What Drove Crypto’s Growth in 2020-21

When the world was first introduced to Bitcoin, it didn’t receive the universal acclaim it deserved. However, despite facing over a decade of criticism head-on, Bitcoin, cryptocurrencies, and blockchain technology as a whole have come out on top. It’d be inaccurate to say this all happened naturally – but while there were undoubtedly external forces at play, crypto’s growth over the last year has been largely organic. At the end of the day, a decentralized ecosystem is only as strong as its participants.

The last year has been peppered with innovative products and services that seemingly popped out of nowhere. The recent boom in decentralized finance feels unprecedented, but analysts saw this coming years ago. The total value locked into the DeFi space was at $700 million at the start of 2020 and is currently chasing an $80 billion market capitalization.

The cryptocurrency space is settling into an era of sensibility. Market participants are slowly categorizing different tokens depending on what they represent. Bitcoin currently represents digital gold – a safe haven asset to hedge against global economic risk, fiat currency risk, inflation, and more. Ethereum and its ETH token represent the burgeoning smart contract ecosystem, especially with almost every DeFi application being deployed on it.

While smaller-cap cryptocurrencies offer exponential growth, they also afford investors an equally high amount of risk. With Bitcoin hovering around the $50,000 level, it’ll be much harder to see the ‘sick gainz’ people have been harping on about for the last ten years investing in BTC, but it’s a much safer bet to make than ever before.

While the ‘total value locked’ or TVL metric has faced much criticism concerning what it actually represents, anything manifesting steady growth to over a hundred times its original value in a little over a year is unquestionably impressive. However, DeFi isn’t the only trend that’s been fuelling crypto’s growth over the last year, and on closer analysis, blockchain’s growth could be coming from a place rooted in more long-term adoption.

At the start of last year, Bitcoin was still deciding whether it was worth $10,000. A burst of positive sentiment in January saw BTC rise to $13,000 before gradually sloping to under $5,000 by May’s end. They say the night is always darkest just before dawn. Bitcoin is now twelve times more valuable, having grown from a market capitalization of just $86 billion a year ago to over $1 trillion today.

The blockchain industry is going through a fundamental change. Many of its components are evolving at once, signaling an ecosystem that’s shifting gears. Ethereum 2.0 Phase 0 officially launched late last year, and while its most important features like sharding haven’t been implemented yet, the Proof-of-Stake network’s Beacon Chain is now live – a feat thought improbably by many a few years ago.

Progress has been the name of the game for quite some time. The years since the 2017 ICO bubble have seen blockchain-based projects putting their thinking caps on to figure out tangible ways to deliver value with DLT. Though bearish momentum plagued most of 2018 and the latter half of 2019, the industry was only gearing up for the phase we’re currently in.

One of the biggest challenges for cryptocurrencies in the near to medium term is adoption. Decentralized networks rely on their communities more than any other network, and without a steady influx of users, critics claim that mainstream adoption is but a mirage in the hot atmosphere of blockchain hype. However, the utility and applications for blockchain are becoming limitless, with mainstream financial services and even national governments progressively adopting and integrating with the technology.

“There are many roadblocks to widespread adoption, but perhaps the one of the most significant that we see is education. Many people still simply do not know much about this field,” says Jack Tao, CEO of global cryptocurrency exchange Phemex. “Misunderstanding and lack of knowledge will continue to hinder the potential for rapid growth.”

The Singapore-based exchange, created by a team of ex-Morgan Stanley veterans in late-2019, has quickly made its way into the top crypto derivatives platforms in the world. Just last month, Phemex also announced the introduction of KYC services on the platform. 

Not only does this make them fully compliant with all crypto-related regulatory policies, but they are also registered as a Money Services Business (MSB) with FinCEN (the Financial Crimes Enforcement Network Department), to help further put its customers’ minds at ease. Cryptocurrency markets have billions of dollars being transferred across decentralized networks every day, and having the proper infrastructure to ensure secure and reliable transactions is paramount to active participation.

Decentralized exchanges sound great in theory, but there’s still a lot of work to be done. Unaudited code can have drastic consequences, and with countless new decentralized exchanges popping up every day, a little brand value couldn’t hurt.

“I don’t see this new field of exchanges as a threat but rather a complimentary service that can easily coexist with centralized exchanges,” the Phemex CEO added.

Relative to Q1 2020, Phemex also reported an impressive 465.2% rise in trade volumes over the same period this year, and a 156.9% increase in traders since 2020’s final quarter.

More Money, More Projects

Decentralized finance was built for the decentralized world we live in today. The COVID-19 pandemic has propagated a risk-off market mentality, but with economies slowly recovering and money pouring into the blockchain space, DeFi platforms have become perfect outlets for traders to take some risks. Even at the pandemic’s peak mid-last year, the hype behind DeFi’s yield farming took the whole community by storm.

Though it’s safe to say decentralized exchanges (DEXs) made their proper debut in the market last year, centralized exchanges aren’t backing down. Automated Market Makers (AMMs) may have made DEXs faster, but having an intermediary to make sure all proceedings are in everyone’s best interests is more valued than you’d expected.

2020 saw a noticeable reduction in the number of cryptocurrency thefts, reporting a near 60% decline from the previous year. 2019 saw over $4.5 billion lost to crime — nearly three times as much as 2018’s $1.7 billion – but this steady reduction in crypto theft doesn’t come from humans becoming better people.

Though Bitcoin’s growth had a massive impact on the global crypto market capitalization, its dominance over the space has been steadily dropping since the start of this year. Having reported an 84% dominance in January, BTC’s current hold over the space is a little over 50%. The broader cryptocurrency space has a market cap of over $2 trillion, rivaling some of the biggest companies in the world and even the GDP of some small countries.

Institutional interest has also picked up, with large companies and hedge funds all looking to benefit from the space’s exponential upside. With more money entering the industry, projects will soon be able to take advantage of development and management resources better, leading to more rapid progress in the field of decentralized networks.

To put things in perspective, the total funds raised through ICOs in the two years since 2017 is just shy of $20 billion – 1% of the entire cryptocurrency market capitalization in 2021. The cryptocurrency industry’s recent growth has been the culmination of efforts bubbling beneath the surface over the last few years, and now with capital and confidence, the world is finally putting blockchain to work.

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