2021: a roller coaster year with lasting changes for Bitcoin
The year has not been without its ups and downs with major events and incredible speed of adoption.
2021 has been a year of major events. We have experienced the ongoing global pandemic, widespread and prolonged lockdowns, significant supply chain disruptions and unprecedented monetary stimulus from central banks. For cryptocurrency, 2021 saw several major advances in institutional adoption, as well as price appreciation. Our 2021 year-end review highlights the most significant developments and changes observed this year, as well as the topics we will focus on in 2022.
Bitcoin has undoubtedly propelled itself as an emerging asset class.
Bitcoin alone reached a market cap of $ 1.27 trillion and totaled an average daily transaction volume of $ 10 billion, according to data from Messari Real Volume. By comparison, the most-traded stock, Tesla, with a market cap of around $ 1,000 billion, has an average daily trading volume of $ 20 billion. This indicates that bitcoin’s volume is comparable to that of the most popular large-cap stocks. Rising market capitalization and sufficient liquidity allowed bitcoin to absorb the inflow of institutional capital. As such, bitcoin has unquestionably established itself as an emerging asset class.
The role of cryptocurrency in the global allocation of assets expanded significantly in 2021.
Along with companies like Tesla and MicroStrategy adding bitcoin to their balance sheets, well-known investors like Paul Tudor Jones, Alan Howard, Ray Dalio, and George Soros have all revealed that their managed funds hold bitcoin. Many asset management companies have announced long-term bitcoin allocations as macro-thematic investments. Many hedge funds have added bitcoin to their current portfolios as an asymmetric trade. Additionally, as a durable, tradable and scarce asset, bitcoin has started to replace gold as a hedge against rising inflation in recent months.
Institutional adoption has resulted in a gradual decrease in bitcoin’s volatility, as evidenced by the fact that so far this year bitcoin has had the fewest days on record with 90-day volatility above 80%. And its 260-day volatility fell from 8x to 5x against gold in three years, according to Bloomberg.
As bitcoin’s correlation with the S&P 500 has weakened since early 2021, the recent debate over whether it is a risky asset or a safe haven in a hyperinflationary environment has resurfaced. In particular, bitcoin briefly followed the rapid bullish movement of gold and hit a new all-time high after the release of the U.S. Consumer Price Index in October.
Another watershed moment was the approval of the US bitcoin-based futures ETF, demonstrating that regulators are willing and open to explore the possibilities offered by this emerging asset class. While the ETFs currently approved by the U.S. Securities and Exchange Commission are all futures based, they are a huge improvement over closed-end funds such as the Grayscale Bitcoin Trust (GBTC) where the price deviates. considerably of the net asset value. As it turns out, demand for bitcoin ETFs has been pent up for far too long. The ProShares Bitcoin Strategy (BITO) ETF alone recorded over $ 1 billion in volume on its first day of trading. It also achieved assets under management (assets under management) of approximately $ 1.4 billion.
Bitcoin ETFs have provided tools for large asset managers such as pension funds to allocate to cryptocurrencies. Their eventual entry will accelerate the adoption of crypto assets on a larger scale, eventually leading to a normalization of volatility over time.
In the past year or so, as unprecedented monetary stimulus from central banks has resulted in an influx of liquidity into capital markets, extremely low interest rates have caused capital to seek yield. by any means possible. In the cryptocurrency space, centralized and decentralized lending platforms have provided massive amounts of liquidity to borrowers and high returns to lenders. Much of these returns come in the form of absolute returns such as interest earned on stable loans, rather than directly tied to returns on the crypto asset.
The development of “environmental, social and corporate governance” (ESG) in cryptocurrency mining is also on our radar. In mid-2021, the Chinese government banned bitcoin mining due to environmental pressures. Elsewhere, debate continued over the high levels of power consumption required by bitcoin mining. We’ve seen a lot of positive changes so far, like El Salvador harnessing energy from the Tecapa volcano to mine bitcoin. And Iceland, which participates in the European Union’s carbon emissions scheme, has used its renewable geothermal resources to reduce its electricity costs. Texas Senator Ted Cruz expressed his appreciation for bitcoin miners who find alternative uses for wasted energy and benefit everyone. We hope to see more examples of such innovation being implemented in the coming year.
This is a guest article by Yulong Liu. The opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.