2020 has been the best year for cryptoasset investment since 2017, while there’s even an argument that it’s the best year ever, given that the growth of the crypto market seems steadier and more stable this time out. But what about next year?
For the most part, 2021 is shaping up to be almost as eventful and turbulent as 2020. The coronavirus is expected to stay with us for some time to come, and in response governments are likely to continue pushing macroeconomic policies — quantitative easing and low interest rates — that will make bitcoin (BTC) and other cryptoassets more attractive to investors.
According to industry figures speaking with Cryptonews.com, 2021 will almost certainly bring an increase of institutions, corporations and consumers investing in crypto. But if BTC continues its rally, retail investors in particular might invest sideways as well, increasing their exposure to new and established altcoins.
2020: what was expected
Rewind to the end of 2019, and you may recall industry players telling Cryptonews.com that institutions would increasingly invest in bitcoin in 2020, while mostly sidestepping altcoins. They also expected retail investors to be more open to altcoins.
Well, they were broadly correct in these predictions: the likes of MicroStrategy, Square, and Stone Ridge Management all converted portions of their cash reserves into bitcoin, while we also saw financial institutions increase their exposure to the cryptocurrency. The moves arguably weren’t widespread, but they appear to have set the ball rolling for more.
Likewise, the coronavirus pandemic — and the increase in saving which followed — drove retail investors towards bitcoin. But given the strong growth witnessed by such upstarts as Chainlink (LINK), Polkadot (DOT) and Cardano (ADA), it’s also apparent that retail investors had more of an appetite for altcoins than institutions and corporations.
2021: BTC love in the time of pandemic
2020 has laid a strong foundation for cryptoasset investment to take off next year.
As Konstantin Richter, the CEO and Founder of Blockdaemon told Cryptonews.com, “More institutions and liquidity providers are rapidly entering the space and the investments in bitcoin appear to be strong.”
“This trend is likely to continue, and increase momentum in 2021, with announcements by the likes of PayPal offering crypto payments in 2021 … more users will have access to experiment with bitcoin and other cryptocurrencies,” he added.
For the most part, the macroeconomic environment — increased savings, higher inflation, lower interest rates — will mean that bitcoin receives the lion’s share of institutional and retail investment.
“Now, the DeFi movement and [altcoin] season are stumbling and the bitcoin dominance index is creeping up again; during these turbulent times, investors are placing their money on a safer bet,” said OKEx CEO Jay Hao.
With the ongoing uncertainty over the pandemic, the US election, Brexit and other factors, Hao estimated that it’s “likely more investors will turn to BTC as a safer haven,” as opposed to other cryptoassets.
Simon Peters, a cryptocurrency market analyst at eToro, agrees with this assessment:
“I think a lot of whether bitcoin continues to increase its market dominance percentage into 2021 will have a lot to do with developments in the coronavirus pandemic.”
“If we continue to see further lockdowns and, more importantly, economies needing to be kept above water by governments and central banks providing stimulus packages, leading to more quantitative easing, then it could prompt further investment into bitcoin,” he told Cryptonews.com.
Trading sideways with altcoins
However, while this might seem like a gloomy assessment as far as altcoins are concerned, it is estimated that increased liquidity in bitcoin will trickle down or filter out towards the rest of the crypto market.
“What we have typically seen is that after BTC surges and then eventually starts to trade sideways, investors diversify into [altcoins], and [altcoins] begin to rise in the longer term,” said Jay Hao.
Nicholas Merten, the founder of one of the most popular Youtube channels on crypto investments, DataDash, and Digifox, a finance app, also said that at least a portion of new investment will find its way to altcoins.
“We tend to find that bitcoin's dominance grows as it's approaching all-time highs in price from the previous bull market and drops sharply afterwards. This is due to liquidity or "new money" initially surging into bitcoin, then eventually flowing out into other altcoins, rather than dollars,” he told Cryptonews.com.
Merten added that once bitcoin returns to its previous all-time high of USD 20,000, he suspects we’ll see altcoins spiking.
Konstantin Richter is of the same opinion that altcoins will benefit from increased investment in DeFi platforms, which he sees as entering a maturation phase next year.
“Institutional adoption of cryptocurrency has proven to be a significant driver for adoption by retail users. If DeFi can mature and manage to attract similar mainstream investment, there are likely to be huge opportunities for early adopters of the technology in the coming year,” he said.
What kinds of institutions and corporations?
But when we say “institutional” investment, what do we mean? Well, in 2021, such investment will cover an increasingly wide portion of the financial and corporate world.
“In my opinion, corporate treasurers, especially Silicon Valley startups, will begin seriously exploring bitcoin as a reserve asset for their balance sheets in 2021 and 2022,” said Nicholas Merten.
“Once [it] reaches back to its all-time highs, it turns the narrative from ‘bitcoin was in a bubble’ to ‘bitcoin was just warming up’,” he added.
Simon Peters agrees that more companies will invest in bitcoin as a reserve asset, with the eToro analyst suggesting that most of these companies are “initially going to be those whose founders are bitcoin advocates, like we saw with Microstrategy and Square.”
But Jay Hao also expects financial institutions, hedge funds and even banks to increase their bitcoin exposure in 2021.
“I think 2021 may see the final green light of a bitcoin ETF, exposing more and more traditional investors to bitcoin as well. Banks too, will likely step up their strategies when it comes to bitcoin and we see more countries follow the US’ lead and begin to custody bitcoin,” he said.
Retail different from institutions
This sounds very bullish for BTC, but again, we’ll likely see retail investors picking up the slack for altcoins in 2021, investing with a greater appetite for risk than institutions.
Moreover, some altcoins such as chainlink and tezos (XTZ) are down in double digits from their recent all-time highs “and have only really gotten started,” according to Simon Peters.
“Many retail investors may feel there is a lot more potential to come from these altcoin projects, especially when you consider how far bitcoin has come in the last few years,” he said.
Peters also expects retail investors to increasingly invest in altcoins which enable staking.
He added, “Services like staking, that are available on coins with a proof of stake mechanism and offer an annual yield in a low interest environment, could also provide retail investor impetus into coins other than bitcoin.”
In other words, 2021 is estimated to bring more institutions and corporations to bitcoin, while retail investors looking for the newest thing might provide the investment that helps altcoins and the DeFi sector to grow.