2021 Cryptocurrency Highlights And Their Consequences

2021 has been a record year for the cryptocurrency market. Bitcoin hit $1 trillion market capitalization for the first time, while the crypto market surpassed $3 billion. Bitcoin and Ethereum updated their all-time highs, fueling the whole crypto market. Meme coins like Dogecoin and Shiba Inu surged in popularity, showing outstanding price performance. It would be even better but the crypto market entered a correction period in November 2021. A lot of investors decided to sell BTC for USD and fix their profits because the market was overheated. It tumbled the rest of the market and most cryptocurrencies are now far away from their all-time highs.

In 2021, decentralized finance (DeFi) has become one of the fastest-growing sectors in the crypto industry, receiving recognition among both retail and institutional investors. The total value locked in DeFi increased more than tenfold last year. As a result, numerous cryptocurrencies in the DeFi sector have experienced a tremendous increase in adoption and returns. 

Great price-performance and rising adoption of DeFi projects pushed cryptocurrency into the mainstream. However, 2021 was not only exciting in terms of price actions as many other milestones and momentous events happened throughout the year. Let’s zoom in on three of them to find out what to expect in 2022. 

The NFT boom

In March 2021, the digital artist known as Beeple sold his NFT artwork at Christie’s auction for $69.3 million. It was the first time the art auction house accepted Ethereum cryptocurrency as payment.  The news about this NFT sale exploded the interest in NFTs, leading to multimillion-dollar sales of NFT collections. 

Mainstream media was filled with NFT headlines after many celebrities and large companies joined the space, launching their own NFT platforms and collectibles. NFTs began to be used as avatars on social media, they pushed blockchain-based metaverse concepts and leveraged play-to-earn blockchain games into new levels. In 2021, the NFT market saw over $23 billion in trading volume, including $4.5 billion as in-game assets and $500 million as metaverse-related assets.

Many traditional companies “discovered” NFTs only in 2021, and their initiatives currently look like experimental toes in the water to find the appropriate use of technology. But still, a lot of experts claim that NFT is here to stay. So 2022 could be a year when multiple legal, accounting, and tax questions around NFTs get some clarity since they slow down further NFT adoption.

Bitcoin has become a legal tender

In June 2021, El Salvador passed a new law, becoming the first country to adopt bitcoin as legal tender. It means that businesses in El Salvador can price their goods and services in bitcoin. Bitcoin can also be used as payment for taxes in El Salvador. El Salvador’s president Nayub Bukele said that accepting Bitcoin should help increase financial inclusion since 70% of the population doesn’t have a bank account. 

On September 7, the law went into effect and El Salvador’s government launched the Chivo wallet the same day to make bitcoin more affordable for people. Local banks and merchants accepted the Chivo wallet and its functionalities, making it one of the most common ways to pay with Bitcoin in the country. 

Additionally, El Salvador is buying bitcoin directly and investing in bitcoin-based infrastructure. For example, El Salvador is planning to build a so-called Bitcoin city to attract foreign investment. It is expected that residents of this city won’t have to pay income and property taxes. Besides, El Salvador is running a pilot Bitcoin mining venture at a geothermal power plant. The government plans to create incentives for the mining industry in the country.

Some politicians in overdollarized and developing countries were inspired by El Salvador’s approach. Experts claim that Panama and Paraguay may join El Salvador to recognize bitcoin as legal tender in 2022. However, the IMF continues urging El Salvador to stop accepting Bitcoin as legal tender in the country, and it may discourage other countries.

Chinese crypto ban

China has been banning cryptocurrency via several restrictive measures since 2013. But in September 2021, the People’s Bank of China said all crypto-related transactions are illegal, sending a strong signal to crackdown on the industry.

This crackdown significantly affected the Bitcoin ecosystem since a significant part of bitcoin miners were located in China. Cheap energy, proximity to major manufacturers, and low overhead cost helped Chinese miners to reach almost 75% of the average monthly hashrate share in 2019. But because of continuing pressure from Chinese authorities, China’s global hashrate share dropped to 34% in 2020. In 2021, China lost first place in terms of hashrate share in bitcoin mining. 

A lot of Chinese miners moved to other countries for bitcoin mining operations and it led to an infrastructure boom in Kazakhstan, Russia, North America, and Europe. China’s mining crackdown made the U.S. the most popular destination for bitcoin miners. As a result, the U.S. became the largest hub for bitcoin mining in October 2021.

Some experts say that the recent Chinese ban was an attempt to undermine other cryptocurrencies before the launch of China’s central bank digital currency (CBDC).  China has already finished its pilot program for CBDC and it is going to launch it somewhere in 2022.

2021 also was a year when many crypto projects launched major updates for their networks. Ethereum changed the way transaction fees are estimated, leading to the constant reduction of Ether’s supply and a gradual shift to Proof-of-Stake consensus. The first big update in the last four years — Taproot — has been activated in the Bitcoin network. It enables Bitcoin to execute smart contracts and makes bitcoin transactions more efficient. Cardano network launched smart contracts, while many other smart contract platforms were successful in forming their own crypto ecosystem. All of this shows that 2021 will be remembered as one of the most important years for the crypto industry.