While 2020 was difficult for everyone on a global level, the cryptocurrency market flourished. This trend has even accelerated since the beginning of the year, driving Bitcoin and peers to new highs.
Investors are scrambling to take part in this financial revolution and buy bitcoin with credit card to get ahold of this highly coveted asset. With that said, in bull markets, it can be difficult to understand what is really happening, especially to those that are new to the crypto markets.
When every coin starts to make crazy gains, painting the big picture becomes quite challenging. For this reason, we created an article on the top crypto trends to keep an eye on in 2021.
After reading this post, you should have a good idea of the real driving forces behind the FOMO and FUD that seem to have overtaken this bull market. This should ultimately help you understand the market as a whole and prepare yourself for the next market cycle.
Ethereum switches to proof-of-stake
Ethereum is the second-most valuable blockchain on the market, right behind Bitcoin. But more importantly, Ethereum is also the #1 smart contract blockchain, with the most decentralized applications developed on its network.
It’s also the home of hundreds of ERC-20 tokens that use its network for transactions, the most important one in volume being the Tether (USDT) stablecoin.
However, this success has been a double-edged sword for the blockchain. The Ethereum network has been experiencing a huge increase in transactions, mainly due to three factors: the crypto bull run (USDT transactions), the DeFi ecosystem growth, and the NFT craze.
This has resulted in gas prices reaching record levels, making its use quite expensive, even prohibitive for smaller transfers. The reason behind this is that Ethereum still uses a slow and inefficient proof-of-work consensus mechanism to verify transactions.
However, Ethereum developers are working on a significant upgrade, where the blockchain will be migrated to a faster and more cost-friendly proof-of-stake algorithm. Called Ethereum 2.0, this upgrade should result in an increase in the price of ethereum once it goes live.
Moreover, seeing how many popular projects are dependent on this upgrade, its release could trigger another significant rally in the entire market, bringing it to new highs.
The (ongoing) DeFi boom
This brings us to our following point – the growth of the decentralized finance ecosystem. DeFi is the crypto ecosystem that aims to provide traditional financial products such as lending and interest accounts but without the use of an intermediary like banks or other financial institutions.
The growth of this part of the crypto market has been already incredible in 2020, and the trend has followed in 2021. And this is despite the fact that 90% of the DeFi ecosystem is based on Ethereum and is also experiencing the aforementioned prohibitive gas fees.
Once ETH 2.0 goes live by the end of the year and begins providing faster and cheaper transactions, the value of funds locked in DeFi could explode, driving the whole market upwards.
And in case Ethereum developers fail to meet expectations, there are tons of high-performing alternatives out there. Blockchains such as the Binance Smart Chain and Tezos are gaining traction and are already proposing working solutions.
Increased adoption of cryptos as a method of payment
Crypto adoption as a method of payment has been a major factor for its mass adoption over the years. With that said, merchants have been hesitant to accept crypto because of the high volatility of the market, whereas users aren’t willing to spend them because of their appreciating value.
However, PayPal recently announced that its users will be finally able to use their cryptocurrencies to pay for goods and services in their payment network. If this trend picks up, we might see prices of Bitcoin and peers skyrocket in the following months.
Institutional interest in crypto
While the crypto markets have experienced bull market cycles in the past, none has been as legit as the current one.
Institutional investors are finally understanding the power of Bitcoin and are massively investing in the crypto market. Banks and payment providers are feeling a bit more comfortable with Bitcoin as well, accepting it as an appreciating asset and adding a more positive sentiment in the markets.
The fundamentals of the crypto market have never been more solid than today. Institutional investors are entering the markets en masse while Bitcoin is becoming the go-to store of value of an entire generation.
With that said, it’s the evolutions in blockchain technology (proof of stake) and the growth of the DeFi ecosystem that might be the spark that will reignite the current bull run.
Furthermore, as more people begin to use cryptocurrencies daily, the volatility of the market could be reduced considerably. This could drive even more institutional players towards investing in cryptocurrency solutions for finance and business.