2020 was a year of unrest around the world. The COVID-19 pandemic has overshadowed this year’s events, and has presented new challenges that no one was prepared for, and changed our lifestyle, our work and the solution to these problems. Earlier this year, global financial markets were hit hard by falling stock prices, commodities and even cryptocurrencies.
Amid economic uncertainty and the weakening of the US dollar, cryptocurrencies are moving off the radar of commercial banks, hedge funds and other institutional investors. As we approach the end of a hectic year, it will be a good time to take an overview of the events that have been important for the crypto industry this year, and look forward to new developments in 2021.
If you do not bury your head in the sand most of 2020, you have probably witnessed the explosive growth of the DeFi sector this year. Especially with cryptocurrencies and decentralized exchanges that have attracted huge capital inflows in a very short time. DeFi apps have run in parallel with older financial systems in recent years, but the void left by traditional financial services during this crisis underscores the urgent need to move towards a broader adoption of DeFi services. In a world where cash payments are no longer welcome, and people often work from home and complete transactions online, the transition to DeFi seems normal.
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Although the real potential of DeFi is not denied, we must ask one question: Will this growth be sustainable? As we have seen before with other cryptocurrency sub-sectors, they tend to follow a cycle in which the market, after significant price increases for new technology platforms and protocol tokens, enters a profit situation. This results in a rapid fall in prices before a slow recovery. Platforms that have survived these early, unstable stages are now slowly gaining ground as adoption rises, and token prices are starting to be driven by more basic criteria such as number of users and platform size.
Since DeFi is currently only being tested by traders who want profitability, it remains to be seen whether DeFi will follow the same path in 2021 and beyond; However, their economic models, which are transparent, liquid and flexible, certainly have enormous potential for the benefit of the real economy as a whole.
Related: DeFi needs real world acceptance, not just disruptive entrepreneurs
To see with new eyes
The economic roller coaster in 2020 and high volatility in the financial markets have further emphasized that Bitcoin (BTC) is a store with value. This attracts an increasing number of prominent economic players. Although Bitcoin cannot be used as a transaction currency anytime soon, it is clear that Bitcoin still retains its status as digital gold and is now increasingly seen as a safe store of value by major market participants.
Large private and public companies are diversifying their own positions in bitcoin as a way to hedge against impending inflation and to take advantage of the potential leap in bitcoin prices – especially Michael Saylor’s MicroStrategy, which lost $ 425 million in bitcoin in September.
On the subject: institutional investors will not save cryptocurrency, but they will help it grow
Perhaps the most interesting thing is that we are seeing the world’s central banks begin to celebrate the world of cryptocurrency. While they certainly looked at the room from the outside with great interest, the COVID-19 crisis was an incentive for them to take action. In parallel with the Bank for International Settlements, several major central banks around the world have taken their first steps in the right direction by publishing a report outlining a potential framework for introducing central bank currencies as an alternative to cash.
On the subject: The central bank’s digital currencies and their role in the financial system
However, important technical and structural barriers must be overcome before any underlying digital currencies related to commodities become a reality. To support this effort, MasterCard has created a virtual testing platform that enables central banks to evaluate and study the adoption of national digital currencies, and has already begun testing how they can integrate the central bank’s digital currencies into their business. PayPal has also restricted its entry into the cryptocurrency market, allowing PayPal users in the United States to buy and sell digital currencies directly from their PayPal accounts.
Related: Will PayPal Crypto Integration Bring Cryptocurrency to the Masses? Experts answer