El Salvador’s Bukele arguably brought some 21st-century innovation and
luster to a poor Central American land heavily dependent on remittances.
The cryptocurrency and blockchain industry experienced explosive
growth in 2021, particularly in its decentralized finance (DeFi) and
nonfungible token (NFT) sectors.
The year was also marked by
continued price volatility, baffling behavior from China, a grand
experiment in Central America, escalating institutional interest, and
the rise of some faster smart-contract networks — all of which is
reflected in this year’s list of industry “winners and losers.”
Winners in 2021
Kazakhstan
When China effectively banned Bitcoin (BTC)
mining operations in May 2021, Kazakhstan rushed in to fill the vacuum,
pitching displaced miners and others on its cheap and plentiful coal
supply. Many set up operations in the Central Asian country, including a
top-five crypto mining pool operated by BIT Mining.
By
July 2021, Kazakhstan’s average monthly hash rate share stood at 18.1% —
that is, it accounted for nearly a fifth of the world’s Bitcoin mining
output, second only to the United States (42.7%), and a stunning
increase from only 1.4% in September 2019, according to the Cambridge Centre for Alternative Finance.
Whether
Kazakhstan will maintain its global share of BTC mining in 2022, given
reports of widespread power shortages in the country as winter
approaches remains to be seen.
Coinbase
Coinbase Global,
the largest cryptocurrency exchange in the U.S., became the first crypto
company to list on a U.S. stock exchange when it debuted on April 14 on Nasdaq.
It closed that day at $328.28 with a market capitalization of $86
billion, a stunning launch that invited comparisons with Facebook’s and
Airbnb’s initial public offerings. Its share price came back to earth by
year’s end, however, standing at $243.35 on Dec. 18, with a
still-strong market cap of $52.37 billion.
Coinbase’s listing was
widely viewed as another sign that crypto had gone mainstream, with more
public offerings to come. “Coinbase will be the torchbearer for the
whole blockchain community in the public market,” Kavita Gupta, founding
managing partner at Delta Growth Fund, told Cointelegraph.
Solana
A
tide of new smart contract-enabled networks emerged on the scene in
2021. The largest and fastest-growing among them was Solana, a super
quick proof-of-stake network that claims to have clocked 50,000
transactions per second (TPS). By comparison, Ethereum does about 30
TPS.
“No project — maybe in crypto’s history — has gotten hotter, faster than Solana in 2021,” wrote Messari’s
Ryan Selkis. The open-source blockchain hosts a growing number of NFT
and DeFi projects, although it was subject to several distributed
denial-of-service attacks through 2021. Solona’s (SOL) native cryptocurrency comfortably ranks fifth among all coins as of Dec. 20, according to Cointelegraph Markets Pro, trailing only BTC, Ether (ETH), Binance Coin (BNB) and Tether (USDT).
Nayib Bukele/El Salvador
El Salvador made history in 2021 — becoming the first country to declare Bitcoin (BTC)
legal tender. The country’s dynamic president, Nayib Bukele, captivated
the crypto world with his doings: harnessing energy from a volcano to
power his country’s BTC mining operations, air-dropping $30 of BTC to
every adult in the country, and, in late November, announcing the launch
of Bitcoin City, a fully functional city built around Bitcoin, funded
initially by $1 billion Bitcoin bonds.
Only time will tell whether all this amounts to a clear economic “win” for El Salvador’s people, but Bukele arguably, through buying the dips,
brought some 21st-century innovation and luster to a poor Central
American land whose economy is heavily dependent on remittances — i.e.,
money sent home by foreign workers.
Mike Winkelmann, aka Beeple
When
art house Christie’s put up for auction in February a digital collage —
the first major auction house to offer a purely digital work with a
unique NFT — it didn’t even attach a price. No one knew how to value it.
The work “Everydays: The First 5000 Days” by Mike Winkelmann (aka
Beeple) sold for $69.3 million, and the art industry may never be the
same.
Related: NFT ‘art revolution’: Beeple on his 5,040-day labor of love, Cointelegraph Magazine
To
put this into context: The work fetched more at auction than pieces by
Georges Seurat, Paul Gaugain or Salvador Dalí, and catapulted the
relatively obscure Beeple into the company of the world’s
highest-earning contemporary artists, such as David Hockney and Jeff
Koons. It also sent notice to those outside the cryptoverse that
nonfungible tokens would be a force with which to be reckoned. Sales of
NFTs skyrocketed through 2021, and in late November, “NFT” was declared “word of the year” by dictionary publisher Collins.
Avalanche
Avalanche
was another speedy smart contract network that shot into the top 10 in
2021. “Solana and Avalanche are the new stars” among DeFi multichains, declared
CoinGecko, with 6% and 2% total value locked (TVL), respectively, in
the third quarter. (Avalanche hosts the Aave DeFi protocol.) Those TVL
gains came at the expense of Ethereum, which held virtually all DeFi TVL
at the year’s beginning (99%). Its share was 76% at the end of the
third quarter by comparison.
Avalanche’s native currency, AVAX,
is ranked 10th in market value in late December at $27.3 billion, which
is buoyed arguably by its deal with Deloitte to support the consulting
firm’s work with the U.S.’s Federal Emergency Management Agency.
Sam Bankman-Fried/FTX
In 2021, Sam Bankman-Fried was declared “the richest person in crypto” largely on the strength of his ownership stake in FTX, the cryptocurrency derivatives exchange, which he founded in 2019.
By the end of 2021, FTX had become the second-largest crypto derivatives exchange, according
to CoinGecko, trailing only Binance (Futures). Messari called FTX “the
fastest-growing company of all time,” noting that Bankman-Fried had
built a $25-billion enterprise in less than three years with fewer than
100 employees.
