Pantera Capital partners' seven predictions for the crypto industry in 2021
Original author: Paul Veradittakit, partner of Pantera Capital
Original title: "2021 Encryption Industry Forecast"
Original compilation: Lu Jiangfei
Original source: Chain Wen
This issue of VeradiVerdict will be the last issue of 2020, the year is finally coming to an end! 2020 has been an ill-fated year as the COVID-19 pandemic has changed the way we live, the way people do business, the way transactions are done, and the way we interact with others. Of course, the adoption of cryptocurrencies by both institutional and retail investors has also accelerated over the past year. In addition to the themes of asset diversification/store of value and increased platform accessibility, we’ve also seen massive improvements in blockchain scalability and crypto applications, especially decentralized finance.
Inspired by Union Square Ventures' Fred Wilson's annual forecast, I reflect on my industry predictions for 2020 , and now decided to make another forecast for next year. On the one hand, it can dig out whether past ideas have been developed, and on the other hand, it can dig deeper into some areas of interest in the future. I previously published a crypto industry forecast analysis on Coindesk, but wanted to revisit some updates - especially at this particular moment, the price of Bitcoin has reached a new all-time high: $28,200!
Again, I wish you all a Happy Holidays and a Happy New Year, and I believe 2021 will be an unprecedented year for the blockchain/crypto industry!
2020 has been an exciting year for the cryptocurrency industry, especially Bitcoin and The value of centralized finance (DeFi) has increased dramatically, central bank digital currencies (CBDC) have taken a major step forward, and the technology for building decentralized applications (dapps) is much more advanced than in the past. In the cryptocurrency industry, I think there will be seven areas that will have further development in 2021:
1, Bitcoin:Bitcoin has soared from about $7,000 in January 2020 to nearly $30,000 by the end of the year, and you will see increasing interest in Bitcoin from everyday users and institutional investors, Therefore, the price of Bitcoin will continue to soar in 2021.
2. Central bank digital currency: We see that the central bank digital currency research in 2020 has achieved For example, China has launched many important pilot tests, and a number of European banks and the Federal Reserve have also begun to conduct in-depth research on central bank digital currencies. I hope to see more central bank digital currency pilot projects in 2021, and even hope that China or Japan can fully launch central bank digital currency.
3、Decentralized Finance:There is no doubt that 2020 belongs to the The year of centralized finance. As if overnight, dozens of DeFi protocols can make hundreds of millions of dollars in profits, people are getting huge returns from liquidity mining and DeFi, and we are likely to see more large-scale decentralized financial projects emerge in 2021 .
4. Cryptocurrency adoption:From a financial perspective, cryptocurrencies are changing This will also "incentivize" more and more people to use cryptocurrencies in retail applications. On the other hand, big projects like central bank digital currencies and Facebook’s Diem stablecoin (formerly known as Libra) are starting to grab the public’s attention. With these factors in mind, 2021 is likely to be a pivotal year for mainstream cryptocurrency adoption.
5. Regulatory regulations: With the gradual expansion of cryptocurrency functions to more retail And everyday use cases, I would like to see more regulation from regulators, which would also outline regulatory guidance for cryptocurrencies as everyday stores of value. In 2020, for the first time, the IRS asked taxpayers about their financial records using virtual currencies. With the introduction of central bank digital currencies and more stablecoins, governments will pay more attention in 2021 to how cryptocurrencies are used and regulated.
6. Acquisitions and mergers:According to the research data released by Pantera, the encryption The average M&A deal size in the currency industry grew from $19.2 million in 2019 to $45.9 million in 2020. More and more cryptocurrency companies will join the "Unicorn Club", Coinbase will conduct an initial public offering (IPO) in 2021, and more companies are expected to start exploring overseas backdoors (SPAC) as a way to go public . As more and more crypto projects emerge, corporate development and mergers and acquisitions will become a major trend in the cryptocurrency industry in 2021.
7, Digitalization of private assets: With the increasing interest of financial institutions in cryptocurrencies They will start to focus on how to use blockchain technology and cryptocurrencies to better support the existing economy. For example, the inefficiency and security of traditional securities registration are incredible. Supported by encrypted signatures and automation, these problems will be effectively alleviated. In 2021, I look forward to seeing more institutions begin to explore the potential of asset digitization.
A lot has happened in 2020, to say the least. In terms of blockchain and cryptocurrencies, we have also seen several key developments: the halving of Bitcoin block rewards, the rise of liquidity mining, and the explosive growth of some decentralized finance (DeFi) applications. Chain interoperability tools are also getting more powerful, etc.
