The cryptocurrency and blockchain industry experienced explosive growth in 2021, particularly in its decentralized finance (DeFi) and nonfungible token (NFT) sectors. The year was also marked by continued price volatility, baffling behavior from China, a grand experiment in Central America, escalating institutional interest, and the rise of some faster smart-contract networks — all of which is reflected in this year’s list of industry “winners and losers.”
Winners in 2021
When China effectively banned Bitcoin (BTC) mining operations in May 2021, Kazakhstan rushed in to fill the vacuum, pitching displaced miners and others on its cheap and plentiful coal supply. Many set up operations in the Central Asian country, including a top-five crypto mining pool operated by BIT Mining. By July 2021, Kazakhstan’s average monthly hash rate share stood at 18.1% — that is, it accounted for nearly a fifth of the world’s Bitcoin mining output, second only to the United States (42.7%), and a stunning increase from only 1.4% in September 2019, according to the Cambridge Centre for Alternative Finance.Whether Kazakhstan will maintain its global share of BTC mining in 2022, given reports of widespread power shortages in the country as winter approaches remains to be seen.
Coinbase Global, the largest cryptocurrency exchange in the U.S., became the first crypto company to list on a U.S. stock exchange when it debuted on April 14 on Nasdaq. It closed that day at $328.28 with a market capitalization of $86 billion, a stunning launch that invited comparisons with Facebook’s and Airbnb’s initial public offerings. Its share price came back to earth by year’s end, however, standing at $243.35 on Dec. 18, with a still-strong market cap of $52.37 billion.Coinbase’s listing was widely viewed as another sign that crypto had gone mainstream, with more public offerings to come. “Coinbase will be the torchbearer for the whole blockchain community in the public market,” Kavita Gupta, founding managing partner at Delta Growth Fund, told Cointelegraph.
A tide of new smart contract-enabled networks emerged on the scene in 2021. The largest and fastest-growing among them was Solana, a super quick proof-of-stake network that claims to have clocked 50,000 transactions per second (TPS). By comparison, Ethereum does about 30 TPS. “No project — maybe in crypto’s history — has gotten hotter, faster than Solana in 2021,” wrote Messari’s Ryan Selkis. The open-source blockchain hosts a growing number of NFT and DeFi projects, although it was subject to several distributed denial-of-service attacks through 2021. Solona’s (SOL) native cryptocurrency comfortably ranks fifth among all coins as of Dec. 20, according to Cointelegraph Markets Pro, trailing only BTC, Ether (ETH), Binance Coin (BNB) and Tether (USDT).
Nayib Bukele/El Salvador
El Salvador made history in 2021 — becoming the first country to declare Bitcoin (BTC) legal tender. The country’s dynamic president, Nayib Bukele, captivated the crypto world with his doings: harnessing energy from a volcano to power his country’s BTC mining operations, air-dropping $30 of BTC to every adult in the country, and, in late November, announcing the launch of Bitcoin City, a fully functional city built around Bitcoin, funded initially by $1 billion Bitcoin bonds. Only time will tell whether all this amounts to a clear economic “win” for El Salvador’s people, but Bukele arguably, through buying the dips, brought some 21st-century innovation and luster to a poor Central American land whose economy is heavily dependent on remittances — i.e., money sent home by foreign workers.
Mike Winkelmann, aka Beeple
When art house Christie’s put up for auction in February a digital collage — the first major auction house to offer a purely digital work with a unique NFT — it didn’t even attach a price. No one knew how to value it. The work “Everydays: The First 5000 Days” by Mike Winkelmann (aka Beeple) sold for $69.3 million, and the art industry may never be the same. To put this into context: The work fetched more at auction than pieces by Georges Seurat, Paul Gaugain or Salvador Dalí, and catapulted the relatively obscure Beeple into the company of the world’s highest-earning contemporary artists, such as David Hockney and Jeff Koons. It also sent notice to those outside the cryptoverse that nonfungible tokens would be a force with which to be reckoned. Sales of NFTs skyrocketed through 2021, and in late November, “NFT” was declared “word of the year” by dictionary publisher Collins.
Avalanche was another speedy smart contract network that shot into the top 10 in 2021. “Solana and Avalanche are the new stars” among DeFi multichains, declared CoinGecko, with 6% and 2% total value locked (TVL), respectively, in the third quarter. (Avalanche hosts the Aave DeFi protocol.) Those TVL gains came at the expense of Ethereum, which held virtually all DeFi TVL at the year’s beginning (99%). Its share was 76% at the end of the third quarter by comparison.Avalanche’s native currency, AVAX, is ranked 10th in market value in late December at $27.3 billion, which is buoyed arguably by its deal with Deloitte to support the consulting firm’s work with the U.S.’s Federal Emergency Management Agency.
In 2021, Sam Bankman-Fried was declared “the richest person in crypto” largely on the strength of his ownership stake in FTX, the cryptocurrency derivatives exchange, which he founded in 2019. By the end of 2021, FTX had become the second-largest crypto derivatives exchange, according to CoinGecko, trailing only Binance (Futures). Messari called FTX “the fastest-growing company of all time,” noting that Bankman-Fried had built a $25-billion enterprise in less than three years with fewer than 100 employees.FTX closed a $900-million funding round in July that valued the exchange at $18 billion, up from $1.2 billion earlier, with participation from SoftBank, Sequoia Capital, Coinbase Ventures, Multicoin, VanEck and the Paul Tudor Jones family, among others. In June, FTX acquired the long-term naming rights to the Miami Heat’s NBA basketball arena.
