A Profitable Year for Bitcoin and Cryptocurrencies
VYSYN Ventures Weekly Insights #79 — DeFi and NFT usage explode in 2021
The year 2021 has been an eventful one for the blockchain industry and overall cryptocurrency market. Awareness of Bitcoin and cryptocurrencies grew significantly, as did adoption. Several blockchain projects experienced new levels of development while more innovations found their footing in an industry that is beginning to emerge as a mainstream sector in tech and finance.
In the latest VYSYN Release, we examine some of the major events across significant areas of the blockchain industry. We highlight the impact these events had and how they contributed to shaping the blockchain and cryptocurrency industry. We also look at user expectations as we move into the new year.
A dynamic year for Bitcoin and cryptocurrencies
2021 has been a wild year for Bitcoin and cryptocurrencies thanks to price volatility and investor sentiment swinging from greed to fear constantly. Despite the swings, the cryptocurrency market grew by $1.5 trillion in market capitalization.
Bitcoin retained its role as the industry leader, leading the trend most of the time. The pioneer cryptocurrency added greater than 60% gains to its price from the beginning of the year. However, other cryptocurrencies like Ethereum, Binance Coin, Dogecoin, Solana, and Shiba Inu shared the limelight with Bitcoin.
In the end, Bitcoin rose in price but lost some dominance in the cryptocurrency industry. Bitcoin’s dominance at the beginning of the year was about 70%. This has fallen to around 40% at the time of writing, as other cryptocurrencies have witnessed increased adoption, especially Ethereum. Overall, this is a positive development that will infuse more stability in the blockchain and cryptocurrency industry, as it reflects increased diversification, and the introduction of more product options for users.
A diversified cryptocurrency industry will go a long way in avoiding some of the technical issues that Bitcoin has encountered over the years. Without other viable options, the Bitcoin network will remain the only major option for many crypto users. This will lead to further network congestion, thereby complicating the existing scalability issues of the network. These options also help to diffuse the regulatory pressure that has been focused on Bitcoin in the past couple of years. More blockchain options with diverse solutions will help to increase awareness and improve the public perception towards cryptocurrencies as a more useful and non-monopolized technology.
The year that DeFi exploded
The increased popularity of other cryptocurrencies like Ethereum has been powered by innovative developments that spread like wildfire across the blockchain industry. Several new solutions emerged in the Decentralized Finance (DeFi) ecosystem. By using blockchain technology to provide innovative solutions for mainstream finance, the industry experienced an influx of users that caused adoption to explode.
The DeFi market started the year with a Total Value Locked (TVL) of less than $26 billion. However, as of this writing, this value stood at $99 billion, having reached an all-time high (ATH) of $110 billion on November 10th, 2021.
Contributing to this explosion in TVL is the astronomical rise in the number of DeFi users in the course of the year. As of the beginning of 2021, there were less than 1.2 million unique wallet addresses in the DeFi ecosystem. This number rose by 356% to reach over 4.2 million wallet addresses before the end of the year.This reflects the level of adoption that the DeFi ecosystem has experienced over this short period, with more potential ahead as solutions continue to improve.
The blockchain network that has benefited most from the DeFi explosion in 2021 is Ethereum. Having suffered from scalability issues in the past, the ongoing upgrade of the Ethereum network and the migration from a Proof-of-Work (PoW) consensus algorithm to a Proof-of-Stake (PoS) algorithm has been a game-changer for the Ethereum blockchain.
The improvements on the network saw a return of DApps that had migrated to other networks and increased adoption by newer solutions. However, this did not stop other platforms from hosting and supporting decentralized solutions, especially when their offers are unique and peculiar, like in the case of Polkadot that enables interoperability across different blockchains.
Ethereum and other DApp creation blockchains did not support just DeFi solutions. Non-Fungible Tokens (NFTs) added another dimension to digital arts and collectibles and were created on these blockchains. NFTs have revolutionized the digital arts and gaming industries, among others. This class of tokens helped extract value from non-traditional assets and are set to break new barriers in asset monetization.
NFT carves a niche in the crypto industry
Earlier in the year Mike Winkelmann, a digital artist with the pseudonym Beeple, sold an NFT for $69 million. This was a landmark event in the blockchain industry and was instrumental in the explosion of the NFT marketplace. After Beeple, several other NFTs have sold for significant amounts, setting records across many sectors. However, the most eye-catching application of NFTs occured in online gaming.
Play-to-earn games have become a popular sector in the blockchain industry, with Axie Infinity playing a leading role. The blockchain game assumed the role of an income generator in the aftermath of the Covid-19 pandemic. In the Philippines, it became a popular source of income for many players who earned NFTs that they subsequently sold in the secondary market.
Several other NFT-enabled games have been developed. Many existing online games are also adapting their protocols to activate play-to-earn capabilities. This has led to altcoins chipping away at the long-held dominance of Bitcoin. It is a niche that is expanding rapidly.
What to expect in the coming year for the crypto industry
Regulatory restrictions have also been responsible for the rollercoaster behavior in the price of Bitcoin and other cryptocurrencies within the year. The ban of all cryptocurrency activities in China was the biggest of these restrictions. Unlike the crypto bans of previous years, the enforcement was serious this time around, causing many practitioners to exit the country.
Cryptocurrency miners based in China were forced to shut down or relocate. In July 2021, the global Bitcoin mining hashrate dropped to 84.79m TH/s, the lowest since September 2019. As of this writing, this value has recovered fully to its level before the ban. This is because the mining equipment that was moved offline relocated to more friendly regions.
As the effect of the regulatory restrictions continues to wane, confidence is returning to the industry, and many users are optimistic ahead of the new year. Many blockchain projects continue with their development goals, with the Ethereum upgrade expected to be implemented fully in 2022. Polkadot has concluded its first set of parachain auctions while several other projects continue on their roadmaps to full development and increased adoption. The forecast for the coming year remains positive for both Bitcoin and the entire cryptocurrency industry as more stability is achieved, with even more mainstream participants joining the movement.
About VYSYN Ventures
VYSYN Ventures is a longstanding venture capital company that specializes in funding and supporting disruptive startups in the blockchain and cryptocurrency industry. We have provided early-stage support to several projects that have grown to USD market capitalizations of hundreds of millions and even billions. Our incubation program focuses on providing capital allocations, versatile marketing support, and tech assistance.