Digital assets started the year with a stampede of cash from
investors large and small. And Bitcoin and its kin were rarely out of the
spotlight since, with the language of crypto becoming firmly entrenched in the
investor lexicon.
Here is a look at some of the major trends that dominated
cryptocurrencies this year.
The original cryptocurrency held its crown as the biggest
and most well-known token - though not without a host of challengers biting at
its heels.
Bitcoin soared over 120 percent from January 1 to a
then-record of almost $65,000 in mid-April. Fuelling it was a tsunami of cash
from institutional investors, growing acceptance by major corporations such as
Tesla and Mastercard and an increasing embrace by Wall Street banks.
Spurring investor interest was Bitcoin's purported
inflation-proof qualities - it has a capped supply - as record-breaking
stimulus packages fuelled rising prices. The promise of quick gains amid
record-low interest rates, and easier access through fast-developing infrastructure,
also helped attract buyers.
Emblematic of Bitcoin's mainstream embrace was major US
exchange Coinbase's $86 billion listing in April, the biggest yet of a cryptocurrency
company.
"It's graduated into the sphere where it is traded by
the sort of people that are taking bets on treasuries and equities," said
Richard Galvin of crypto fund Digital Capital Asset Management.
Yet the token stayed volatile. It slumped 35 percent in May
before soaring to a new all-time high of $69,000 in November, as inflation
spiralled across Europe and the United States.
Prominent sceptics remain, with JPMorgan boss Jamie Dimon
calling it "worthless".
The rise of the memecoins
Even as Bitcoin remained the go-to for investors dipping
their toes into crypto, a panoply of new - some would say joke - tokens entered
the sector.
"Memecoins" - a loose collection of coins ranging
from Dogecoin and shiba inu to squid game that have their roots in web culture
- often have little practical use.
Dogecoin, launched in 2013 as a Bitcoin spinoff, soared over
12,000 percent to an all-time high in May before slumping almost 80 percent by
mid-December. Shiba inu, which references the same breed of Japanese canine as
Dogecoin, briefly muscled its way into the 10 largest digital currencies.
The memecoin phenomenon was linked to the "Wall Street
Bets" movement, where retail traders coordinated online to pile into
stocks such as GameStop Corp, squeezing hedge funds' short positions.
Many of the traders - often stuck at home with spare cash
during coronavirus lockdowns - turned to crypto, even as regulators voiced
warnings about volatility.
"It's all about the mobilisation of finance," said
Joseph Edwards, head of research at crypto broker Enigma Securities.
"While assets like DOGE and SHIB may in themselves be
purely speculative, the money coming into them is coming from an instinct of
'why shouldn't I earn on my money, savings?".
Regulation: The (large) elephant in the room
As money poured into crypto, regulators fretted over what
they saw as its potential to enable money laundering and threaten global
financial stability.
Long sceptical of crypto - a rebel technology invented to
undermine traditional finance - watchdogs called for more powers over the
sector, with some warning consumers over volatility.
With new rules looming, crypto markets were skittish to the
possible risk of a clampdown.
When Beijing placed curbs on crypto in May, Bitcoin tanked
almost 50 percent, dragging the wider market down with it.
"Regulatory risk is everything because those are the
rules of the road that people live by and die by in financial services,"
said Stephen Kelso, global head of markets at ITI Capital. "The regulators
are making good progress, they're catching up."
NFTs
As memecoin trading went viral, another formerly obscure
corner of the crypto complex also grabbed the limelight.
Non-fungible tokens (NFTs) - strings of code stored on the
blockchain digital ledger that represent unique ownership of artworks, videos
or even tweets - exploded in 2021.
In March, a digital artwork by US artist Beeple sold for
nearly $70 million at Christie's, among the three most expensive pieces by a
living artist sold at auction.
The sale heralded a stampede for NFTs. Sales in the
third-quarter hit $10.7 billion, up over eight-fold from the previous three
months. As volumes peaked in August, prices for some NFTs rose so quickly
speculators could "flip" them for profit in days, or even hours.
Soaring crypto prices that spawned a new cohort of
crypto-wealthy investors - as well as predictions for a future of online
virtual worlds where NFTs take centre stage - helped fuel the boom.
Cryptocurrencies and NFTs' popularity may also be linked to
a decline in social mobility, said John Egan, CEO of BNP Paribas-owned research
company L'Atelier, with younger people drawn to their potential for swift gains
as soaring prices put traditional assets like houses out of reach.
While some of the world's top brands, from Coca-Cola to
Burberry, have sold NFTs, still-patchy regulation meant larger investors
largely steered clear.
"I don't see a situation where licensed financial institutions are actively and aggressively trading (these) digital assets in the next three years," Egan said. © Reuters
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