this year alone,” said Steven Becker, Chief Operating Officer and President of the Maker Foundation, to Finance Magnates.

Steven Becker, Chief Operating Officer and President of the Maker Foundation.

This is because users “clearly see the value in increased accessibility and transparency to the economy,” Becker said. After all, the principles of DeFi are such that traditional financial systems can be rebuilt on more transparent, decentralized, peer-to-peer “rails.”

Still, DeFi is a long way from real adoption. While the amount of capital locked in DeFi systems may be increasing at lightning speed, the growth number of users has happened at a much slower pace.

However, Becker believes that progress is underway: “next year we’ll begin to see increased investing from traditional finance leaders as DeFi projects tackle major roadblocks in the current economy,” he said.

“As the world navigates the pandemic’s impact on the economy, I believe DeFi has the power of versatility and adaptability to move quickly and efficiently in times of financial crisis,” he said. As such, “we’ll continue to see more use cases surface including opening up the market for greater financial inclusion.”

However, Vadim Anchugov, Chief Operating Officer at Luxembourg-based digital asset investment platform VNX, pointed out that while “DeFi is a truly amazing innovation,” it may be wise to “be a little bit cautious before assuming that its success will be long-living.”

“[…]Obviously, we’re in the hype stage of DeFi now similar to the ICO boom of 2017, and that will end eventually, but whether the DeFi platforms will become more mature or just decline afterwards remains to be seen,” he said.

CBDCs Have “Arrived”

Another major area of progress this year was the rise in popularity of central bank digital currencies (CBDCs.) All around the globe, governments and central banks alike began explorative studies, trials and even launches of central bank digital currencies.

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Indeed, Anchugov pointed out to Finance Magnates that “this year, a huge step closer to adoption of central banks’ stable coins (known as Central Bank Digital Currencies or CBDCs) was made.”

Vadim Anchugov, Chief Operating Officer at Luxembourg-based digital asset investment platform, VNX.

“We saw an increasing number of countries and central banks running assessments, developing practical steps to develop CBDC adoption,” he said.

Earlier this year, Reuben Yap, Project Steward of Firo (formerly Zcoin), told Finance Magnates that CBDCs seemed to have “arrived” in 2020.

Why now? “Distributed ledger technology has matured significantly to a point that CBDCs are now possible,” he said. “China’s aggressive move with their DCEP initiative as part of its vision and the internationalization of RMB along with Libra’s efforts have raised many eyebrows, so much so that many central banks may be worried that they’ll get left behind.”

Maurizio Raffone, Chief Financial Officer of Credify, also told Finance Magnates that CBDCs are taking a big step forward now “due to a convergence of factors.”

“Distributed-ledger technology is now well-proven and beyond the ‘proof-of-concept’ stage, the Central Banks’ drive to reduce infrastructure costs for the banking sector and the greater focus on tools to combat money laundering and criminal financings,” he said.

2020 Was a Big Year for Regulatory Progress in Crypto

“In 2020, the crypto industry took a quantum leap forward,” said Ehrlich to Finance Magnates, specifically mentioning that “regulatory clarity” played an important part in paving “the path to mass adoption.”

Mintz specifically pointed to the open letter that the Office of the Comptroller of the Currency (OCC) published in July of 2020.

The letter “granted banks the ability to hold crypto assets on behalf of customers signaling that mainstream acceptance of BTC has begun to occur, and that BTC is beginning to revolutionize the economy as we know it,” Mintz said.

As a result, in 2021 and beyond, “we expect to see payments made with BTC become more commonplace and a rapid adoption of ‘crypto cards’. These cards will allow users to spend bitcoin through traditional payment networks and then those networks will pay merchants in fiat currency.”

Steve Ehrlich, Chief Executive Officer and Co-founder of crypto trading platform, Voyager.

In Europe, Anchugov pointed out that “2020 signified a new step in the crypto era of the European Union as the European Commission introduced a draft regulation on Market In Crypto Assets (MiCA),” which finally gave national governments of the EU member countries an understanding of what a regulatory framework for cryptocurrencies should look like in the future.

Additionally, MiCA gave “businesses operating in a crypto-related sphere a predictable perspective of the requirements, which allows them to adjust their business models and forecast possible impacts from both a business and a financial perspective,” as well as “licensing and compliance regimes with the new laws.”

Proof-of-Stake Became Much More Prominent throughout 2020

2020 was also a year that saw a shift in the mechanics of the blockchain sphere. Indeed, Tim Ogilvie, Chief Executive of Staked, told Finance Magnates that “the most important trend in crypto in 2020 saw Proof of Stake blockchains come to the fore in a shift that will accelerate next year.”

“Currently representing about 15% of the total crypto market cap, proof-of-stake blockchains drive most of the activity outside bitcoin, and we can expect this to accelerate in 2021,” Ogilvie said. “This dominance will expand and spur further adoption and developer engagement, which in turn will help foster many more user-facing projects and apps.”

The term Proof-of-Stake describes a type of blockchain algorithm that keeps blockchain networks operable by incentivizing users to ‘lock’ their coins into a network; by contrast, Proof-of-Work algorithms (like Bitcoin’s) incentivize users to have the most powerful computing equipment.

Indeed, “almost half of the top ten crypto assets by market cap are now on a path to Proof-of-Stake,” Ogilvie explained. “At the beginning of the year, there were practically none.”

Additionally, “a lot of 2020’s crypto market cap growth can be attributed to proof-of-stake blockchains, such as Ethereum, Polkadot and Cardano,” he said.

Moreover, Ogilvie pointed to a major development in the life cycle of Ethereum: “this month’s launch of the Beacon Chain as part of the upgrade to Ethereum 2.0 was the biggest event in staking this year,” he said.

“The fact that the blockchain with a market cap second only to Bitcoin is finally moving to proof-of-stake underscores the shift.”

Tim Ogilvie, Chief Executive of Staked.

“Other PoS networks are recording successes, too,” he added. “Polkadot has more than $3 billion staked and is currently the largest PoS chain. Chainlink, the fifth-largest crypto asset by market cap, has announced that it too plans to shift to PoS. In 12 months time, we will see that many of the top chains, outside of Bitcoin, will have moved to proof-of-stake.”

 

What do you think the most important crypto trends of 2020 have been? Let us know in the comments below. 

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