The big crypto trends to look out for in 2021 are more volatility, tougher regulatory oversight and continued support from big institutional investors, says Luno in a recent newsletter to clients.

“2020 was a proper stress test with bitcoin hitting a low of around $5 000 in March and a high of $28 000. The new year is following the same trend with the price already reaching the $40 000 [R607 100] level,” says Marius Reitz, Luno’s general manager for Africa.

It was also the year institutional investors started backing bitcoin in a big way, with MicroStrategy, Mode, Square and others moving some of their cash reserves into the crypto as a hedge against the inflationary potential of fiat currency.

“Corporations, institutional investors, family offices, and hedge funds all want bitcoin to diversify their portfolios. While the numbers are small relative to traditional markets, institutional investment will continue to grow as the economic implications of Covid-19 become clearer,” says Luno.

Mainstream adoption will grow in 2021

Despite the extraordinary 300%-plus gain in bitcoin’s price over the last year, mainstream adoption will grow in 2021. Major crypto players are increasing their investment and interest in cryptocurrencies. The retail market is also on fire on the back of booming crypto assets, greater media attention and easy access to cryptos.

With each bull run, more investors enter the market for speculative purposes. This grows the user base and brings cryptos closer to the critical mass needed for more widespread adoption of cryptos for payments and other use cases.

A recent survey by Luno revealed that while a single global currency is not yet seen as valuable by respondents in Europe and Asia, Africans are ready to embrace a global currency. More than half of the respondents in Africa believe that a global currency would improve the current financial system.

Libra/Diem to launch

Libra, the cryptocurrency project launched loudly in 2019 by Facebook, went relatively quiet in 2020 and made significant changes to its intended offering, including a rebranding to Diem. This project is driven by some of the biggest companies in the world including Uber, Spotify, PayU and Andreessen Horowitz. As it unfolds, Diem could spark another wave of large companies wanting to get into the game of issuing their own coins, says Luno.

New US administration still not sure what to make of cryptos

US President Joe Biden appointed Janet Yellen as his treasury secretary, and she is no fan of bitcoin. Given the amount of institutional money that is flooding into crypto, and legislation allowing banks to hold bitcoin on behalf of their clients in 2020, there’s likely to be significant pushback from Wall Street that may make any bearish positions hard to maintain.

There are also several US state senators who are bullish on crypto, so it will be interesting to see if other countries follow the US lead should the country become more crypto-friendly.

More regulation on the way

With the crypto space maturing rapidly, regulators globally are accelerating efforts to either embrace or regulate cryptocurrencies. In South Africa, proposed regulations have been tabled by the South African Reserve Bank, and the Financial Sector Conduct Authority (FSCA) last year published a draft declaration of crypto assets as a financial product, which effectively means that any entity or person who renders intermediary services in relation to crypto assets must be an authorised financial services provider.

“Internationally, we expect to see more guidelines come into effect this year. Numerous central banks held talks on central bank digital currencies during 2020, with many now either in the research phase or further along,” says Luno, which has been working with regulators globally and in SA.

Rival blockchain to Ethereum

The first phase of Ethereum 2.0 finally launched on December 1, 2020 after years in the making. This is a huge transition for Ethereum, unprecedented in the history of cryptocurrency, which could leave Ethereum in a state of flux for the next two years, possibly opening opportunities for rival blockchains with similar offerings. Following its rapid transformation, Ethereum could get closer to its goal of becoming a globally-usable ecosystem for companies in all sectors and industries.

Crypto prices – expect volatility

“In a year of economic uncertainty, bitcoin didn’t waiver, outperforming the likes of gold and other stocks and shares. We have seen weeks of exponential growth and new all-time highs, but the crypto market has also taken brutal hits – all within the first month of 2021. As a result, price predictions are all over the internet.

“Venture capitalist Tim Draper says ‘Nothing is steady when one technology supersedes another. As bitcoin eclipses the government currencies and the banking system, there are going to be many fits and starts.’”

Cryptocurrencies like bitcoin are still a new alternative asset class and ongoing volatility is expected. A longer-term view shows crypto to be on an upward trajectory even with massive price drops.

Luno says it has witnessed record volumes on its exchange in recent weeks, and recently reached the milestone of 6 million wallets (customers) across more than 40 countries. “Our view on crypto in 2021 is decidedly upbeat.”

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