FTX closed a $900-million funding round
in July that valued the exchange at $18 billion, up from $1.2 billion
earlier, with participation from SoftBank, Sequoia Capital, Coinbase
Ventures, Multicoin, VanEck and the Paul Tudor Jones family, among
others. In June, FTX acquired the long-term naming rights to the Miami Heat’s NBA basketball arena.
OpenSea
The
NFT phenomenon has been a boon for digital artists who can sell their
works without agents and physical art galleries, but they still need
digital marketplaces. OpenSea, a first mover in the NFT art sector and
the leading marketplace, emerged as one of the year’s biggest winners.
OpenSea
takes a relatively modest 2.5% commission for each sale on its
platform, but this yielded a substantial $79 million in revenue in
August, its peak month in 2021, according to Cointelegraph consulting.
Through part of November, revenues exceeded $235 million YTD. Come
December, not much had changed: “The world’s dominant NFT marketplace is
raking in cash hand over fist,” said Messari.
ProShares ETF
A
barrier of sorts was surmounted in mid-October with the launch of the
first Bitcoin exchange-traded fund (ETF) sanctioned by the United States
Securities and Exchange Commission. The ProShares Bitcoin Strategy ETF
(BITO) made a dramatic debut on the New York Stock Exchange as the
second-most heavily traded opening-day fund on record, with some calling
it “a watershed moment for the crypto industry.”
Its launch ended
eight years of futility on the part of U.S. fund issuers — a Winkelvoss
ETF was the first to be rejected by the SEC back in 2013 — but some
were nevertheless disappointed that the breakthrough fund was a
futures-based ETF and didn’t track the price of Bitcoin (BTC) directly. The SEC apparently preferred to have two layers of regulatory protection — i.e., supervision by both the
Commodity Futures Trading Commission and the SEC — and this was further
confirmed several weeks later when the SEC rejected VanEck’s
application for a spot-market ETF.
Losers in 2021
China
China
controlled two-thirds (67%) of the world’s crypto mining production as
recently as September 2020, but in May, it banned mining operations for
reasons no one really knows, but it perhaps was related to a need to
protect its own central bank digital currency (CBDC), which appears
close to its full roll-out.
In any event, Bitcoin’s hash rate
immediately dropped 50%, which roiled markets for a bit. Other nations
quickly picked up the mining slack, however, including the U.S.,
Kazakhstan, Russia and Canada. In retrospect, many viewed China’s action
as a gift to the West. “Today the [Bitcoin] network is more
decentralized than ever and price has risen 50%,” said analyst Willy Woo.
Meta (Diem)
Facebook’s
Libra stablecoin venture (now Diem) was announced in 2019 with great
fanfare and a blue-chip roster of partners, but the project was
continuously delayed and its scope reduced. Today, one doesn’t hear too
much about Diem except perhaps with regard to departures — e.g., Dante
Disparte left for Circle, while more recently, David Marcus, head of
cryptocurrency activities, said he would leave the company by year’s
end.
Facebook, rebranded as Meta, has been under fire from U.S.
lawmakers for the “influence” it exerts over social media generally, and
its stablecoin project, once slated to debut in early 2021, may have
been collateral damage. There isn’t much clarity in any event. As The
New York Times commented,
“The Libra cryptocurrency was eventually rebranded Diem, while the
company’s efforts at a crypto wallet were called Novi. The mishmash of
names often has been confusing, even for company insiders.”
Central Bank of Nigeria
In
February, the Central Bank of Nigeria ordered all its local banks to
shut down the accounts of customers using cryptocurrencies. The CBN’s
governor said most crypto accounts were being used to fund
“illegitimate” activities such as money laundering and financing
terrorism.
Nigeria is expected to soon launch a central bank
digital currency, like China, so perhaps the CBN was following China’s
playbook of clearing away all competing crypto operations in
anticipation of its CBDC roll-out. If so, its effort failed dismally.
Not only did crypto survive, but by August, Nigeria had the world’s second-largest market for peer-to-peer Bitcoin trading.
Virgil Griffth
There was a time when Virgil Griffith was something of a cause celebre in the crypto world. The former Ethereum developer and U.S. citizen traveled to North Korea in early 2019 to attend a cryptocurrency conference. In November of that year, he was arrested in Los Angelos for violating U.S. sanctions law.
“I
don’t think what Virgil did gave DRPK any kind of real help in doing
anything bad. He delivered a presentation based on publicly available
info about open-source software,” declared Ethereum co-founder Vitalik Buterin around that time.
In
September 2021, just before his criminal trial was to begin, Griffith
“pleaded guilty to conspiring to violate U.S. law by traveling to North
Korea to give a presentation on how to use blockchain technology to
launder money and evade sanctions,” the Wall Street Journal reported. He could face up to six-and-a-half years in prison as part of the plea deal. It was unclear what caused him to change his plea.
Iron Finance (TITAN)
Maybe it’s not such a good idea collateralizing a stablecoin — e.g., IRON — with another stablecoin in USD Coin (USDC) and an obscure governance token (TITAN). In this case, the result was what was described as
“the world’s first large-scale crypto bank run” — specifically, a run
on the Iron Finance protocol. The result: TITAN plummeted from a price
of more than $60 to a few thousandths of a cent within a few hours in
late June.
CipherTrace later said the incident was the result of a
design flaw: “Iron.Finance lacked a proper stabilizing mechanism.” But
in the meantime, a number of investors were burned, among them Dallas
Mavericks owner Mark Cuban, who called
for regulation to determine “what a stablecoin is and what
collateralization is acceptable.” Iron Finance (ICE) was trading at
around $0.002 on Dec. 20.
