Ten Predictions for 2021
With the exception of one lengthy blog post with Tony Sheng and endless investment memos, I really have not written since the earlier days of my crypto career.
As many of my favorite writers (Morgan Housel, James Clear, David Perrell) have said so many times, writing is how you better crystalize one’s thinking on certain topics. And with so much happening in crypto on a daily basis, it is imperative that we allow time for ourselves to digest this information in a constructive manner.
To kick off the year, I decided to flex my writing muscle by formulating some of my predictions for the crypto industry in 2021.
#1: One of these cycles is not like the others: Bitcoin’s market cap will explode again, but the succeeding implosion will be less severe
As you can see from previous Bitcoin cycles, the price rises and then collapses nearly -80% from bull peak to the bottom. While I do believe we will go through a similar cycle again this time, I don’t not see the price collapsing -80% from its peak as it did previously.
The primary reason for this is that Bitcoin, with the acceptance of institutions this year, has officially gotten over the hump of “it’s a fad”. The main driver of these 80% declines was a belief that this was the end of Bitcoin. Now that enough folks know how these cycles work and institutions have signaled to the broader public that Bitcoin is indeed not a fad, we will not see nearly the decline we have in the past.
#2: Privacy on Bitcoin and Ethereum will become a hot topic
As of now, it unfortunately seems that FinCen is going to succeed in jamming through this ridiculous rule requiring exchanges to KYC personal wallets of individuals withdrawing funds from an exchange. Not only does this infringe further on users’ financial privacy, it also could potentially put digital currency holders in physical danger.
As with every regulation prior, people will find a way around it. Thus I believe this will shift a large focus, especially in the Bitcoin and Ethereum communities, to privacy. Privacy features have gained more speed in the last 12-18 months (Wasabi, Tornado...etc) but this heightens the need for these features even more so. To date these features have only been niche. New regulations might make them a need. And when there’s a will there’s a way.
#3: Stablecoin offerings expand
In 2020 we saw stablecoin market caps continue on the trajectory they’ve been tracking for the last few years. They have become the preferred medium of exchange and base trading pair.
If you want a medium of exchange in crypto today, you have to make a choice between decentralized stablecoins with questionable stability (DAI) or centralized stablecoins (USDC/USDT). Additionally, to use a stablecoin, you’re required to part with your network tokens and exchange them for the stablecoin. (with the exception of locking assets in Maker to mint DAI, but that’s quite risky in a volatile market and not something the everyone is skilled enough to execute)
In 2021 I believe the stablecoin market will expand horizontally in base layer mechanics rather than simply vertically in market cap. The indicators of this trend are products like Compound Cash and ICHI which are both attempting to create stable currencies without the need to sell your network token.
#4: The ‘Smart Contract Wars’ will actually have some substance in 2021
People have been talking about the ‘Smart Contract Wars’ since the early days of the 2017 bubble. Until now, simply no other chain has been able to compete with Ethereum on any front.
I have a feeling this is going to change in 2021. While Ethereum has still held the spotlight with the DeFi explosion in 2020, other chains have been quietly building in the shadows.
Polkadot released Substrate 2.0 which set the foundation for a budding group of projects to start building. They’re also in the process of initiating balance transfers which will lend to full core functionality release sometime in the 1H of 2021.
Solana has made some impressive headway. The Serum DEX is already trading millions daily and has been the catalyst for a budding DeFi ecosystem. Audius has announced its plans to move its entire backend over to Solana. And Solana’s first hackathon featured over 1000 registrants from around the globe with the submission of 60+ projects.
Near launched their mainnet in October along with the Rainbow Bridge between Near <> Ethereum. While i’m not sure this approach will be the right one, an attempt at directly siphoning off Ethereum projects to an EVM compatible chain before ETH 2.0 can launch does have some potential.
It is still the very early days for today’s Ethereum competitors, but the progress they’ve boasted to date is already lightyears ahead of anything EOS, Cardano, Tron, and any of the other relics from 2017 have been able to produce.
(For the record, I absolutely hate the ‘Smart Contract Wars’ title. If you have another name for this, please dm me on Twitter)
#5: Binance falls from grace
While I don’t think this will play out entirely in 2021, I have an inkling that this is the beginning of the end for Binance. While they are still the top crypto trading venue by far, they are getting a little too comfortable.
For starters, they’ve become the middlemen that this entire industry was trying to move away from. As the primary source of liquidity for altcoins, they’re able to charge token projects listing fees to get into their walled garden. (obfuscated under the pretext that the payment is not actually for listing, but rather for some obscure service like Blockstack’s “long-term payment”)
Additionally, regulatory pressure seems to be heating up across the globe. It began with raids of Asia-based exchanges like OkEx and Bithumb. Now the United States is jumping on board with midnight FinCen regulations and the STABLE Act. I have a hard time seeing how Binance continues their regulatory arbitrage play much longer without being scathed in one way or another.
