By: Lou Grilli, Senior Innovation Strategist, PSCU
2021 had some big news headlines. From the dynamic political environment following the election and ongoing coverage of the COVID-19 pandemic to mental health awareness at the Olympics and civilians riding into space on private rockets, there were no shortage of topics in 2021. However, the most mentioned topic on Reddit last year was cryptocurrency. Dogecoin, a cryptocurrency most people hadn’t heard about before the year started, made the list of top Google searches by May. The world’s most well-known cryptocurrency, Bitcoin, started the year at $29,329 and reached its all-time peak (thus far) of $68,000 in November. While non-fungible tokens, or NFTs, have been in existence since 2017, it wasn’t until an NFT of Jack Dorsey’s first tweet sold for $2.9 million did people start asking, “What’s an NFT?”
Many aspects of cryptocurrency drove news cycles in 2021. Let’s take a look back at some of the most important.
Bitcoin Dominated the Cryptocurrencies Market and the News
Much of the valuation of cryptocurrency is driven purely off speculation and is often propelled by celebrity figures tweeting about their interest or investments in various crypto coins.
In February, Tesla CEO Elon Musk announced that the world’s leading electric vehicle manufacturer would start accepting Bitcoin as payment, driving one of the many spikes in the price of Bitcoin. Tesla also announced that it would invest $1.5 billion of its corporate cash holdings in Bitcoin, adding an air of legitimacy to the highly volatile currency. A reverse-course announcement in May caused a freefall in Bitcoin’s price, but when Tesla again changed its stance and announced that it would “most likely” restart accepting cryptocurrency, that drove the price of Bitcoin up 8% and took most other cryptocurrencies with it, including the Ethereum coin, which surged 11%.
Another major influencer had similar effects. Dogecoin saw its price jump 20% in four hours after billionaire and former Shark Tank personality Mark Cuban tweeted: “Doge is the one coin that people actually use for transactions.” Subsequent endorsements by Cuban and other celebrities have moved Dogecoin to become the sixth largest cryptocurrency.
Merchant acceptance of cryptocurrency remained somewhat elusive in 2021 due to the volatility of valuations and the expense and lag time for settlement of transactions. However, Nayib Bukele, the president of El Salvador – whose economy is heavily dependent on remittances – declared Bitcoin as “legal tender” and mandated merchant acceptance. Salvadorans are expected to save up to $400 million in commissions paid for remittance, presumably by having them occur using Bitcoin.
However, not every crypto coin became a success story in 2021. An anonymous developer launched a crypto token inspired by the wildly popular Netflix show Squid Game. It grabbed attention on social media and demand drove the price from its initial penny per token to $2,861 within a week. At that point, the developers pulled the plug on the coin and walked away with $3.3 million, leaving the Squid coin worthless.
Additionally, crypto exchanges, which process transactions and act as custodians of crypto holdings, have also gotten into the business of name recognition by paying top dollar to rename sports arenas and advertise with celebrities.
NFTs Became a “Thing”
Non-fungible tokens are similar to cryptocurrency in that they are managed on a blockchain and can have very volatile valuations, but instead represent ownership of a digital item such as an image, a sound file or a video. NFTs, which soared into crypto news and mainstream news with digital artwork selling for millions, are not limited to digital still works of art. In April, Edward Snowden sold a tokenized copy of a court decision on the NSA’s mass surveillance program. In September, the NBA began selling NFTs for “Top Shots,” rights to video clips of game highlights; the NFL followed suit with “NFL All Day” NFTs.
U.S. Banking Industry Begins to Embrace Cryptocurrency
2021 was also the year that several big names in the payments industry jumped into various aspects of cryptocurrencies. Visa triggered an NFT market rush after an NFT artwork purchase, while also announcing that it began accepting USD Coin, a stablecoin, as one of the 160 currencies it supports globally for settlement. Mastercard unveiled its program for issuing debit cards linked to a digital wallet issued by a crypto exchange, thereby enabling holders of cryptocurrency to spend their coins with any merchant that accepts a debit card.
Several of the biggest names in mobile/online banking partnered with a crypto exchange to offer their clients’ customers the ability to invest in cryptocurrency directly from within their banking apps. The first Bitcoin ETF was launched, enabling brokerage house investors to add bitcoin into their IRAs and grow earnings tax-free. Major banks, including BNY Mellon, Chase, Bank of America and Goldman Sachs, took advantage of letters issued by the Options Clearing Corporation (OCC), allowing their chartered financial institutions to offer crypto services. Five Star Bank and UNIFY Financial Credit Union became the first community bank and the first credit union, respectively, to adopt crypto services.
The number of people speculating in cryptocurrency will continue to grow, as more banks and credit unions enable their customers and members to do so from within the banking apps. While it is unlikely the U.S. will enact a cryptocurrency ban like China, closer regulation of exchanges to ensure transparency, as well as IRS reporting of profits made from speculative investing, are both highly likely.
Decentralized Financial Services (DeFi), which are banking services using crypto outside of the regulated banking industry, will grow. When fintechs start to adopt DeFi, such as adding a cryptocurrency-based “borrow” button in Venmo for example, the nearly $3 trillion in current global value of cryptocurrency can be put to work as collateral for loans.
In general, international remittances and cross-border payments are ripe for disruption by cryptocurrency, which does not abide by national borders. This is expected to take off over the next several years as more countries accept some form of cryptocurrency as legal tender.
Finally, the growth in valuations accompanied by sometimes wild fluctuations will continue in 2022. Only time will tell whether Bitcoin passes $100,000 or if Ether, the currency of the Ethereum network, will overtake Bitcoin in market cap, or if there will be some new coin that is better at merchant acceptance. In any case, digital assets, stablecoins, DeFi, NFTs and Bitcoin will continue to be in the news.
Lou Grilli is a senior innovation strategist at PSCU, tasked with building and shaping a superior payment and member experience capability for PSCU and its Owner credit unions. Lou is currently focused on real-time payments and cryptocurrency. Lou participates on the U.S. Faster Payments Council, and is named on a patent for the use of blockchain for loyalty programs. Lou holds an MBA from Duke, and a Master’s degree in Computer Engineering from the University of South Florida.