Revisiting Dmitry’s predictions for 2021
With the year more than halfway through, we thought we’d revisit his predictions and look at how they’re holding up so far.
“DeFi projects such as AAVE, SNX, UNI, YFI and COMP will remain frontrunners in this space.”
Outcome: We consider all of the above projects successful blue-chip DeFi tokens in 2021, but would also add Maker, Curve and SushiSwap to the list.
“Solutions such as CopperConnect will draw more institutional capital to the space, meaning that DeFi could – to the dismay of many – become a little more serious and boring (i.e less meme/food-themed projects).”
Outcome: Last year, the DeFi industry boomed during what was called the ‘DeFi Summer,’ where the total value locked (TVL) in DeFi smart contracts spiked sharply from a few hundred million dollars to more than $20bn in a matter of months. DeFi Summer 2020 was kicked off by Compound with liquidity mining and was characterised by a bunch of projects named after different kinds of foods being launched. There was Yam, SushiSwap, Pasta, Spaghetti and others – collectively named as ‘food DeFi’ or ‘Food Finance’. Pretty much all of them failed after a day or two of interest.
Fast-forward to today, it still remains uncertain what summer 2021 will be ruled on.
The crypto industry certainly saw a ‘Shitcoin Spring 2021’, characterised by a rise in canine-inspired coins that jammed up the ETH network for a while. But judging by increased interest from TradFi to access yields offered by DeFi protocol (made possible by solutions such as CopperConnect that reduce many of DeFi’s inherent risks), there’s a good chance new institutional interest in DeFi may serve as bull fuel for DeFi Summer 2021.
“AML measures will no doubt make important headlines all through 2021.”
Outcome: This was an easy call to make.
With regulators actively tackling how to apply regulatory schemes built for TradFi to DeFi protocols, it’s safe to say we are well within the regulatory chapter of DeFi.
Back in March, the FATF issued a draft guidance that included additional wording on DeFi and stablecoins. The global anti-money laundering watchdog then reported it had received so much feedback that it would defer finalising its crypto guidance until October.
It’s now widely expected that the upcoming DeFi guidance this autumn may force DeFi protocols to begin implementing know-your-customer (KYC) rules similar to those required of banks.
DeFi aside, these days it’s impossible to discuss crypto compliance without mentioning Binance. 2021 has been a tough gig for the exchange as troubles with regulators have caused multiple regulators to issue warnings and take action.
We recently saw the Financial Conduct Authority (FCA) FCA issue a consumer warning over Binance’s UK-based entity, and confirm that the action was due to concerns it has over the firm’s approach to AML standards. Shortly after, several major banks in the UK such as Barclays and Santander blocked their customers from using their cards on Binance’s platform.
The FCA’s announcement was also followed by a string of similar warnings from regulatory bodies elsewhere, including Japan, Hong Kong, Lithuania, Cayman Islands,Italy and the Canadian province of Ontario. Though at present it still isn’t clear how all these regulatory actions will affect Binance in the long term, the restrictions are unarguably making companies hesitant about teaming up with the exchange.
“It is possible that a bitcoin ETF will be approved in 2021.”
Outcome: The United States still hasn’t gotten this done but we maintain that the SEC approving a bitcoin exchange-traded fund (ETF) is a matter of when, not if.
At the time of writing, there are 13 applications at the SEC from some of the biggest names in finance, such as Ark and Fidelity. However, the SEC continues to delay its decision to sign off a bitcoin ETF, citing concerns over potential market manipulation.
With both Canada and Brazil having now approved Bitcoin and Ethereum ETFs, a Bitcoin ETF in the US certainly feels imminent.
“Embrace of Bitcoin from large asset managers, pension funds, insurance companies, and sovereign wealth funds.”
Outcome: In 2021, we have seen a slew of high-profile corporations, fund managers and technology business leaders support digital assets.
Back in February Tesla became the first Fortune 500 company to buy Bitcoin. The automaker went on to do a U-turn on the decision to accept Bitcoin as a means of payment while its CEO/Technoking Elon Musk continued to leave crypto investors twitching with every tweet – – until his recent appearance on the B Word Conference that is.
Nonetheless, following Tesla’s initial announcement, a growing roster of companies ranging from Time magazine to WeWork have also added Bitcoin to their balance sheets.
Earlier this year, Ray Dalio, founder of the world’s largest hedge fund, Bridgewater Associates, came forward with a notably positive shift on his bitcoin position – even admitting that he owns some BTC.
