What are the biggest crypto and blockchain topics to follow in 2021?
Five years ago it was easy to dismiss Bitcoin and blockchain technology. There was still a feeling that Bitcoin could be a passing fad and blockchain was just a niche technology.
This is no longer the case.
Bitcoin is here to stay and the world is rapidly waking up to the fact that blockchain is a revolutionary invention that’s going to change everything from international payments to basketball game tickets.
In this article we’ll look at the most important blockchain topics that we think are going to dominate the headlines for the rest of 2021.
The rise of smart contract platforms
It can take a while to appreciate just how revolutionary smart contracts are going to be. Protocols like Ethereum and Polkadot have so many use cases it’s hard to even keep track of them all.
- NFTs as a new type of art
- NFTs that function as concert and sporting event tickets
- Decentralized exchanges
- Supply chain tracking and automatic payments
- Near instantaneous cross-border remittance
- Decentralized lending and borrowing
- DeFi tokens that track the price of commodities like gold and silver
- Algorithmic stablecoins
Interoperability is where it starts to get really interesting. Ethereum can only interact with itself and, to a limited extent, Bitcoin. However, a project like Polkadot or Cosmos can enable cross-chain interoperability. A smart contract on Ethereum can connect with a decentralized exchange on Tezos, for example.
All of these smart contract platforms are rapidly consolidating their influence and gaining mainstream adoption. The biggest hurdle right now is scalability, which brings us to the next one of our blockchain topics.
Blockchain Scaling Solutions
An inability to scale is the number one reason Ethereum isn’t taking over the world. When swapping a token on Uniswap costs $100, something is wrong. Many people are priced out of using Ethereum but the good news is that scaling will be one of the biggest blockchain topics in 2021.
Optimistic rollups are a promising new way to dramatically reduce Ethereum fees. With optimistic rollups a protocol (like Uniswap) can process thousands of transactions offchain for a negligible fee. To maintain security, a summary of those transactions are periodically published to the mainchain.
The net effect is that instead of recording each transaction to the Ethereum mainchain, as happens now, a rollup publishes a huge batch of transactions to the mainchain. This is a dramatically more efficient way to use Ethereum’s limited blockspace.
It’s not just Ethereum that’s scaling either. The Bitcoin startup Strike is leveraging the lightning network to send instant & free payments all over the world. Sending a regular Bitcoin transaction can cost $10 or more but since Strike works on the lightning network, the app isn’t affected by high fees. Strike users can send someone $0.05 if they want to.
Strike is one of the top cryptocurrency scaling success stories that we’ve seen so far. We’re not the only ones who think so either. Strike recently announced a partnership with Visa that will integrate a Visa card with a user’s Strike account. The partnership between cryptocurrency companies and traditional finance giants is one of the most exciting blockchain topics of 2021.
A Bitcoin ETF?
One of the top cryptocurrency questions for 2021 is whether this will finally be the year that the SEC approves a Bitcoin ETF? There are lots of good reasons why an ETF should be approved in 2021.
- Custody. One of the SEC’s main criticisms is that there aren’t any good Bitcoin custodians. That’s no longer the case. Fidelity, one of the most trusted names in Finance, has started offering crypto custody.
- American trading. Another criticism was that a lot of BTC trading happens offshore on unregulated exchanges. Now that BitMEX has been throttled, a lot more trading and price discovery is happening on American exchanges.
- Size. When BTC was a $100 billion asset it probably didn’t make sense for it to have an ETF. Now that BTC is a $1 trillion asset, it’s definitely big enough to justify having an ETF.
- Competitors. Since there is no Bitcoin ETF, people are buying alternative products like GBTC. These closed-end trusts charge expensive fees and often trade at a premium or a discount (as opposed to trading on par with Bitcoin’s price). By not allowing an ETF the SEC is forcing people to buy expensive and mispriced products.
- Canada. In March of 2021 Canada approved several Bitcoin ETFs. If Bitcoin is good enough for an ETF in Canada, why not also in the USA?
A Bitcoin ETF is one of the biggest blockchain topics for this year. At this point, if the SEC keeps turning down a Bitcoin ETF it’s a sign of an unfair bias against BTC. Hopefully with Gary Gensler as the new chair of the SEC a Bitcoin ETF will finally be approved.
Where to Invest?
We’re not financial advisors and, apart from a recommendation to buy some BTC, it’s difficult to give universal investment advice. So instead of telling you which coins to buy, it would be a lot more useful to tell you what it’s like to invest in crypto.
A 30% drawdown in BTC or a 50% drawdown in an altcoin is common in crypto, even during a bull market. You have to be prepared for these drops. If you’re uncomfortable with massive price swings you should only allocate a small portion of your investment portfolio to crypto.
Playing the long game
When you invest in crypto you need to have a long time horizon. Imagine you bought Bitcoin for $20,000 at the top of the 2017 bull run. As of April 2021 you’re up 300% on your investment! That’s an awesome gain, however, it took three years to reach that point. Only investors who held through the bear market were able to realize that profit.
Ideally you won’t buy at the top of a market cycle, however, you never know. Although many people say that crypto is a ‘get rich quick’ opportunity, that’s not really the case. Crypto is a ‘potentially make a lot of money if you’re willing to endure massive volatility for years on end’ opportunity…
Here’s a real life example, as this article was written shortly after XRP gained 100% in the last few days. That’s great if you’re in XRP, but it doesn’t do anything for Bitcoin holders. BTC has been flat or down for weeks.
When you see another coin making massive gains it can create the temptation to trade out of your “non-performing” investment and jump into the coin that’s gone up 50% in 24 hours.
As tempting as it is, this is rarely a good strategy. There’s a good chance that you’ll buy the local top and you won’t make any more gains. Then a few weeks later, the coin you traded out of will have its own big run! But since you’re no longer holding it you won’t profit.
In crypto, you have to get used to the fact that there will be some coin that’s massively outperforming at any given time. Even if it seems like everyone is getting rich but you, resist the temptation to jump on the bandwagon. You’ll probably end up buying near the top.
Remember the taxes
In the United States investors have to pay a 20% long term capital gains tax on crypto that they sell after a year or more. If an investor holds a coin for less than a year and sells it for a profit, the gain is taxed as income.
The IRS is cracking down on crypto taxation and it’s not a good idea to skip out on the tax bill.
Nobody can predict prices
One of the most important lessons to learn in crypto is that nobody can predict where prices are headed. Not next week and definitely not next year. That’s why it’s important to only buy what you can afford to lose.
Does blockchain represent the future?
A few companies are already dabbling with Ethereum. For example, Visa has announced that they’ll be settling some of their accounts with USDC. For Visa it makes sense to pay $20 in fees if they’re settling a transaction worth hundreds of thousands or millions of dollars. Once scaling comes online and fees are low again, we expect thousands of new businesses to use Ethereum and other smart contract platforms.
Blockchain technology is exponentially better than our current financial system. Bitcoin is slow and expensive because it’s decentralized, and there’s clearly a massive demand for a cryptocurrency that no one controls. However, there will also be a demand for faster and cheaper coins that are more centralized.
No matter how you look at it, blockchain technology is going to revolutionize the financial industry and it’s not too late to get involved. If you have a five or ten-year time horizon, it’s likely that projects like Bitcoin and Ethereum are going to offer some very nice returns on investment as tens of millions of new people enter the blockchain space.
This content is for informational purposes only and is not investment advice. You should consult a qualified licensed advisor before engaging in any transaction.