2021 Crypto Halftime Report – How Did Predictions Hold Up?

At the beginning of 2021, Soona Amhaz, the founder of Volt Capital, canvassed the crypto investment and operator community for predictions on what the year would bring. After reviewing some of predictions for 2021, I identified some patterns. Of the 44 anecdotes included in Soona’s post:

  • 14 individuals mentioned a directly bullish outlook on BTC.
  • 9 mentioned the growth of DeFi.
  • 7 believed that 2021 would see more regulatory involvement (though not all bad).
  • 7 thought there would be a great deal of corporate involvement in ’21 – i.e lots of IPO’s and M&A.
  • 6 cited stablecoin adoption as a major trend for the upcoming year.
  • 6 were bullish on a bucket I’ll call crypto + the creator economy (NFT’s, social tokens, etc.).

Now that it’s July of ’21, we’re in a position to see how some of these predictions are holding up so far. Note: crypto moves quickly, so a whole lot can change between now and the end of 2021.

Bullish on BTC

In Q1 – the bullish BTC predictions for 2021 looked spot on. Tesla put bitcoin on its balance sheet in February and the price rose to over $60k. Then Elon started tweeting, China banned mining, and people started getting liquidated. The result? Bitcoin has been mostly flat since the beginning of the year.

Source: CoinMarketCap. Date: 7/6/21

However, institutions are getting involved. Goldman Sachs just hired a team to focus on digital assets and they put out a thorough report on the space in May. JPMorgan is offering a bitcoin fund to clients, massive hedge funds like Marshall Wace are getting involved, and no, Tesla did not sell their BTC.

Governments are getting involved as well – particularly small governments like El Salvador, Paraguay, and Panama are either adopting bitcoin as legal tender or moving to adopt it nationally.

DeFi Growth

Another trend from our set of predictions was growth in DeFi.

TVL (according to DeFi Pulse) has grown from nearly $16B on 12/31/21 to $56.5B on July 6, 2021 – 2.4x growth. We’ve seen an explosion in the creation of new DeFi protocols, and the space held up when the market crashed in the late spring. 2020 may have had ‘DeFi summer,’ but most of the TVL in Defi has come over the last 6 months.

Source: DeFi Pulse. Date: 7/6/21

Regulatory Involvement

According to Caitlin Long’s analysis, the US government is primarily focused on compliance and tax payments. US taxpayers saw a direct question from the IRS when filing their 2020 tax returns about whether or not the filer bought or sold cryptocurrency in 2021. Other than this, regulation has been relatively quiet at the US federal level so far this year.

There have been some positive local development though both within the US and in foreign markets. Wyoming became the first US state to legally recognize DAOs, Miami is trying to build a crypto friendly legal environment, and El Salvador just made Bitcoin legal tender.

China is also making its own moves on bitcoin, doing exactly want most crypto insiders thought they would do: crack down heavily. They banned companies and financial institutions from supporting transactions and cryptocurrency related services earlier this year. Most recently, they banned mining domestically – which forced many mining operations to set up shop elsewhere (mostly in North America – in places like Texas). In many ways, this could actually be good for bitcoin long term. Bringing mining to areas free of censorship is likely better for the long term health of the network.

Corporate M&A and Crypto IPO’s

The biggest event here so far has been the Coinbase IPO. $COIN’s value is down significantly since the IPO date, but its still sitting at a $50B + market cap. After Coinbase went through its process, several other crypto focused companies have also beeen rumored to be considering going public – Kraken, Gemini, and BlockFi are all candidates for IPO in late 2021. On the M&A side, Coinbase acquired Bison Trails in January, PayPal acquired a digital asset security company in March, and Galaxy Digital bought BitGo for $1.2B in April.

One thing to appreciate about corporate involvement in crypto: the space is decentralized. DAO’s are growing in size, and some of them have treasuries that would rival the balance sheets of public companies. As you can see from this list on Open-Orgs.info, they’re getting quite large:

Source: Open-Orgs.info. Date: 7/6/21

We will likely see more growth outside of the corporate world in crypto than inside of it. Bitcoin and Ethereum have market caps that would place them in FAANG territory if they were corporations. Expect DAO’s to become more powerful than most public crypto companies.

Stablecoin Growth

A big 2021 story has been stablecoin growth.

Stablecoin supply has grown by almost 4x since the beginning of 2021. Growth here has been big for the entire ecosystem. For crypto-native payments solutions to gain traction, we’ll need plenty of liquidity in stable-value assets. People will hodl their store of value/protocol tokens, and spend stablecoins.

Some stablecoins are beginning to rival savings accounts. Why hold dollars in a bank account earning a few basis points when you can earn 4% + holding something like USDC?

It’s still early here. Algorithmic stablecoins don’t have the adoption that centralized options have, and centralized stablecoins carry risk of fraud and regulation. Iron finance/Titan had a bank run in June (kudos to Nic Carter for calling a bank run on a stablecoin), and many people still question Tether. This tweet from Naval last year holds up 9 months later:

Crypto + the Creator Economy

We had an NFT explosion in the first half of 2021, followed by a cooling off period. Beeple sold an NFT for $69M. NFT platforms and NFT focused DAO’s are gaining traction. We’re still in the early innings of the NFT/social token world. Right now, most of the focus is on digital art and gaming, but we’re looking at a new platform here. New digital innovation starts by putting the analog version into digital formats (i.e. turning physical art into digital art) and ends with something else entirely (like creator tokens & NFT based social media platforms). This will be an evolutionary process.

There are 2 other takes I really appreciated:

1) Several people mentioned that crypto will continue to become a magnet for talent in 2021. Matt Huang of Paradigm referred to crypto as a supermassive black hole for talent and capital. I can personally relate here: I left my job this summer to focus full time in crypto.

2) I’ll end with this take from Sam Bankman-Fried:

“Projects, tokens, and exchanges will be judged based on upside growth potential more so than current usage and excitement among industry insiders.”

The blockchain industry is moving beyond speculation into real world utility. As this process continues, builders, not speculators, will be the people who drive most of the value in crypto and reap most of the rewards. This will be one of the defining stories of growth in the industry over the next decade.

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