The biggest story of cryptocurrency this year is that it went mainstream.<\/p>\n
The best studies show that about 13% to 14% of Americans now own or have owned cryptocurrencies. Mainstream news outlets are (mostly) covering bitcoin in the business and markets section rather than the crime report. Politicians are fighting over it. And big institutional investors like hedge funds are investing in it.<\/p>\n
Then there\u2019s the government view. Treasury Secretary Janet Yellen was asked about bitcoin at her confirmation hearing. Republicans and Democrats are staking out positions on how strictly to regulate it. Securities and Exchange Commission (SEC) Chairman Gary Gensler \u2014 an expert who taught crypto at MIT before joining the agency \u2014 has called it the \u201cWild West.\u201d<\/p>\n
Bitcoin and ether saw their prices skyrocket, even accounting for a steep post-bull crash in November. Bitcoin\u2019s market capitalization hit $1 trillion in February, $2 trillion in August and $3 trillion (briefly) in November, when bitcoin\u2019s price neared $68,800. Ether, which started the year at about $750, is ending it close to $4,000. Institutional investors dove in as bitcoin became increasingly seen as a crypto in a category of its own: an inflation-hedging store of value, like gold.<\/p>\n
Here\u2019s a look at 10 of the biggest crypto stories of 2021.<\/p>\n
DeFi Moves to Center Stage<\/strong><\/p>\n At the beginning of the year, there was about $25 billion invested (locked) into decentralized finance (DeFi) projects, such as decentralized exchanges (DEXs) and lending\/borrowing platforms. Now it\u2019s $100 billion. It made headlines in The New York Times when Massachusetts Sen. Elizabeth Warren called it \u201cthe most dangerous part of the crypto world.\u201d<\/p>\n Stablecoins Create a Stir<\/strong><\/p>\n Dollar-pegged cryptocurrency stablecoins may not be an entirely new topic this year \u2014 Facebook\u2019s June 2019 Libra (now Deim) project saw to that and the widespread fear among regulators, central bankers and elected officials that they could endanger monetary sovereignty and the world\u2019s financial system. But they are getting more and more important and prominent, as a five-hour stablecoin hearing before the Senate Banking Committee showed. Then there\u2019s the money. The market cap of the top five stablecoins \u2014 Tether, UDS Coin, Binance USD, Terra USD, and Dai \u2014 is $152 billion.<\/p>\n And there\u2019s a storm coming in 2022 when elected officials grasp that No. 7 stablecoin Paxos\u2019 just-announced deal to be a currency for payment \u2014 instantly and to anyone, anywhere \u2014 on Facebook\u2019s 2 billion customer WhatsApp messaging service is Libra by another name.<\/p>\n World Economies Eye CBDCs<\/strong><\/p>\n Central bank digital currencies (CBDCs) are at the heart of the coming payments revolution. It\u2019s not clear if CBDCs, stablecoins or traditional financial institutions\u2019 real-time payments projects will bring real-time payments to both back-end and consumer transaction. Whichever wins, real-time payments are coming.<\/p>\n It\u2019s hard to unwrap them from China. The digital yuan is out of the testing phase, and it looks like China will meet its goal of having a live CBDC in time for the Winter Olympics in Beijing this February. It is the first country to have a CBDC \u2014 the Bahamanian Sand Dollar took that honor. But China\u2019s digital asset is lighting fires under finance ministries around the world, with 87 countries, including the European Union, looking. The fear is that the digital dollar will give China a tool to challenge the dollar\u2019s role as the world\u2019s reserve currency. However, the U.S. is still exploring the idea of a digital dollar, and neither Yellen nor Federal Reserve Chairman Jerome Powell are convinced of the necessity \u2014 or urgency.<\/p>\n China Moves Crypto\u2019s Center of Gravity<\/strong><\/p>\n Two points. First, the digital yuan is forcing a payments revolution (see CBDCs above). Second, by banning crypto trading and mining outright, China moved crypto\u2019s center of gravity \u2014 and highly-polluting bitcoin mining operations \u2014 squarely to the U.S. It also removed 1.4 billion buyers from the market. Between that, the Great Firewall and extensive internet censorship, the ban will likely hold.<\/p>\n NFTs Go Mainstream<\/strong><\/p>\n The nonfungible token (NFT) soared into the mainstream of both crypto and the general public this year, to the point that NFTs \u2014 along with DeFi \u2014 are slowing Ethereum to a crawl. A type of cryptocurrency token that can permanently lock data like images, music and even video into a format that can prove its own provenance is making inroads into art and gaming and could be used to tokenize everything from stocks to real estate.<\/p>\n The $69 million NFT collage that artist Beeple sold at Christie\u2019s in May kicked off mainstream interest, but professional sports \u2014 notably basketball and soccer \u2014 have jumped in with both feet, offering digital trading cards and loyalty building efforts, like allowing fans to vote on team decisions.