With the arrival of 2021, it is expected that the tension among countries will gradually ease, the new crown virus epidemic will also be alleviated, and the impact of related market fluctuations will gradually decrease , I look forward to seeing further innovation and widespread use of blockchain technology, and the market influence is expected to become more diverse. As the blockchain and cryptocurrency industry is becoming more complex on the one hand, but more accessible on the other, the crypto community's horizons will be vastly broadened when it comes to building a decentralized, user-first financial system.
Forecast results for 2020
Next, I will review my results at the end of 2019 Crypto industry predictions made. In addition to a summary of how the industry or trend has developed in 2020, I will first give a summary of the accuracy of the forecast, so that everyone can understand whether my forecast from last year was reliable. Specifically, among my crypto industry predictions for the end of 2019: 1 least accurate and 5 most accurate.
Diem (formerly Libra) / Novi (formerly Calibra): Considering Given Diem's 2019 series of major events (in a regulatory sense), I had previously expected 2020 to be an exciting year for Facebook's digital currency project, including building its reputation, dealing with regulatory issues, and Start getting adoption. But that wasn't the case, and in 2020, Diem's release was delayed and has remained in the public eye for the past year. In April 2020, the Libra Association announced that it would make major changes to its structure to address some major regulatory concerns. Additionally, the Libra Association has also decided to rename the project from Libra to Diem and the wallet from Calibra to Novi. Recently, key figures in the initiative claimed that the Diem digital currency platform could launch as early as January 2021. Even if Diem didn't capture the public's attention in 2020, they certainly had some key development work going on behind the scenes. Additionally, the Diem digital project is likely to gain more attention in the coming months as the groundbreaking federal antitrust lawsuits against Facebook, Instagram, and WhatsApp are launched.
Accuracy: 3
Bitcoin block reward halved: In May 2020, the Bitcoin block reward was halved from 12.5 BTC to 6.25 BTC. The exact impact on coin prices still appears to be unclear. The market reaction to the block reward halving event also appears to have been muted, and the price of Bitcoin even dropped a bit just a few days after the block reward halving. Some experts have analyzed that it may be because the price has been "calculated" in advance before the Bitcoin block reward is halved. In other words, since investors expect the price of Bitcoin to rise before the halving of the block, they "invest" this expectation before the halving event of the block reward occurs, causing the price of Bitcoin to appreciate before the "halving". So that you don't see too obvious price changes after the event. But even so, the block reward halving will undoubtedly have a major impact on Bitcoin's long-term prospects and macro narrative. In fact, traditional investors have been questioning Bitcoin's potential since a long time ago.
Accuracy: 4
Blockchain games: Unfortunately, throughout 2020, we have not seen too many innovative developments in the field of blockchain games, and of course there are not many blockchain games released to the public. Currently, many game developers still face a lot of technical friction in building on-chain games due to the complex nature of blockchain games and often slow runtimes. However, the market's interest in the concept of blockchain games has not faded. Many game creators are exploring how to use non-fungible tokens (NFTs) as valuable digital assets in games. Several game studios, including Pixelmatic, Ubisoft, and Atari, have claimed that blockchain technology could play an important role in their games in the future, and have begun actively exploring the concept. So far, the most promising and well-known blockchain game should be "The Sandbox". This game is similar to Minecraft, and users can monetize digital assets through the blockchain. It is reported that The Sandbox has announced cooperation with Atari and Square Major game developers such as Enix form partnerships.
Accuracy: 2
DeFi growth: If 2020 is the year of DeFi, there should not be many people who would object. Without a doubt, one of the biggest trends in the cryptocurrency industry in 2020 is yield farming. Simply put, liquidity mining essentially allows users to provide their own assets as protocol liquidity in exchange for protocol governance tokens. Over time, due to the growing interest in the protocol, the value of the relevant governance token will continue to increase, usually bringing rich returns to users who provide liquidity and incentivizing them to continue to support the DeFi protocol. In 2020, the issuance value of Compound, Balancer, Yearn.Finance, and many more DeFi protocol governance tokens have all seen substantial growth. In addition, the annualized return on investment in governance tokens provided by these platforms to liquidity providers can even reach 100-200%. In January 2020, only about $1 billion was locked in DeFi platforms in total, but by August, that number had soared to $15 billion. Interestingly, MakerDAO is still the decentralized financial platform with the largest locked-up value at present. Although Compound and other DeFi platforms have won the first place many times in 2020, MakerDAO "occupied" the first place for the longest time. long. Users are starting to benefit from a decentralized community-owned financial system, and the excitement and rapid growth is expected to continue well into 2021.
