- Crypto luminaries including Changpeng Zhao and Sergey Nazarov shared their views on the year ahead.
- Predictions include Bitcoin's price rising to $100,000 and beyond, and DeFi yield farming becoming more widespread.
- Central bank digital currencies are also on the cards, with some predicting that governments will attempt to ban Bitcoin.
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Nobody could have foreseen what 2020 had in store. The world hasn’t faced a pandemic like the coronavirus for the best part of a century, nor has its economy crashed so hard since the 1930s.
A daunting task, then, to predict what may lay ahead of us in 2021. COVID vaccines may prevent the spread of the coronavirus and the global economy could rebound. But equally, economies could collapse; government money-printing won’t stop any time soon, and the penny could drop at any moment.
It’s anyone’s guess how that’ll affect Bitcoin and the wider crypto space. But it’s worth a try nonetheless—after all, forewarned is forearmed. So Decrypt asked industry leaders, from a roster as diverse as Binance CEO Changpeng "CZ" Zhao and Chainlink co-founder Sergey Nazarov, what will happen next year in the land of crypto.
Said Zhao: "Between payments, institutional investment, quantitative easing and the longer-term economic impacts of COVID, it is very hard to predict which one will be the “hottest thing” next year. If you asked me in 2016, I wouldn’t have said ICOs. If you asked me in 2019, I wouldn’t have said stablecoin trading (DeFi)."
But here’s the industry’s best guess.
Bitcoin’s price will go up
This is a tricky one. Which crypto leaders would willingly propose that Bitcoin, the lifeblood of their careers and the provider of their daily bread, would crash?
But several crypto CEOs have reason to believe that number go up next year. Philippe Bekhazi, CEO of digital currency clearinghouse Stablehouse, thinks that it’s “very possible” that Bitcoin will end the year between $50,000 - $100,000, “given the amount of interest at the institutional and corporate level.”
Johannes Schweifer, CEO of CoreLedger, predicts that the price of Bitcoin will probably surpass $100,000 next year. “Bitcoin has shown it can grow more than that in a shorter timespan than one year, so it is more than possible,” he said.
And James Anderson, CEO of RioDeFi, said that Bitcoin will continue its upward momentum, “turning investors' sentiment even more bullish at the beginning of 2021.” He thinks that the price of ETH will also rise, but will be more volatile “due to the risks associated with the launch of Ethereum 2.0,” the long-awaited upgrade to the Ethereum blockchain.
The CEO, founder and chairman of US-listed mining firm Canaan, Nangeng “NG” Zhang, told Decrypt that November’s increasing hash power “indicates a bullish momentum.” He thinks this latest rally “looks set to be sustained heading into 2021.” His evidence? Bitcoin mining difficulty has increased about 9%. “Historically, we have seen that rising difficulty levels have marked the start of Bitcoin’s bull cycles,” he said.
Institutional investors will buy into crypto and DeFi
This year, tons of high profile investors bought into crypto. In the second half of 2020, US business intelligence firm Microstrategy bought $500 million in Bitcoin, Mexico’s second-richest man, Ricardo Salinas Pliego, invested 10% of his liquid portfolio into Bitcoin and MassMutual bought $100 million worth of Bitcoin.
Antonio Vazquez, Head of Communications at Hermez Network, said that government money printing will cause institutional investors to allocate chunks of their portfolios to Bitcoin and Ethereum. “Nobody knows where prices will be, but we can guess that the constant fiat currency debasement will lead most cryptos to all time highs,” he said.
“If the bull market unleashes entirely in 2021, we'll likely see a resemblance to the 2017 ICO-mania when big money joins the party, buying anything with the word "DeFi" on it.”
Sergey Nazarov, co-founder of Chainlink, agrees. “I expect the global economy’s worsening fundamentals and the rapidly rising inflation that is the result of unchecked money printing, will drive even more adoption of both Bitcoin and various cryptoassets,” he said.
This "massive adoption of cryptoassets as a format for preserving one’s wealth" will create an advantageous environment for decentralized finance (DeFi) protocols, he said, since they offer high returns on crypto.
DeFi yield farming will create an attractive alternative to the global financial system’s high inflation and low yields, Nazarov added. Initially, he suggested that it will be used by "younger generations comfortable with cryptoassets," before it rolls out to the wider population through existing mobile apps and money managers. Even local banks could get in on the action, Nazarov suggested.
DeFi will mutate
Decentralized finance, or DeFi, blew up from a $1 billion industry to one that surpassed $15 billion this year. Investors piled on as the protocols, mostly Ethereum-based decentralized exchanges (DEXes), synthetic assets and lending protocols, started offering lucrative loyalty cryptocurrencies. But how will DeFi change in 2021?
