Milo Larkin, consultant at MRM, looks back at two major themes for crypto finance in 2020 in the first of a two-part series on crypto in 2020 and the year ahead
It has been a momentous year for the crypto sector.
Like traditional investment markets, the crypto scene has witnessed market-moving developments on an almost monthly basis, quickfire bull and bear markets, and some potentially huge steps towards wider adoption.
Here’s what have been the two biggest themes of 2020.
Big moment number one: bitcoin breaks records
Bitcoin smashed through its all-time high on 1st December, hitting $19,920 and surpassing the previous record set in December 2017, according to CoinDesk.
Not bad for an asset which, following the March coronavirus crash, hit a low of $4,944 – a 405% gain.
The recent bitcoin bull run was buoyed by the news that PayPal would be allowing its 360 million customers and 26 million merchants to buy, sell and hold bitcoin on their accounts. This sent waves of positivity through the crypto sector and is seen as a major catalyst towards widespread adoption of bitcoin as a mainstream currency. Backing up the PayPal news was a continued stream of increasing development from financial institutions into bitcoin, as demand for the cryptocurrency remained high.
That’s all well and good, I hear you say, but isn’t bitcoin exceptionally volatile and therefore completely unappealing to anyone who is trying to mitigate risk?
Volatile, yes, but more volatile than some individual stocks? German asset manager VanEck has run the numbers – bitcoin actually displayed less volatility in 2020 than 29% of the S&P 500 index.
Big moment number two: smart contract platforms stake claim to be top
Bitcoin hasn’t been the only crypto to experience a notable 2020. Smart contract platforms Ethereum and Cardano both underwent successful logistical upgrades.
Ethereum continued its move from a ‘proof of work’ protocol, the same time-consuming and energy intensive method of validation as bitcoin, to a ‘proof of stake’ protocol. Proof of stake focuses on the amount of crypto staked by the participant, as opposed to pure computational power. This makes the platform more energy efficient.
Ethereum’s main competitor Cardano also underwent technical upgrades, moving from its ‘Byron’ development stage to the ‘Shelley’ stage, to further decentralise the platform and make it more secure. This is because, essentially, the more participants there are on the blockchain the harder it is for hackers to target them simultaneously.
Both upgrades have excited the crypto community, with Ethereum and Cardano’s relevant tokens Eth and ADA seeing substantial movement ahead of the anticipated improvements.
It is safe to say 2020 was a massive year. But more is still to come. In part two we’ll be looking at the upcoming trends for blockchain and crypto in 2021.
The views expressed in this article are for general information purposes only and should not be construed as financial advice.