Accuracy: 5
Central Bank Digital Currency:The new crown virus epidemic has had a huge impact on the economic development of several of the world's largest economies, and this impact is likely to continue, so people are starting to question the government's economic policy capabilities and intentions Some questions were raised, and they felt that there may still be some problems and difficulties in the performance of the existing economic system in terms of efficiency. While 2020 has yet to see a true central bank digital currency officially launched, this area is sure to attract more interest as more governments, banks, and research institutions explore how cryptocurrencies can improve our financial system. focus on. The People's Bank of China is conducting a central bank digital currency pilot, which has completed more than 4 million transactions and a transaction volume of 2 billion yuan. In October 2020, a number of financial institutions, including the Bank of Canada, the Bank of England, the European Central Bank and the U.S. Federal Reserve Bank, jointly released a report outlining the key features necessary for the issuance of some central bank digital currencies. has been actively working on the development of a digital dollar.
Accuracy: 4
Infrastructure and Web 3.0:In 2020, we witnessed the launch and release of several key infrastructure projects in the blockchain space that will support a large number of decentralized applications in the future, the largest of which One of the most important activities should be the launch of the Alchemy API. The Alchemy application positions itself as the "blockchain version of AWS". on-chain transactions. Other Web 3.0 infrastructure tools include:
Keep Protocol, which mainly provides developers with DAPP off-chain storage services; API3 is an oracle machine that builds a native blockchain with the API ecosystem, aiming at Bringing DeFi and DAPP information returns to API providers; Oasis Protocol, which builds blockchain-enabled tools to help developers analyze data securely and ensure user privacy.
Given the growing interest in decentralized applications in the cryptocurrency market in general, I'd like to see more developers leverage these techniques to reduce build The complexity of DAPP, while expanding to explore more use cases.
Accuracy: 4
Regulatory hurdles:Overall, we have seen less attention and discussion on regulating cryptocurrencies throughout 2020, possibly due to the impact of the COVID-19 pandemic, as government financial institutions may focus on other areas ( The same is true in practice). Still, some government agencies have taken tough crypto regulatory action in 2020, suggesting they are taking cryptocurrencies more seriously, and the role they may play in the modern U.S. economy. In 2020, the SEC fined cryptocurrency firms about $40 million, while the CFTC “only” fined cryptocurrency companies about $9 million (although the CFTC fine Not as much as the SEC, but it imposed the largest fine in the agency's history). It’s worth noting that most of the sanctions and penalties against cryptocurrency companies focus on initial coin offerings (ICOs) and some gray areas, which are really judging whether certain tokens should be considered securities or commodities. For example, the U.S. Securities and Exchange Commission and the U.S. Commodity Futures Trading Commission have jointly fined cryptocurrency portfolio app Abra for allowing users to gain synthetic exposure to traditional markets, and the U.S. Commodity Futures Trading Commission has also sued BitMEX, claiming that Exchanges provide users with illegal encryption services. However, in 2020, regulators have also made some improvements, such as the US Securities and Exchange Commission’s proposal to provide a “safe harbor” for cryptocurrency entrepreneurs.
Accuracy: 3
Looking to the future
Throughout 2021, I expect to see a lot of promising innovation and growth in the following seven areas.
1. As the #1 cryptocurrency, Bitcoin will continue to experience tremendous growth in value and popularity. Bitcoin hovered in the $7,000 price range at the start of 2020 before climbing to an all-time high above $28,000. Payment giants like PayPal and Square are making it easier for ordinary users to buy bitcoin, and institutional investors are showing unprecedented interest in bitcoin. In 2019, the price of Bitcoin rose by 90%, in 2020, the price of Bitcoin soared by 170%, and now we have ushered in 2021, I look forward to seeing more growth in Bitcoin value and wider use.
2. Governments will explore central bank digital currency (CBDC) more seriously, and we may see the emergence of central bank digital currency in 2021. As mentioned above, some governments and intergovernmental agencies have begun to take digital currencies seriously, and have begun to conduct in-depth case studies and launch pilot projects to explore how central bank digital currencies can better support financial services and help local economic development. Not only that, but with the imminent arrival of Facebook’s digital currency Diem, and other digital currency projects such as Celo launching more products and features, stablecoins will stimulate the interest of more government agencies as a viable remittance tool, and will also Gain greater traction in the market. China’s digital renminbi (DC/EP) pilot project is progressing very well, and in 2021, the scale and scope of availability of digital renminbi may be further expanded, perhaps even faster than we expected. In Japan, 30 local banks have already started researching digital currencies, and the country may even achieve full digital currency issuance in 2021. In the UK, the Bank of England is studying and evaluating how to provide a retail central bank digital currency, and may launch a trial run in 2021.
3. The value of DeFi will continue to show explosive growth. In 2020, we saw a 15x increase in total DeFi lockup, which is unbelievable! In fact, a large part of this growth is driven by the liquidity mining trend, which was first initiated by key players in the DeFi market such as Compound and Balancer, who use DeFi protocol governance tokens to negotiate incentives. Users provide liquidity in exchange for governance tokens that appreciate rapidly over time. Additionally, the crypto community is seeing another trend where developers fork existing protocols and platforms to build additional custom use cases] or create protocols and platforms with stronger decentralized features and privacy, such as :
Cream Finance was forked from Compound; Swerve Finance was forked from Curve.