The NFT phenomenon has been a boon for digital artists who can sell their works without agents and physical art galleries, but they still need digital marketplaces. OpenSea, a first mover in the NFT art sector and the leading marketplace, emerged as one of the year’s biggest winners. OpenSea takes a relatively modest 2.5% commission for each sale on its platform, but this yielded a substantial $79 million in revenue in August, its peak month in 2021, according to Cointelegraph consulting. Through part of November, revenues exceeded $235 million YTD. Come December, not much had changed: “The world’s dominant NFT marketplace is raking in cash hand over fist,” said Messari.
A barrier of sorts was surmounted in mid-October with the launch of the first Bitcoin exchange-traded fund (ETF) sanctioned by the United States Securities and Exchange Commission. The ProShares Bitcoin Strategy ETF (BITO) made a dramatic debut on the New York Stock Exchange as the second-most heavily traded opening-day fund on record, with some calling it “a watershed moment for the crypto industry.”Its launch ended eight years of futility on the part of U.S. fund issuers — a Winkelvoss ETF was the first to be rejected by the SEC back in 2013 — but some were nevertheless disappointed that the breakthrough fund was a futures-based ETF and didn’t track the price of Bitcoin (BTC) directly. The SEC apparently preferred to have two layers of regulatory protection — i.e., supervision by both the Commodity Futures Trading Commission and the SEC — and this was further confirmed several weeks later when the SEC rejected VanEck’s application for a spot-market ETF.
Losers in 2021
China controlled two-thirds (67%) of the world’s crypto mining production as recently as September 2020, but in May, it banned mining operations for reasons no one really knows, but it perhaps was related to a need to protect its own central bank digital currency (CBDC), which appears close to its full roll-out. In any event, Bitcoin’s hash rate immediately dropped 50%, which roiled markets for a bit. Other nations quickly picked up the mining slack, however, including the U.S., Kazakhstan, Russia and Canada. In retrospect, many viewed China’s action as a gift to the West. “Today the [Bitcoin] network is more decentralized than ever and price has risen 50%,” said analyst Willy Woo.
Facebook’s Libra stablecoin venture (now Diem) was announced in 2019 with great fanfare and a blue-chip roster of partners, but the project was continuously delayed and its scope reduced. Today, one doesn’t hear too much about Diem except perhaps with regard to departures — e.g., Dante Disparte left for Circle, while more recently, David Marcus, head of cryptocurrency activities, said he would leave the company by year’s end. Facebook, rebranded as Meta, has been under fire from U.S. lawmakers for the “influence” it exerts over social media generally, and its stablecoin project, once slated to debut in early 2021, may have been collateral damage. There isn’t much clarity in any event. As The New York Times commented, “The Libra cryptocurrency was eventually rebranded Diem, while the company’s efforts at a crypto wallet were called Novi. The mishmash of names often has been confusing, even for company insiders.”
Central Bank of Nigeria
In February, the Central Bank of Nigeria ordered all its local banks to shut down the accounts of customers using cryptocurrencies. The CBN’s governor said most crypto accounts were being used to fund “illegitimate” activities such as money laundering and financing terrorism.Nigeria is expected to soon launch a central bank digital currency, like China, so perhaps the CBN was following China’s playbook of clearing away all competing crypto operations in anticipation of its CBDC roll-out. If so, its effort failed dismally. Not only did crypto survive, but by August, Nigeria had the world’s second-largest market for peer-to-peer Bitcoin trading.
There was a time when Virgil Griffith was something of a cause celebre in the crypto world. The former Ethereum developer and U.S. citizen traveled to North Korea in early 2019 to attend a cryptocurrency conference. In November of that year, he was arrested in Los Angelos for violating U.S. sanctions law. “I don’t think what Virgil did gave DRPK any kind of real help in doing anything bad. He delivered a presentation based on publicly available info about open-source software,” declared Ethereum co-founder Vitalik Buterin around that time.In September 2021, just before his criminal trial was to begin, Griffith “pleaded guilty to conspiring to violate U.S. law by traveling to North Korea to give a presentation on how to use blockchain technology to launder money and evade sanctions,” the Wall Street Journal reported. He could face up to six-and-a-half years in prison as part of the plea deal. It was unclear what caused him to change his plea.
Iron Finance (TITAN)
Maybe it’s not such a good idea collateralizing a stablecoin — e.g., IRON — with another stablecoin in USD Coin (USDC) and an obscure governance token (TITAN). In this case, the result was what was described as “the world’s first large-scale crypto bank run” — specifically, a run on the Iron Finance protocol. The result: TITAN plummeted from a price of more than $60 to a few thousandths of a cent within a few hours in late June. CipherTrace later said the incident was the result of a design flaw: “Iron.Finance lacked a proper stabilizing mechanism.” But in the meantime, a number of investors were burned, among them Dallas Mavericks owner Mark Cuban, who called for regulation to determine “what a stablecoin is and what collateralization is acceptable.” Iron Finance (ICE) was trading at around $0.002 on Dec. 20.