Even for the best analysts, knowing how to predict trends in cryptocurrency can be difficult, since the crypto market is exceptionally volatile and therefore highly unpredictable. However, when attempting to anticipate the dominant cryptocurrency trends of 2021, one thing we can be sure of is that digital currencies are going to see a huge increase […]
Even for the best analysts, knowing how to predict trends in cryptocurrency can be difficult, since the crypto market is exceptionally volatile and therefore highly unpredictable. However, when attempting to anticipate the dominant cryptocurrency trends of 2021, one thing we can be sure of is that digital currencies are going to see a huge increase in mainstream adoption.
There are a variety of factors driving crypto market growth, including enhanced interest from central banks and big tech, who are aiming to get a piece of the action and introduce their own currencies as well as progress from regulatory bodies and local legislators in the crypto space. As a result, we are likely to see crypto market trends towards increased stablecoin momentum, a further rise in the market capitalization of DeFi, and rapid developments in the Ethereum ecosystem.
One of the current cryptocurrency trends which began last year is the Bitcoin bull run. In the last month of 2020 alone, the BTC price rose by over 70% and the upward trajectory of the coin shows no signs of slowing down in the coming year. But what drives the value of cryptocurrency? What is behind this trend? Why are institutional investors, payment companies and investment banks so ready to come on board, making a Bitcoin’s rise one of the biggest cryptocurrency trends of 2021?
2020 was a banner year for major players to create their own cryptocurrencies. Big tech getting into the crypto space, with Facebook and Google promoting their own digital currency projects, while at the same time, this was the year in which, with China at the forefront, 80% of central banks were actively progressing with plans for their own digital currencies (CBDCs).
Payment service providers have also started to realize that there is an entire digital payment market, offering untapped opportunities. Bitcoin has gone a long way towards proving that global digital currencies are not just a niche asset but rather are gaining mainstream momentum and they can solve issues relating to the time it takes to complete a transaction and the high fees that are involved. It is therefore no surprise that PayPal now allows Bitcoin transactions.
In 2020, stablecoin assets grew to over $25 billion and this steady upward trajectory is one of the crypto market trends we can expect to see continue into 2021.
But, what is a stablecoin? Well, most explanations will state that a it is a coin with a market value that is pegged to the underlying price of a stable asset, such as the dollar, and that this enables them to minimize price volatility and reduce financial risk.
While this is true, a more accurate answer would be that while a stablecoin is tethered to a fixed unit, the market price fluctuates slightly around the pegged price. This offers exceptional arbitrage opportunities and indeed stablecoins have proven to hold an important role in all types of digital currency trading. One of the major crypto market trends we are likely to see in the year ahead is an increase in the use of stablecoins for cross-border commercial transactions, to bypass traditional banking institutions.
Another of the main cryptocurrency trends of 2021 will be a continued rise in the market capitalization of DeFi. In the last year it went from having just $1 billion-worth of assets locked in to having an incredible $15 billion today. The advantages it brings of composability and profitability, and the successful use of smart contracts for a wide range of financial services are making the case for DeFi and will contribute to its growth, although significant institutional investor interest is still unlikely in the immediate future.
DeFi market capitalization now accounts for around 12% of total blockchain market value, making it a driving factor in the growth of the Ethereum ecosystem. This could have a significant impact on the attitude of retail and institutional investors towards DeFi as time goes on, particularly in light of the ongoing migration to Ethereum 2.0.
Without a doubt, one of the most concerning trends on the cryptocurrency markets is the rise in incidents of fraud and hacking. This is an inevitable consequence of the rise in popularity of cryptocurrencies in general. With rapid growth and greater opportunities we have also seen plenty of opportunists looking for attack vectors in smart-contract, blockchain-based systems. The last year has seen high-profile breaches that have taken down a number of DeFi companies.
In 2021, as the crypto space grows at an amazing pace, in addition to this type of criminal activity, we are also likely to see a variety of other types of fraud from fake wallets and investment platforms to crypto-jacking and never-before-seen malware.
However, on the bright side, 2021 will also see ongoing regulatory progress from various governments around the world as they gradually legislate in the crypto arena. Consumer protections will begin to be put in place so that investors can identify reputable, secure financial service providers with which to entrust their capital.
One common response that we have seen to the unparalleled rise of Bitcoin is the urge to HODL. Over the last decade, Bitcoin has experienced a steady overall increase in value, although it has had seen extreme peaks and troughs due to its incredible short-term volatility. Many have chosen to acquire the coin and then put it in a wallet, so that it can appreciate in value over the long term. Although this means that their capital is sitting idle, they are basing their strategy on the assumption that eventually BTC will settle at a price above the amount they paid for it.
However, at the other end of the spectrum there are those for whom the volatility of the cryptocurrency markets is what makes it such an attractive proposition. They are looking to take advantage of short-term price action, as they can benefit from every fluctuation, whether it is a cryptocurrency downtrend or a rise in value. Despite the high risk involved, the rewards are also potentially exceptional, so the popularity of day trading is only likely to increase over the year ahead.
However, of all the crypto market trends we can expect to see take off in 2021, one of the easiest to predict is the rise in crypto arbitrage. The reason for this is that it allows both crypto and fiat holders to take advantage of the lucrative nature of the cryptocurrency markets while not incurring any of the risk related to crypto market volatility.
Crypto arbitrage generates a profit from price discrepancies across exchanges, taking advantage of the fact that for short periods, a coin can be available at different prices at the same time. To see how it works, let’s take our own, fully automated AI-based platform as an example:
ArbiSmart, our EU licensed crypto arbitrage platform is connected to 35 different exchanges which it tracks 24/7, to find and exploit crypto arbitrage opportunities. It finds a temporary price inefficiency, instantly buys the coin on the exchange where it is cheapest and then sells it on the exchange where the price is highest to make a profit on the spread, in the brief window before the market adjust and the inefficiency is resolved. The ArbiSmart platform offers passive profits ranging from 10.8% to 45% a year, depending on the size of the investment.
One thing we can be sure of, whatever else happens in 2021, is that we are not looking at an overall cryptocurrency downtrend. Crypto is only going to become more firmly established as it enters the mainstream and experiences wider global adoption. The trending cryptocurrency news of 2021 is likely to be exceptionally positive. We can expect to see more institutions turning to cryptocurrencies and blockchain-based technologies, as more traditional currencies and approaches struggle, in a post-COVID financial reality to which an electronic economic ecosystem provides an attractive alternative.
To learn more about blockchain, DeFi, cryptocurrencies and more, check out the ArbiSmart blog. Alternatively, if you have any questions about crypto arbitrage or the ArbiSmart system, you can contact us directly.
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