Setting up a DeFi protocol is easier and more profitable than ever before, so I look forward to seeing more projects emerge in this space, as well as DeFi The total lock-up volume on the platform can increase substantially again. Existing DeFi platforms have seen amazing capitalization trends, which can also enable them to support more unique functions, such as providing larger loans, developing differentiated loan products, and more.
4. Cryptocurrency will be widely adopted. Even the harshest critics of cryptocurrencies and digital currencies are now beginning to see the enormous value these technologies can generate, and the explosive growth of DeFi protocols has taken many by surprise. In Latin American and Southeast Asian markets, more and more people use cryptocurrencies for daily financial transaction settlements. Additionally, as the crypto community comes up with more primitives and tools for building DAPPs, developers will be able to offer more compelling services for everyday consumption. Considering the confluence of all these factors, 2021 could be a pivotal year for driving mainstream cryptocurrency adoption. As cryptocurrencies are widely adopted by the mainstream, we will also start to see more and more transparent regulations introduced – especially in the retail use case of cryptocurrencies. Not only that, but when cryptocurrencies are widely adopted, regulators will start to pay attention to this area. To date, the vast majority of cryptocurrency regulations have focused on two areas:
Distinguishing the securities and commodity attributes of cryptocurrencies; Proper Guidance from the Futures Trading Commission.
Cryptocurrency has not been used for daily value storage, and not much work has been done in this area. In addition, how to use stablecoins and other digital currencies for retail, subsidy and other services is also worthy of in-depth study.
5. Governments will be increasingly interested in how cryptocurrency transactions will affect taxation. In terms of cryptocurrency taxation, the US Internal Revenue Service (IRS) has begun an investigation into related trading activities. Of course, this is also because more and more people like to use cryptocurrencies. You will find that cryptocurrencies are no longer limited to transactions, loans or investments, but have begun to infiltrate cash into daily financial activities. Hull Credit business. As a result, 2021 is likely to see more regulatory work from the tax authorities.
6. There will be several cryptocurrency acquisitions in 2021, as well as several "unicorns", IPOs and more backdoor listings. Coinbase is expected to go public in 2021. Along with Coinbase, some other well-known cryptocurrency companies will reach "unicorn" market capitalization, such as Circle, Binance and Ripple. Additionally, crypto companies worth at least hundreds of millions of dollars may explore “backdoor” listings. The average deal size of mergers and acquisitions in the cryptocurrency industry grew from $19.2 million in 2019 to $45.9 million in 2020 in 2020, a trend that will continue to rise in 2021. As more and more people become interested in the cryptocurrency field, we will see more cryptocurrency projects emerge, and naturally, through more acquisitions, many crypto projects can join the "unicorn club". Development volumes will also increase dramatically in 2021. Not only that, the world's leading financial institutions will become more and more curious about cryptocurrencies, thus "stimulating" a large inflow of institutional capital, so mergers and acquisitions and business development will become the main axis of the cryptocurrency industry in 2021.
7. Private assets will gradually begin to be digitized. Decentralization and cryptocurrencies can bring purer financial value, so large financial institutions also want to explore the huge potential of the underlying blockchain technology to better support the existing financial system. Beyond the pure financial value generated, large financial institutions are also starting to see the enormous potential in the underlying blockchain technology and some of the key ways it supports the existing financial system. The efficiency of traditional securities ownership registration is extremely low, some compliance supervision even requires manual operation, and the transaction process is long and slow. Using blockchain and encryption technology to digitize traditional securities ownership registration can make the cost lower and the operation safer , as cryptographically verifiable keys provide a more reliable record of ownership, and digitization can lead to faster workflows and greater automation. Of course, this change may be slow because innovation will always bring challenges to the traditional financial paradigm, but it should be noted that innovation will also bring considerable value to the traditional financial industry, which is why banks are also starting to pay attention to related technologies one of the reasons.
Final Thoughts
In 2020, we may have seen the blackest one" Black Swan”, but even so, the cryptocurrency industry has achieved incredible development, innovation and growth. 2021 is just around the corner, and hopefully the world will return to “normal” as soon as possible. The next few months will be critical, as the next market changes will have a huge impact on blockchain developers and ordinary users. While challenges are inevitable, I'm still very excited for 2021.
More and more ordinary users will be exposed to digital currency, some countries have begun to explore central bank digital currency in depth, and blockchain technology will become faster and better — There is no doubt that we are approaching an important inflection point in the cryptocurrency industry, and it is expected that in a few years we will see a brighter, more accessible, and even more decentralized financial future.
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