Wednesday, January 19, 2022

2021 Year in Crypto Review; A lot of Firsts!

The world of crypto in 2021 was buoyed by a number of high profile institutions and businesses investing in crypto at far greater scale than previously seen, driving crypto’s evolution into what is now a multi-trillion dollar asset. Bitcoin and Ethereum, the two largest cryptocurrencies by market cap, recorded new all-time highs and El Salvador became the first country to adopt crypto as legal tender. 

Marius Reitz, Luno’s GM for Africa, provides an overview of the important milestones during the year. Luno is South Africa’s homegrown crypto platform now operating in over 40 countries. 

All-time highs

The Bitcoin price burst through its all-time high of $68,000 on 5 November, showing a massive increase on the $28,000 range in which it was trading in December last year. But the crypto market also took some brutal hits. Cryptocurrencies are still a new alternative asset class and volatility is expected to characterise crypto for a while yet. 

Businesses and institutions get on board

In the US where regulation allows for entry into crypto, sophisticated firms like Fidelity, Goldman Sachs and JP Morgan are entering the crypto market and the Proshare Bitcoin ETF (world’s first Bitcoin ETF) saw record inflows into the fund.

Microstrategy, the NASDAQ-listed business intelligence company, continued to buy additional Bitcoin during the year and now has holdings worth about $6 billion. The move was widely viewed as a green light from corporate USA for crypto. 

Fintech and traditional payment providers began to adopt blockchain and crypto solutions, with giants PayPal, Venmo, Mastercard and even Twitter allowing customers to transact in Bitcoin. In South Africa, Capitec and Discovery Bank formed partnerships to list crypto as a new product offering.

Maturity

Digital assets and crypto businesses showed massive growth and significant market cap gains, indicating maturity in the sector. Coinbase debuted in 2021 as the biggest digital asset listing in history, coming to market at twice the valuation of Nasdaq. This has been positive for the industry, increasing trust and transparency. Having a public company of this size showcases that crypto-related businesses – and the crypto asset class – should be taken seriously. The crypto sector is now valued at more than $3 trillion.

Crypto’s value for emerging economies

El Salvador became the first country in the world where Bitcoin is considered legal tender, which means that retailers are legally obliged to accept Bitcoin as payment. The move was met with fierce support and fierce criticism, but it does confirm the value of cryptocurrencies as a way for developing economies to bypass a global financial system which relies on unfavourable loans and is geared towards the world’s richer countries and individuals.

Crypto as an asset vs payments use case

Luno has seen record growth of its customer base this year. The SA-founded crypto company now has over 9 million users across 40 countries.

On Luno, the number of monthly active customers buying or selling crypto doubled from last year. We’re seeing customers hold their crypto for on average 10 months, compared to an average of just 3 months in 2017. This is perhaps an indication that we are in the early stages of moving away from pure speculation to some customers seeing longer term value. 

While we’re still in the asset phase, we are seeing slow but continuous growth.  

Regulation

Globally, we have seen movements to regulate crypto. Draft regulations were announced in 2021 and South Africa’s regulators have taken a pragmatic approach to regulating crypto. Luno is in favour of regulation of the sector and believes that the adoption of regulations will result in positive spin offs for the crypto industry. 

Globally, a number of central banks have issued digital currencies. Nigeria launched the e-Naira in 2021 and South Africa is investigating a digital currency, which shows central banks bringing crypto closer.

As the sector grows in popularity, it is attracting world-class talent. Users are learning more about crypto and how to keep their crypto safe as companies like Luno continue to drive awareness campaigns. 

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