The year is drawing to a close, so the question is what will fundamentally change for the crypto sector in the coming year. The last Friday comment for this year should therefore outline the three biggest changes and make forecasts.
1. Institutional investors take the helm
In the last half of 2020, an expectation of the last few years was finally fulfilled: institutional investors have discovered the crypto market for themselves and, with their inflows of billions, are ensuring unabated price increases for Bitcoin Bank. Almost every day there are new reports from hedge funds, asset management companies and companies that are pumping two or three-digit million amounts into the crypto market.
As much as this may please one or the other Bitcoin investor, it also means, conversely, that the rules are now being made by the professionals on Wall Street and City of London and no longer by private investors or native crypto companies. Compared to regulated futures and options exchanges such as the CME, CBOE or Bakkt, crypto exchanges are thus becoming less relevant. After all, the new institutional investors do not trade with tokens at Binance and Co., but rather via futures on the aforementioned derivatives exchanges. Crypto traders will therefore also have to adapt their analysis methods in 2021.
At the same time, public opinion is shaped more strongly by the old economy. After all, it is their analysts and company spokesmen who classify the situation on the crypto markets.
The new medium of tokens is transferred to the corset of the old world by building appropriate indices and securitizing digital assets in securities certificates. The situation is increasingly reminiscent of German car manufacturers. Although we know that electric mobility is the future, we still cling to combustion engines and build hybrid vehicles as a compromise.
2. Regulation leaves no stone unturned
With the arrival of the old economy in the crypto sector, the rules of the game are also being adapted. Everything is becoming more regulated, the free spaces are becoming smaller. Already in 2020 warnings from politics were often heard that they were ready to heavily regulate and, if necessary, ban crypto currencies and, above all, stablecoins. In 2021, the fight against anonymity in the crypto space will be announced, as was recently emphasized and partially implemented by the G7 and above all France .
Laws on KYC are passed across states in the interests of each state. In particular, digital central bank money (CBDC) and stablecoins such as Facebook’s Diem, formerly Libra, will usher in a new crypto age in 2021. Also worth mentioning here is PayPal, which will continue to roll out its existing crypto service in 2021. Corporations are taking back control of the crypto market and user data in coordination with the states – this is the compromise for the green light.
Greater consumer protection, greater user-friendliness, rising prices due to more and above all professional market participants are the positive sides of this change. On the other hand, decentralization and the crypto narrative are turned inside out. In 2021, control will go back to some extent from the end consumer to the state or corporation. After all, it is primarily custodial wallets on which Bitcoin and Co. are stored. The user is therefore giving up access to the crypto offers of the newer hour more and more often. 2021 will therefore be a downright sad year for advocates of high privacy.
As a consequence of this regulatory offensive, a stronger counter-movement will slowly form in 2021, which is fed by the DeFi ecosystem. When it comes to really decentralized protocols, be it decentralized credit networks (crypto lending) or decentralized stock exchanges (DEX), authorities and corporations break their teeth. A decentralized DeFi ecosystem does not fit into their regulatory concept and will therefore increasingly offend. If not yet in 2021, this will lead to a massive regulatory conflict. The current discussions about Diem, on the other hand, should seem harmless. Before that happens, the DeFi sector has to grow significantly first.