To be clear, I’m not saying that Binance charging onerous fees and making reg arbitrage plays is bad. They are the clear market liquidity leader and want to squeeze every last drop out of the stranglehold that they have. However, as the industry matures even more in 2021, I foresee this strategy being less effective than it has been thus far.
#6: Interest Rate Swaps are a key contributor to a further DeFi expansion
A product that I’ve been excited about since Dan Robinson’s original Yield Protocol Whitepaper is interest rate swaps. Interest rate swaps have intrigued me for a couple reasons. The first is stability in the lending markets. I believe that one of the key reasons why DeFi has failed to achieve meteoric adoption is due to the unpredictable fluctuation of rates. No one is going to take out significant loans from Compound if the rate can jump +10% on them in a matter of hours. Having a liquid swap market allows people to lock in a fixed rate for some predetermined amount of time; which should only improve confidence in decentralized lending facilities.
Secondly, interest rate swaps provide another avenue for decentralized leverage. Opening a repo on Yield and taking out a yETH debt is economically similar to borrowing ETH and selling it, effectively putting you short ETH for the swap duration.
2020 was the first year these protocols made any progress towards launching. UMA, Yield, DeFiHedge/Swivel, Notional, and Swap.Rate are all taking diversified approaches to this problem. 2021 will be the year these protocols cut their teeth, and by the time 2022 rolls around I have a feeling we’ll see a clear winner.
#7: Social Tokens have their “CryptoKitties moment”
It’s no question that creators are getting the short end of the stick on Web 2.0 platforms and have been for the better part of a decade now. With the decentralization movement, there is now a growing ecosystem of creators who are moving to opt out of this system.
The first movers in this space are projects like Roll, Rally, and Zora. They provide creators the ability to tokenize some piece of their work ($RAC) or themselves personally ($ALEX, $JAMM).
As 2020 seemed to be a powder keg of many things, it seemed to also accelerate the trend of users clashing against their platforms. Now couple this with the speculative cryptocurrency market and the imminent bull run. Social tokens look poised to have their day in the sun in 2021.
I expect it to play out a lot like CryptoKitties did in 2017. People FOMO in extremely hard causing accelerated price appreciation in creator tokens. Followed by a large decline in market caps and a period of 2-3 years of product tweaking and refining.
#8: Bitcoin ETF Gets Approved
This has been a long time coming, but 2021 looks to be the year the dam breaks. Why?
Until now, the only way for you to get Bitcoin exposure from your brokerage account is via Grayscale’s GBTC product. Unfortunately for most uneducated investors, this actually leads to most investors buying “Bitcoin” at a premium. Other traditional financial firms are catching on to what Grayscale started and are pursuing a launch of similar products (e.g. Anthony Scaramucci’s Bitcoin Fund)
The reason the SEC has restricted a Bitcoin ETF to date is because the market was not mature enough and they believed investors would be harmed. Now, the opposite is happening. Investors are actively being harmed due to the non-existence of a Bitcoin ETF.
Time to let it rip @SEC
#9: NFTs have another boom, but this time it is more sustained
It’s only rational that when people make a lot of money in Bitcoin and Ethereum, that they begin to speculate wildly on other things. Enter the digital cats.
CryptoKitties hit a bubble in late 2017 which was unlike anything I had seen. People were flipping digital cats on-chain for thousands of dollars. The bubble was relatively short lived as the overall crypto market had popped not long after, but the fact that it happened in the first place is all the proof that you need to indicate it could happen again.
This time around, things are slightly different. The NFT market has matured immensely. We now have real artists like 3LAU and RAC tokenizing their creations. Projects like $MEME that are designing novel ways to align economic incentives and distribute artwork. Snark.Art which is opening a new distribution channel for traditional analog artists in the digital world.
And a myriad of marketplaces like OpenSea, SuperRare, and Rarible that are doing incredible volumes (even prior to this recent euphoric market)
#10: Crypto insurance space hits a boom
This has been building for quite some time, but I have a feeling that 2021 will be the year that crypto insurance has its moment in the sun. For a couple years now, I’ve cautioned against reckless composability in DeFi and the systemic risk it poses. Before I get any backlash for this, yes I do know that the whole point of Ethereum DeFi is to compose and that’s what makes it unique, but we just need to do it carefully.
However, I don’t believe that is being done. Examples being yEarn’s Andre Cronje who explicitly tells everyone “i test in prod” which is developer speak for “we’re winging it, do your own risk analysis”. This is not a dig at Andre, he has arguably produced one of the most successful protocols in Ethereum DeFi and is a developer I hold in very high regard.
But, this does not take away from the fact that protocols like yEarn are composed of multiple different protocols, all with their own n-number of dependencies. It only seems logical that one critical domino needs to fall for something catastrophic to happen.
Long story short, I believe this will lead to crypto insurance becoming a hot topic this year. Whether that is on-chain solutions like Nexus Mutual. Or off-chain solutions similar to what At-Bay is doing for the software industry right now.
I now patiently await Cunningham’s Law to kick in.
Find me on Twitter @BennyBitcoins