South Africa’s cryptocurrency exchange, Luno has highlighted that the ongoing volatility, further progress on regulations and continued interest from institutional investors can be expected in 2021. “Looking back at our predictions from last year – the Bitcoin halving happened without a hitch and the industry matured as institutional investors entered the market,” says Marius Reitz, GM for Luno Africa.
“2020 was a proper stress test with Bitcoin hitting a low of around $5,000 in March and a high of $28,000. The new year is following the same trend with the price already reaching the $40,000 level.” The year 2021 presents seven major challenges that participants and observers should be on the watch out for.
Institutional investors will continue to flock.
2020 was the year of institutional investment, with Micro Strategy, Mode, Square and more moving high percentages of their cash reserves in Bitcoin in a bid to hedge against the inflationary potential of fiat currency. Corporations, institutional investors, family offices, and hedge funds all want Bitcoin to diversify their portfolios.
While the numbers are small relative to traditional markets, institutional investment will continue to grow as the economic implications of Covid-19 become clearer.
Adoption will be on the rise
While we are seeing large price movements, we expect that mainstream adoption will grow in 2021. Major players are increasing their investment and interest in cryptocurrencies. In addition, the retail market is set to pick up on the back of booming crypto assets, greater media attention and easy access for anyone. With each bull run, more investors enter the market for speculative purposes, thus growing the user base and moving closer to a critical mass of users for the crypto payments and other use cases to develop.
A recent survey conducted by Luno revealed that while a single global currency is not yet seen as valuable by respondents in Europe and Asia, Africans are ready to embrace a global currency. More than half of the respondents in Africa believe that a global currency would improve the current financial system.
Libra/Diem to launch
The cryptocurrency project launched loudly in 2019 by Facebook, Libra was relatively quiet in 2020 and made significant changes to its intended offering, including a rebranding to Diem.
This project is driven by some of the biggest companies in the world including Uber, Spotify, PayU and Andreessen Horowitz. As it unfolds, Diem could spark another wave of large companies wanting to get into the game of issuing their own coins.
New US administration
Joe Biden’s administration includes Treasury Secretary, Janet Yellen, who is “not a fan of Bitcoin”. Given the amount of institutional money that flooded into crypto and legislation allowing banks to hold Bitcoin on behalf of their clients in 2020, there’s likely to be significant pushback from Wall Street that may make any bearish positions hard to maintain.
There are also several US state senators who are bullish on crypto, so it will be interesting to see if other countries follow the US’s lead should the country become more crypto-friendly.
Maturing regulation
With the crypto space maturing rapidly, regulators globally are accelerating efforts to either embrace or regulate cryptocurrencies. In South Africa, proposed regulations have been tabled by the South African Reserve Bank and the FSCA recently announced a draft declaration of crypto assets as a financial product, which effectively means that any entity or person who renders intermediary services in relation to crypto-assets must be an authorised financial services provider.
Internationally, we expect to see more guidelines come into effect this year. Numerous central banks held talks on central bank digital currencies during 2020, with many now either in the research phase or further along.
Rival blockchain
The first phase of Ethereum 2.0 finally launched on 1 December after years in the making. This is a huge transition for Ethereum, unprecedented in the history of cryptocurrency, which could leave Ethereum in a state of flux for the next two years, possibly opening opportunities for rival blockchains with similar offerings. Following its rapid transformation, Ethereum could get closer to its goal of becoming a globally-usable ecosystem for companies in all sectors and industries.
Cryptocurrency prices
In a year of economic uncertainty, Bitcoin didn’t waiver, outperforming the likes of gold and other stocks and shares. We have seen weeks of exponential growth and new all-time highs, but the crypto market has also taken brutal hits – all within the first month of 2021. As a result, price predictions are all over the internet.
As venture capitalist, Tim Draper says, “Nothing is steady when one technology supersedes another. As Bitcoin eclipses the government currencies and the banking system, there are going to be many fits and starts.”
Cryptocurrencies like Bitcoin are still a new alternative asset class and ongoing volatility is expected. A longer-term view shows crypto to be on an upward trajectory even with massive price drops.