The cryptocurrency industry is no doubt in a transformational time. The industry moves fast and there seem to be new buzzwords, acronyms and terms developing daily. To keep you informed, we examined emerging trends in crypto as we head into the second half of 2021 that you need to be keeping an eye on.
One of the most popular Defi trends since the beginning of 2021 has been the onset of yield farming, primarily on the Ethereum network.
This entails lending crypto to other platforms in return for interest on those coins in addition to the principal loan.
More specifically, once someone lends their crypto to a yield farming “pool”, they receive a redeemable token that represents a stake in that given pool. The Compound platform is currently the industry’s leading yield farming platform in terms of pool size and APY (Annual Percentage Return), closely followed by Aave.
Despite Ethereum’s dominance in the Defi space, by no means is the network perfect. For a long time, the Ethereum network has struggled with many deficiencies. In its upcoming software upgrade, it is focusing on tackling its energy efficiency, transaction speed and transaction costs (gas fees) problems. With the 3-phase series of Eth2 upgrades, the Ethereum network will soon run on a Proof-of-Stake (PoS) model as opposed to its original Proof-of-Work (PoW) structure. Ethereum’s PoW system can only process up to 15 transactions per second, which is why many people have concerns about its long term scalability as a reliable Defi ecosystem.
While there are questions whether this Ethereum network transition will go smoothly, other blockchains have started to catch up and offer similar DeFi experiences. Binance Smart Chain, Solana, and Matic have emerged as lower cost, viable blockchains that DeFi applications can run on. However, Ethereum still takes the cake in terms of mass adoption usage. Will this change in 2022? We’ll have to wait and see!
And just how much is that usage? The total value locked into Defi smart contracts has more than doubled since the end of 2020, growing from just under $20 billion to more than $40 billion.
Governments have implemented many restrictions around crypto assets, but none more spiteful than China. In 2013 China first banned Bitcoin as a medium of exchange, while still permitting the asset to be traded as a form of virtual property. During the ICO boom in 2017, China declared ICO’s illegal. While it remains legal to own Bitcoin and other cryptocurrencies, the 2021 China regulations restricts all mining companies from operating due to ‘power shortages’. This exodus of crypto mining hardware is vital to the crypto space because roughly 80% of global crypto trades were powered by Chinese mining organizations. Many believe this could actually strengthen crypto networks in the long term from improved mining decentralization.
In 2021, the most notable ongoing lawsuit is between the American SEC vs Ripple Labs Inc. The SEC has sued Ripple for selling their digital token, XRP, before it was properly registered as a security. This lawsuit will have implications on dozens of other coins, not including Bitcoin & Ethereum, which have both been examined to be commodities. Many people are hopeful that in 2022 global regulators will provide much needed clarity on the crypto asset class, specifically identifying the difference between securities and commodities.
Recently, following actions by Onatrio’s OSC asking exchanges to register with them, Binance and other major internationals have announced they will pull out of Ontario at the end of 2021.
In the same week near the end of June, Binance faced harsh regulatory action in the UK. UK customers remain able to buy and sell crypto on the Binance exchange, but its citizens are restricted from trading on Binance’s crypto derivatives platform due to the fact that derivatives trading must be regulated by the FCA.
Additionally, Japan, Italy and Thailand have all issued warnings to Binance about operating without the proper licenses in the final week of June 2021. Since then, China has recently stopped offering “stock tokens” and has directed its previous buyers to liquidate their tokens to a venue called CM-Equity AG.
There’s no doubt regulation will continue to shape the industry in the second half of 2021, so keep an eye on this space.
Throughout 2020, financial institutions transitioned their skeptic views on the crypto asset class, evolving into a desirable commodity for large corporations and asset management companies.
At the end of 2019, $2 billion of institutional assets under management had been allocated to the crypto asset class. When compared to the year-end of 2020, we saw a 500% growth in institutional investment, totalling to $15 billion.
This can be attributed to a sum of many reasons, but most notably PayPal and Venmo expanding to include crypto transaction services.
When companies of this magnitude support the crypto asset, large corporations take notice. It is no longer a question that institutional managers, such as pension plans or sovereign funds, are interested in crypto from voicing their strong opinions, yet very few of them own any.
A major roadblock restricting institutional adoption is that, over the past 5 years, nearly all large corporations have implemented ESG/sustainability committees that cannot justify investing in crypto assets.
This is based on the negative dialogue that governments such as China have put out regarding damages to the environment.
Specifically, the narrative that global politicians have used against it is directed towards crypto mining, emphasizing its destructive nature to the environment and lack of energy efficiency.
This makes it much harder for mining companies to raise capital. In due time, when mining companies innovate a way to ensure their processes function at sustainable levels, a load of institutional clients will likely invade the market.
If these institutional corporations conservatively allocate anywhere from 2% – 5% of their portfolios’ into crypto assets, that would generate more than $1 trillion worth of purchasing into the crypto ecosystem. The increase in value would be beyond significant compared to where it currently stands.
While Bitcoin has proven to be harmful to the environment in the past, consuming more energy than the country of Greece this past year, there is still a popular belief that mining Bitcoin will have an integral role in the pursuit of global clean energy.
There is no denying that other cryptocurrencies in addition to Bitcoin also have energy problems, although large corporations like Square believe we can achieve the global sustainability goals in conjunction with crypto mining.
This is because it forces miners to innovate the most efficient ways to generate energy.
Throughout 2021, a growing number of crypto firms are transitioning to capitalize on the excess energy from fossil fuels to help reduce carbon emissions.
In Canada, many gas companies have been successful in using the waste from previously flared gasses to power crypto mining facilities.
By nature, wind and solar energy are relatively unpredictable which leads to situations of production deficits, and overproduction on other occasions. From the viewpoint of regulators, battery power seems to be the most stable form of energy production for the future of crypto mining.
A newly sought after alternative energy source that the crypto community is eager to capitalize on is nuclear power. As electricity accounts for approximately 75% of the costs associated with crypto mining, nuclear energy is an affordable solution to lower costs for these mining facilities.
As well, nuclear energy serves as a zero emission clean energy source. A trending opinion in the crypto space is that mining facilities will soon take advantage of the nuclear energy resource to achieve sustainable growth.
No matter the source of power, crypto mining companies have made a priority to incorporate renewable energy into their future systems.
As you now know, there’s lots going on in the cryptocurrency industry. Emerging technology from DeFi, changes in regulations, and changes in mining are just some trends we will be keeping our eyes on in 2021 and 2022. Be sure to follow Bitbuy on social media for the latest news as it happens!