<\/p>\n Coinbase Goes Public<\/strong><\/p>\n When U.S. cryptocurrency exchange Coinbase launched its IDO \u2014 an initial direct offering, similar to an initial public offering (IPO) but without financial middlemen \u2014 on Nasdaq in April, it became the first crypto industry firm to go public without sneaking in via a reverse merger. That was a sea change, showing that crypto was a \u201creal\u201d and legitimate industry.<\/p>\n Bitcoin Gains Legitimacy with ETFs<\/strong><\/p>\n Launching bitcoin exchange-traded funds (ETFs) is another phase that the industry as a whole sees as step toward legitimacy. That\u2019s in large part because the SEC won\u2019t permit them as it believes that cryptocurrency trading is still far too manipulated and manipulatable. So, the October decision to license bitcoin futures ETFs was a big step, but still short of the legitimacy that a spot ETF would bring.<\/p>\n Regulatory Battle Lines Drawn<\/strong><\/p>\n Regulation of crypto is coming. On that, pretty much everyone agrees. After that, however, there are a lot of disputes, but the two biggest are all about control.<\/p>\n First, there\u2019s the shape of regulation. That pits the crypto industry\u2019s desire for a light touch regime aimed at nurturing innovation (shared by a fair number of Republican congressmembers) against many regulators\u2019 desire for a stricter regime aimed more at protecting consumers (shared by a fair number of Democratic congressmembers). So, there\u2019s a partisan battle brewing, with Sen. Cynthia Lummis on one side and lately Warren on the other.<\/p>\n Second, there\u2019s the power struggle among regulators. This mirrors the first to an extent, pitting the SEC against the Commodity Futures Trading Commission (CFTC). Gensler\u2019s recent call for a single crypto regulator \u2014 say, his agency \u2014 is matched by CFTC Chairman Rostin Behnam\u2019s suggestion that congress expand his agency\u2019s authority. It\u2019s more than a power struggle. SEC control would support the view that virtually all cryptocurrencies are securities \u2014 investments, rather than commodities. The latter would make a lot more utility tokens used to run decentralized applications (DApps), platforms and blockchains a whole lot easier to sell and manage. The SEC\u2019s ongoing lawsuit against international payments firm Ripple for selling securities \u2014 XRP tokens \u2014 without a license could settle the dispute in the courts if congress doesn\u2019t act.<\/p>\n Big Banks Embrace Crypto<\/strong><\/p>\n OK, embrace may be a strong word, but major banks and other financial institutions (FIs) are starting to offer crypto investments to wealthy customers \u2014 who are demanding it \u2014 while getting serious themselves about custody and using stablecoins, CBDCs or some other form of cryptocurrency (like Ripple\u2019s XRP) for real-time, back-end settlement of all kinds of transactions. Long gone are the days of banks shutting the account of any customer who sent money to an exchange account.<\/p>\n A Little Story About Jack and Elon<\/strong><\/p>\n No look back at crypto in 2021 would be complete without the stories of Tesla and SpaceX CEO Elon Musk and Block (and formerly Twitter) CEO Jack Dorsey.<\/p>\n Dorsey has become a louder and prouder advocate of bitcoin and blockchain technology. A bitcoin maximalist, he just said he thinks bitcoin will replace the U.S. dollar. Block\u2019s Cash App was the first major non-industry payments app to offer crypto trading, and it\u2019s a huge part of the company\u2019s profit. He\u2019s also a big believer in decentralized technology, funding a project \u2014 BlueSky \u2014 to create an open-source, social media platform that can\u2019t be censored. And that whole stepping-down-as-Twitter-CEO thing started when an activist hedge fund complained that Twitter\u2019s substandard results stemmed from Dorsey spending too much time and attention on Block (formerly Square).<\/p>\n And then we have Musk. A crypto advocate who bought $1.5 billion in bitcoin for Tesla\u2019s corporate treasury, he also became \u2014 very briefly \u2014 the first CEO of a major corporation to sell goods for bitcoin. Alas, Tesla\u2019s embrace was fleeting, something he blamed on the staggering environmental impact of bitcoin mining.<\/p>\n Then there\u2019s his Twitter account, which currently has 66 million followers. Musk delights in moving the market with subtle comments and memes, and he\u2019s done it very effectively with bitcoin. But it\u2019s Dogecoin where he truly shines. The joke cryptocurrency \u2014 literally, it was designed as a joke \u2014 has grown from virtually valueless to the No. 12 cryptocurrency by market cap. \u201cLion King\u201d memes and things like buying some for his son and declaring him the first \u201ctoddler HODLer\u201d have caused DOGE to skyrocket. Of course, a \u201cSaturday Night Live\u201d skit tanked the price. What\u2019s clear is that by and large, Dogecoin essentially is Musk.<\/p>\n
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