Sun. Apr 11th, 2021

I. Bitcoin

A solid and continuous Bitcoin (BTC) bull run is expected in 2021.Since the inception of Bitcoin, the amount of BTC owned by the exchanges has steadily increased. However, starting from February 2020, institutional investors have started to withdraw large volumes of BTC from these exchanges for strategic long term holding. Such withdrawals have created pressure on BTC liquidity, and the sell-side crunch has driven up the BTC price since mid-2020 according to the chart below. We expect this trend to continue in 2021, and due to the decrease in BTC supply, the price of BTC is reasonably expected to align with the trend.

Grayscale in the US provides further evidence of the increasing institutional interest as it is a vehicle through which institutional investors have gained exposure to BTC. In early 2020, Grayscale started out with USD 2bn in assets under management (AUM), and the AUM rapidly grew to USD 20bn by late 2020. Most of its assets are concentrated in BTC, and it is expected that such a focus will be maintained.

Moreover, the CME recently overtook OKEx on the trade volume of futures, and the news indicates that institutional interest in Bitcoin will outweigh, if not already, retail interest as more players enter into the market through traditional entities. Combined with the phenomenon that more and more public companies such as MicroStrategy are directly purchasing bitcoin, the maturation of digital assets as an attractive investment asset class will naturally lend to more players seeking to hedge against the quantitative easing of central banks. Amid such indicators, it is worthwhile to note that BTC’s total market capitalization has exceeded that of the stressed countries’ currencies such as Venezuela. In 2021, there may be even countries purchasing bitcoin as a reserve asset.

II. Ethereum

While the media has so far focused on the price of bitcoin in 2020, the price of ethereum (ETH) rose at a more rapid rate compared to that of Bitcoin.

  • BTC: USD 7,195 → USD 29,001 (4.03x)
  • ETH: USD 129.6 → USD 737.8 (5.69x)

The on-chain fundamentals of Ethereum have also dramatically improved compared to that of Bitcoin. As DeFi (decentralized finance) activities, or financial services and products within the Ethereum ecosystem, exploded with innovative experiments in 2020, on-chain transaction fees of Ethereum have exceeded those of Bitcoin.

Given such substantive use cases of Ethereum, it is only reasonable to expect that institutional investors will also diversify their digital asset portfolio to include ethereum. It is no coincidence that the CME Group will be launching ETH futures in February 2021. As for the ETH 2.0 update, it is slowly but gradually achieving its development milestones. The fulfillment of Phase 0 staking target demonstrates the firm support of Ethereum core communities including both retail investors and institutions who participated in the staking.

It is also likely that financial institutions that have jumped into the crypto market early on will not only perceive ETH as an investment asset, but also realize its full potential to innovate the entire financial system given its smart contract and ETH-based cryptocurrency features. More robust and aggressive experiments on Ethereum could lead to revolutionary effects in 2021.

III. Stablecoin

Apart from China, there will be countries that start test operating CBDC (central bank digital currency), which will accelerate and enforce the digitization of conventional financial systems and assets. CBDC is based on private blockchains and is easily integrated and applied to conventional financial institutions; however, using private blockchains means that CBDC will not be able to utilize the open-source ecosystem or develop innovative composability cases. Also, their origins cannot be free from the central government censorship debate. Given the conflicting philosophies between public and private blockchains, the expansion of CBDC may actually become the driving force behind the growth of public blockchain-based stablecoin ecosystems.

IV. DeFi

The growth of the DeFi sector in 2020 proved to the world that the on-chain protocol economy can go beyond the store of value feature of digital gold, and develop into a complex financial paradigm. Along with supporting trends such as the spread of diverse crypto asset wallet solutions, DeFi will integrate with more B2C fintech services and pursue a better user experience, ultimately leading to an increase in Total Value Locked in 2021.High fees and lagging transaction confirmation speed, major downsides of DeFi, will be resolved through diverse Layer 2 projects and technologies such as zkRollup. And as these solutions are integrated into major DeFi projects in 2021, the interoperability among DeFi projects in different Layer 2 solutions or even different main chains will become the new focal points of interest with even more explosive potential.