Then there’s Alan Howard, founder and former CEO of the hedge fund Brevan Howard, who has been making huge moves into the crypto space by backing a number of digital asset businesses ( including ours). Most recently, Howard participated in FTX’s mammoth $900m Series B raise along with fellow billionaire hedge fund managers, Paul Tudor Jones and Israel Englander.
Dmitry’s bold claim that not only the world’s largest companies, but even state actors would participate in crypto in 2021 has surprisingly panned out to some extent.
Several months ago, the KiwiSaver Growth Strategy fund, part of New Zealand’s national KiwiSaver program, announced it had invested 5% of its funds into Bitcoin. The Norwegian Government Pension Fund also indirectly owns Bitcoin through its investment in MicroStrategy, valued at £39m today. And back in March, Robert Gutmann, CEO of New York Digital Investment Group, publicly declared on a podcast that the firm had been having conversations with sovereign wealth funds about possible Bitcoin investments.
“Ethereum to face increased competition from smart contract platforms”
Outcome: It’s safe to say the multi-chain world is here.
The slow transition to ETH 2.0 has led to the rise of highly innovative layer 1 blockchains (i.e Algorand, Solana, Polkadot, Binance Smart Chain) that are creating vibrant ecosystems that are thriving alongside Ethereum. However, it’s not likely that the new kids on the block will unseat Ethereum anytime soon though.
There are plenty of reasons to be super bullish on Ethereum, especially when considering the EIP 1559 is right around the corner. This will burn the fees paid for some transactions which over time will make ETH into a deflationary currency. The transition to Proof-of-Stake (which removes the environmental impact critique) could possibly happen this year. Finally, Ethereum ETFs have arrived in North America and Latin America and will only become more prevalent.
“The ECB will take a clear decision on their Digital Euro project later in 2021.”
Outcome: We’d say this was pretty spot on. The eventual launch of a digital euro seems likely based on recent comments by the European Central Bank (ECB) that it is now actually exploring the design and distribution of its central bank digital currency (CBDC) with the possibility of introducing it within four years.
“I don’t think we’ll be seeing any pilots of a ‘Fed Coin in 2021. I simply don’t envision the US moving that quickly.”
Outcome: Dmitry was correct here.
Though the US nonprofit Digital Dollar Project recently announced its plan to launch five pilot programs testing the potential of a US CBDC this year, the Federal Reserve (Fed) continues to take a slow and cautious approach to CBDCs.
The Federal Reserve Chairman, Jerome Powell, said in late May that the Fed would be releasing a discussion paper later this summer exploring its efforts to develop a CBDC. He also raised questions for public comment on the risks and benefits of CBDCs.
However perhaps now that the ECB has announced its ‘investigation phase’ for a digital euro, this could very well add more pressure on the US to accelerate its efforts on its CBDC project.
“2021 will be a bumper year for M&A… We’ll be seeing traditional financial institutions and large technology firms entering the market by investing in or buying crypto firms. After Coinbase, we’ll see a wave of crypto companies rushing to IPO/SPAC.”
Outcome: Dmitry was right on the money here.
2021 has been the year of traditional finance institutions expanding into crypto via acquisitions, which has led to digital assets becoming increasingly integrated into the broader financial system. Deutsche Börse Group purchasing a majority stake in Crypto Finance AG and Paypal’s acquisition of Curv have been among the most notable headlines in 2021 so far.
Most recently, Block.one’s crypto exchange Bullish and Circle, the issuer of USD Coin, announced respective plans to list on the the New York Stock Exchange via mergers with special purpose acquisition companies.
BlockFi, Ripple, Kraken and Binance are also all considering going public. Meanwhile, Apifiny, Bakkt, SoFi, and eToro have all set plans to go public.
Also notably, venture capitalists are also hungrier than ever for early opportunities on innovative projects in the space. Data from CB Insights shows that the total funds received by digital asset companies from VCs in Q2 of 2021 exceed $4.38bn. This represents more than a 50% rise from Q1 2021, and almost a ninefold growth compared to Q2 2020.
Finally, while ‘‘follow the money’’ is an age-old wisdom regardless of which industry you are in, ‘follow the people’ appears to be an equally strong rule in understanding the plans of any organisation.
With the likes of JPMorgan, Visa, financial regulators and even central banks all embarking on hiring sprees for digital asset experts, there’s no doubt that a clear theme has emerged. Crypto is officially mainstream.