The last year was an explosive year for cryptocurrency—Bitcoin, the world’s most popular digital currency, reached a new all-time high of $19,857.03 at the close of November. But while traders and investors have much reason to celebrate the year, it’s also important to understand how the intricate world of cryptocurrencies, in general, will fare in the months ahead.
One critical aspect of the trade is how well investors cultivate their understanding of the technology that powers digital currencies. Having a blockchain guide for beginners can spell the difference between a smart investor and one who easily gets blinded by the hype.
An example is the programmed “halvening” back in May, designed to slash the supply of new Bitcoins coming into the market by half. The event occurs only every four years, yet the ripple effects in the interim can last long. This is why cryptocurrency HODLers should brace for technical changes and industry movements that could steer trading in a new direction.
With that, here are seven game changers in the cryptocurrency sector predicted in the coming year.
1. The rise of Bitcoin SV
Bitcoin Satoshi’s Vision or BSV was established in November 2018 after its split or fork from Bitcoin Cash (BCH), another coin split from the original Bitcoin. While the three share a somewhat similar name, BSV’s block size caps are at 2GB, compared with BTC’s 1MB and BCH’s 8MB. This allows BSV to support more transactions.
Apart from this stellar block size, BSV has also seen a remarkable performance this year, despite the global pandemic. Between March 2019 to March 2020, BSV saw a +147.50% increase in value, almost three times more than the value posted by BTC.
It had a great start, overcoming resistance at $100 and jumping to $441 in the first month of the year—a 400% price increase within ten days. It stands at $168.84 as of December 3, 2020.
BSV’s market cap is now at $3.5 billion, the eighth largest in the industry. Such remarkable feats are good indicators of long-term value, showing potential for BSV to make its mark in the crypto world next year.
2. It will ‘DeFi’ tradition
Decentralized Finance, known by the shorthand DeFi, will continue to break new ground in presenting an alternative to the centralized, government-controlled financial systems of centuries past. But this year will see even more “traditional” transactions (typically associated with banks and other lending institutions) taking place peer-to-peer or without the need for oversight from a centralized regulator.
“In theory, DeFi instruments can issue things like mortgages and insurance without needing to go through a bank. The contracts would be executed through codes. This reduces the cost of financial products and opens the financial system to many more users,” writes Ibrahim Alkurd, CEO of blockchain mining specialist New Mine.
DeFi operates on the premise that real-world physical assets, such as real estate, can be “tokenized” or given an equivalent digital value so that multiple fractions of these assets—in the form of tokens—can be traded on a cryptocurrency exchange.
When the COVID-19 pandemic forced governments to issue stay-at-home orders, people had no option to handle their personal finances other than through online or mobile banking. However, the continued rise of DeFi, will provide consumers with even more alternatives to managing their assets and, more importantly, growing their net worth in a digital space.
3. Ethereum 2.0 will be a game-changer
Ethereum (ETH) became the wild child of the year when its value soared in the last half of the year. The open-source blockchain is the bedrock of all decentralized applications (dApps) that ushered in the boom in DeFi. Developers, for example, can create smart contracts using the technology.
Now, with the multi-phased launch of Ethereum 2.0, also known as Eth2 or Serenity, many are bullish about the prospects of the upgrade finally enhancing its scalability, speed, and security and shifting from proof-of-work to proof-of-stake consensus mechanisms.
This means any user who wants to become a validator on the network will have to stake 32ETH. The risk of losing that stake, or part of it, over bad behavior within the community aims to keep validators responsible.
In recent years, network clogging has become a major concern for Ethereum 1.0, with its capacity to process only 30 transactions per second. The arrival of Eth2 should solve the problem of delays by handling 100,000 transactions per second. Meanwhile, security is also a top priority: the Ethereum Foundation recently assigned a cybersecurity team to look into possible problems with the upgrade.
4. Big Banks and Big Tech want a bigger slice of the crypto pie
From Wall Street to Silicon Valley, big names are jumping on the cryptocurrency bandwagon—and more institutional players are predicted to follow suit. Global investment bank JPMorgan, for example, has started issuing JPM Coin, the first digital currency backed by a US bank.
Meanwhile, financial technology giant PayPal now lets users buy Bitcoin for just $1. This allows them to trade right from their accounts, further democratizing access to cryptocurrency exchanges.
One of the most highly anticipated newcomers to the digital currency market is Facebook, which is scheduled to debut its cryptocurrency Libra (diem) in the early part of the year. With more than 2.7 billion users worldwide, the social media platform presents an opportunity for massive adoption.
5. Will bring in more transparency…
With greater interest from mainstream players comes the need for more reliable data. Investors will soon have a wider array of market data sources to choose from starting of the year.
One of the world’s most trusted financial data firms, S&P Dow Jones Indices, is getting ready to launch a global cryptocurrency indexing service with cryptocurrency data provider Lukka. The service aims to keep a closer eye on price movements and “promote more transparency in this nascent sector,” said Peter Roffman, who helms innovation and strategy at S&P DJI.
The partnership will offer customized indexing and benchmarking tools to help investors navigate their way in a “traditionally speculative” market. The venture joins other Wall Street crypto indices, such as Bloomberg Galaxy Crypto Index, which has been tracking data since 2018, and CryptoIndex CIX100, which uses artificial intelligence to analyze more than 3,000 coins based on 200+ factors.
6. More cybersecurity threats…
Because of growing interest from institutional investors, the more established cryptocurrency exchanges may see fewer cyber-attacks, thanks to enhancements to security protocols. But emerging segments of the crypto market, such as DeFi, will likely become a new target of cybercriminals.
Excitement over new dApps has caused some developers to overlook audits of their protocols, leaving the apps vulnerable to hackers who want to exploit smart contracts.
On the other hand, economic hardship from the COVID-19 pandemic may also prompt cybercriminals to turn to Bitcoin theft or fraud. According to an assessment of security specialist Kaspersky, law enforcers and criminal investigators will need to improve their ability to identify, track, and apprehend bad actors.
7. …and more regulation
While cryptocurrencies are borderless and decentralized, regulating digital assets still falls on the shoulders of individual governments. The good news for traders and investors is that governments have slowly taken a more favorable approach to oversee the disruptive sector.
Strategies vary by country, however. Germany, for example, now considers cryptocurrencies as legal financial instruments. But in the US, regulators are carefully setting guard rails in place to prevent less experienced investors from getting scammed or losing money in complicated investment instruments.
Unlike traditional financial systems that are monolithic, the landscape of cryptocurrency is varied, and the key players are evolving at a rapid pace. With every programming language developed and every upgrade of the blockchain affecting the ecosystem of trading, traders and investors need to stay ahead and be vigilant.