Lucas Huang, Head of Growth at Tokenlon, thinks that DEXes will grow next year. “Uniswap will remain the most popular, said Huang, given it enables easy access tokens with a small market cap and “has the popular brand.”
But Huang can’t tell what’ll happen to other DEXes, since each focuses on different types of assets, such as synthetic tokens that follow Bitcoin's price or the price of Tesla stock. Huang thinks the competition next year will produce popular and user-friendly DEXes.
Huang also thinks that popular DeFi applications will launch layer two scaling solutions—protocols that sit atop a blockchain, generally , to avoid bottlenecks caused by the blockchain's limits. Synthetix, Aave and Uniswap are among those that have already announced layer 2 plans for 2021. “It's totally unclear though, which ones will dominate as all layer 2 make different trade-offs,” Huang said.
Huang thinks that Polkadot could take off, since it has parachains, a separate blockchain that links to the main Polkadot blockchain—similar to Eth 2.0’s shards, and functionally similar to layer 2 solutions. But it won’t attract serious developer usage in 2021, he thinks. “Opportunity costs for building on those are still high. Real adoption for applications built on chains other than Ethereum likely has to wait until after 2021,” he said.
Kevin Chou, CEO and co-founder of Rally, thinks that social tokens will take off. “We will likely see more mainstream crypto adoption particularly among content creators, artists and esports teams to engage and monetize their fan bases,” he said.
“Creators, in particular, are looking for ways to become more independent from centralized social media platforms—and artists, both established and emerging, are looking to off-set touring losses that will likely linger into 2021.” His expectation? “More social token launches, but we’ll see lots of community experimentation like video chats, tokenized meet-ups and more.”
Muneeb Ali, the co-founder of Blockstack, thinks that DeFi will gravitate toward Bitcoin, given that it’s the largest coin by market capitalization. “Different projects are already finding ways to bring more DeFi functionality to the network with Wrapped BTC," he said. "I expect that developers will ramp up the innovation around Bitcoin and discover new ways to natively build on top of it."
DeFi and CeFi (Centralized Finance) will converge
Zhao, Binance’s CEO, thinks that lending protocols and yield aggregation platforms, “especially for stablecoin trading,” are here to stay. “DEXs are also well fitted for listing small and less mature coins, which provides a good validation ground for larger CEXs,” he said; CEX refers to centralized exchanges, such as Binance, Coinbase and Kraken.
“I believe we’ll see more convergence on the product offerings on the CeFi front. But fundamentally, DeFi and CeFi are targeting different users. I hope both will help grow the industry,” he said.
CZ thinks latching onto fiat payments systems will progress decentralized payments rails. Binance did that through Binance Card, and positioned Bitcoin right alongside fiat, he said. “I believe it is hugely positive for the industry and something we’ll see continued growth in over the next 12 months,” he said.
Joel Edgerton, COO of BitFlyer, thinks that CeFi will shift from Asia to the US as China prevents cryptocurrencies from competing with its CBDC, and the US cracks down on unlicensed exchanges. “Institutional money is gaining market share and they will definitely prefer regulated CeFi exchanges. This will accelerate the move into the US,” he said.
With CeFi out of the picture, Asia will continue to dominate DeFi, he said. But he thinks that the next big crypto companies will be “HyFi,” or hybrid finance—companies that can figure out how to bring the innovations of DeFi to regulated markets.”
Stablecoins will take off… but not as you might think
Johannes Schweifer, CEO of CoreLedger, thinks that we’ll see the launch of the first government-backed digital currency in 2021, though “any state-issued cryptocurrency will be nothing like Bitcoin.” It’ll be centralized, involve named accounts, and governments could monitor and seize it, he thinks, just like China’s central bank digital currency, the DCEP, which is currently being piloted.
Schweifer thinks that states will make a greater effort to ban Bitcoin than in the past, since they want to use blockchain to mint their own currencies. “Realistically, though, I don’t see this as being enforceable,” he said. His crypto New Year's resolution? “To stay away from government-issued cryptocurrencies.”
CZ believes that cross-border payments with will continue to increase next year. “It is much easier and cheaper to make cross-border payments using stablecoins or with any cryptocurrency than traditional methods,” he said. “I think this will be a driver of stablecoin adoption in 2021.”
Lior Messika, Founder of Eden Block, a VC blockchain fund, has three new year's resolutions. Eat more vegetables, listen to developers, and be more selective. “Investors should remember that while the pie is getting bigger, the game only gets more competitive from here,” he said.
The views and opinions expressed by the author are for informational purposes only and do not constitute financial, investment, or other advice.