2020 In Review – Cryptocurrency Edition
There is no doubt that 2020 has been a difficult year for all of us. With over 20,000,000 cases with over 300,000 deaths just here in the U.S. and with almost 2,000,000 deaths worldwide, COVID-19 has decimated our way of life. As businesses shuttered and closed forcing everyone except the most essential to work from home, we discovered our new digital way of living. By slowly figuring out how to work from home, meet through Zoom or Skype, and stay productive we are now able to continue moving forward in a safer way. Along with this digital move, many of us have also explored and have taken the steps to “digitize” our money by investing in cryptocurrencies. While the physical world seemed to have stopped, the cryptocurrency industry boomed. In 2020, the cryptocurrency industry saw the Bitcoin Halving event, Ethereum release its version 2.0, Ripple begin to battle the SEC, and Ethereum hit $1,000. While I explore each of these below, I will also take a look at what this means for 2021 and beyond.
The cryptocurrency industry boomed as new users from around the world entered the market mainly starting around March when COVID-19 started to become the main story on news and media outlets around the world. As governments began printing money in an attempt to keep the economy alive, fiat currencies began to devalue. Rather than choosing to keep their money in fiat, many people began investing in cryptocurrencies as a better store of value. So many people invested in stablecoins that governments around the world quickly tried to create regulations for them. Stablecoins are cryptocurrencies that are pegged, or backed, by a fiat currency. This provides stability as they are tied to a fiat currency while also having the benefits of a cryptocurrency. The benefits of a cryptocurrency are the main reason why people invested in them to begin with. It allowed them to access their coins whenever they wanted and could trade them effortlessly at little no cost. Traditional investors also turned to Gold for a store of value raising the price from $1,520 on January 1, 2020, to a high of $2,080 in August; however, Gold’s price increase cannot begin to compare to Bitcoin’s meteoric rise.
Kicking off 2020, Bitcoin was valued at just $7,200 per coin and had a market cap of only $130B. Fast forward a year later to January 1, 2021, and Bitcoin is up 308% to $29,375 with a $546B market cap. On January 3, 2021, Bitcoin went on to hit $34,000 and has since hit a high of $41,718 on January 9th with a market cap over $1T as we can see from Bitcoin’s Price Chart above. Ether also performed very well going from $130.87 on January 1, 2020, to $751.09 on January 1, 2021 – a growth of 474%. Ether also went on to hit $1,327.31 on January 9, 2021.
Part of this massive growth can be in part credited to Bitcoin’s Halving Event, which took part on May 11, 2020. As a quick overview, miners are rewarded Bitcoins for each block that is mined. Every 4-years, in response to inflation, the rewards are halved. This means that there was a decrease in new Bitcoins being farmed/circulating the market – various reports state around $60,000,000 worth. Since there are only approximately 3-million Bitcoins left to mine – as it has a 21-million cap limit – with the halving and miners leaving the chain, it will take a significant amount of time to mine the remaining 3-million Bitcoins providing some level of stability in terms of circulation post-halving. As the halving occurred, Bitcoin’s price remained stable meaning that the initial pricing was already built-in by investors purchasing Bitcoin prior to the halving. However, post-halving, as demand continued to rise in response to a more restricted supply, Bitcoin’s price continued to rise. Bitcoin’s price was only $8,600 on May 11th, but it was not until October before Bitcoin began to grow past $10,000 to $18,000 and until December when it not only hit $20,000 but almost hit $30,000 at the end of the year.
Towards the end of the year, on December 1, 2020, Ethereum officially started the transition to Ethereum 2.0. Ethereum 2.0 is an upgrade to the Ethereum blockchain which increases the efficiency and scalability of the chain. Also, more notably, Eth2.0 shifts the consensus mechanism from Proof of Work (PoW) to Proof of Stake (PoS). Proof of work is a consensus mechanism used to validate transactions on the blockchain. Here, miners solve problems by using their computing power. Once solved, the miners are rewarded with cryptocurrency from that chain – in this case, Ether. Proof of stake, on the other hand, is a mechanism in which a validator selects to propose a new block based on how much cryptocurrency they hold and for how long they have held it. PoS benefits from being more efficient than PoW and more secure. This increased security and scalability bode well for Ethereum as we begin to move into 2021 with cryptocurrencies being at all-time highs in terms of both price and adoption.
Unfortunately, the cryptocurrency industry was not without its drama in 2020. At the end of the year, we saw Ripple fight back against the SEC. The SEC claims that Ripple Labs Inc., its CEO Brad Garlinghouse and Chairman Chris Larsen illegally sold XRP in an unregistered Security Offering – raising over $1.3B. Garlinghouse raises a great point in response as you can see from his tweet below.
Hester Pierce, aka Crypto Mom, has said “That’s why I have called for more clarity, because I actually think it can be difficult to determine whether something fits within the security bucket or not, and we could do more to provide some guideposts for what that would be.” Essentially, what both Garlinghouse and Pierce are saying is that we need better clarity, and this type of enforcement does not help provide that clarity.
With all of that said, with all of the growth we have seen in 2020, what does this mean for the industry moving into 2021 and beyond? Not only has Bitcoin shattered its previous all-time high and is currently on its way to the moon – although, I am expecting a bit of a correction soon –its blockchain is also more secure than ever. More people have entered the market than ever before and in a much smarter and safer way than before. As many of you that have been following me for a while already know, I have been preaching for people to get educated on the industry before they decide to enter and invest, or to stay away – and that is what I have seen so many people do this time around. While Bitcoin certainly seems to be one of the best Risk/Reward investments to so many people around the world, learning how blockchain works, how cryptocurrencies function, and how the industry moves allow you to enter the market in a smart and safe manner. As more and more people continue to do this, 2021 certainly looks very positive for this industry. Personally, I am expecting Bitcoin to reach $50,000 by the end of the year as the industry continues to grow and the age of analytics really begins to take hold in the industry. I also expect a wide range of Security Token Offerings to help fuel investment in this industry.
As I have been for the past 3-years, I will remain heavily active in the regulatory space as I speak with congressmen and women to take a look at the proposed regulations for this industry. This is will indeed allow cryptocurrencies and blockchain to boom moving forward. I am really hoping and pushing for 2021 to be the year we regulate the industry here in the U.S. as so many other countries have already done. FinCEN released a 72-page notice of proposed rulemaking in December, though many industry leaders have voiced their opposition to them. I will have a separate podcast and article for that as it is quite in-depth. However, at the very least, this shows that we are getting closer to some regulatory clarity which the industry needs.