2021 is a year of major events. Weve experienced the ongoing global pandemic, widespread and extended lockdowns, significant supply chain disruptions, and unprecedented monetary stimulus from central banks. For cryptocurrency, 2021 saw several major breakthroughs in institutional adoption, alongside price appreciation. Our 2021 year-end review highlights the most important developments and changes seen this season, along with the subjects we’ll be concentrating on in 2022.

Bitcoin has propelled itself beyond all doubt being an emerging asset class.

Bitcoin alone has already reached a $1.27 trillion market capitalization, and totaled the average daily trading level of $10 billion, per data from Messari Real Volume. In comparison, probably the most heavily-traded stock, Tesla, with a roughly $1 trillion market capitalization, comes with an average daily trading level of $20 billion. This means that that bitcoin’s volume is related to that of the very most popular large-cap stocks. Rising market capitalization and sufficient liquidity have allowed bitcoin to soak up institutional capital entry. Therefore, bitcoin has unquestionably established itself being an emergent asset class.

The Role Of Cryptocurrency In Global Asset Allocation Greatly Expanded In 2021.

Aside from corporations such as for example Tesla and MicroStrategy adding bitcoin with their balance sheets, well-known investors such as for example Paul Tudor Jones, Alan Howard, Ray Dalio, and George Soros have all revealed that their managed funds hold bitcoin. Many asset management firms have announced long-term bitcoin allocations as macro thematic investments. Numerous hedge funds have added bitcoin with their present portfolios being an asymmetric trade. Moreover, being an asset with durability, exchangeability, and scarcity, bitcoin has begun to displace gold as a hedge against rising inflation lately.

Institutional adoption has led to a progressive reduction in bitcoin volatility, as seen by the truth that so far this season, bitcoin has already established the fewest days on record with 90-day volatility exceeding 80%. And its own 260-day volatility is down from 8x to 5x in comparison to gold within 3 years, in accordance with Bloomberg.

While bitcoin’s correlation to the S&P 500 has weakened because the beginning of 2021, the recent debate over whether it’s a risky or safe-haven asset in a hyperinflationary environment has resurfaced. Specifically, bitcoin briefly followed gold’s rapid upward movement and hit a fresh all-time high following a release of the U.S. October Consumer Price Index.

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Another watershed moment was the approval of the U.S. bitcoin-based futures ETF, demonstrating that regulators are willing and available to explore the options which this emerging asset class offers. Even though ETFs currently approved by the U.S. Securities and Exchange Commission are futures-based, they are an enormous improvement over closed-end funds like the Grayscale Bitcoin Trust (GBTC) where in fact the price deviates significantly from the web asset value. Since it works out, demand for bitcoin ETFs has been stored for much too long. The ProShares Bitcoin Strategy ETF (BITO) alone saw over $1 billion in volume on its first day of trading. In addition, it has achieved an AUM (assets under management) of around $1.4 billion.

Bitcoin ETFs have provided tools for large asset managers such as for example pension funds to allocate to cryptocurrencies. Their eventual entry will accelerate the adoption of crypto assets on a more substantial scale, possibly resulting in volatility normalization as time passes.

Within the last 12 months, as unprecedented monetary stimulus from central banks has resulted in a flood of liquidity in capital markets, extremely low interest have driven capital to get returns at all possible. In the cryptocurrency space, centralized and decentralized lending platforms have provided massive levels of liquidity to borrowers and high returns to lenders. A big part of these returns is by means of absolute returns such as for example interest generated from stablecoin lending, instead of directly linked with the crypto asset’s returns.

Also on our radar may be the development of environmental, social and corporate governance (ESG) in cryptocurrency mining. In the center of 2021, the Chinese government banned bitcoin mining because of environmental pressures. Elsewhere, the debate continued on the high degrees of energy consumption bitcoin mining requires. We’ve seen plenty of positive changes up to now, such as for example El Salvador harnessing the power of the Tecapa volcano to mine bitcoin. And Iceland, which participates in the European Union’s carbon emissions system, has used its renewable geothermal resources to attain lower electricity costs. Texas Senator Ted Cruz expressed his appreciation for bitcoin miners finding alternative uses for waste energy and benefiting everyone. Hopefully to see more types of such innovation being implemented in the year ahead.

This can be a guest post by Yulong Liu. Opinions expressed are entirely their very own , nor necessarily reflect those of BTC Inc or Bitcoin Magazine.

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