Many crypto firsts achieved in 2021, say SA-based exchanges
For South African-based crypto-currency exchanges, 2021 has been a blockbuster year, with several milestones and records being reached.
Among the major highlights for 2021, the exchanges say this year cryptos became a multi-trillion-dollar asset as institutional investors increasingly embraced the digital currencies.
This year, Bitcoin – the world’s most popular crypto-currency – reached an all-time high price of $68 521 on 5 November.
At the time of writing, Bitcoin was trading at just over $51 000.
The exchanges see crypto-currencies continuing to gather momentum in 2022, although they are calling for the regulation of the sector for the digital assets to go mainstream.
Speaking to ITWeb, Richard de Sousa, CEO of AltCoinTrader, says: “In 2021, for the first time, we saw major institutions coming to crypto and actually buying crypto with institutional funds. We have never seen that at the scale we saw this year.”
In addition, he says, countries such as El Salvador adopted crypto-currency as legal tender this year − one of the biggest turning points in crypto mainstream adoption.
“We have also seen big players like PayPal embrace crypto-currency and allow millions of users to buy crypto-currency straight through the PayPal app. We have also seen Visa, Mastercard and major institutional banking players take a friendly approach, almost with the realisation that if they don’t get involved in the alternative financial system, they would miss out, and their businesses will become defunct if they don’t get onboard,” he says.
Brett Hope Robertson, lead investment analyst at crypto exchange Revix, notes 2021 was another year for the crypto record books, with the total market cap of the sector surging nearly 300% over the last 12 months.
According to Hope Robertson, Bitcoin is up an impressive enough 179% over the last year, but this pales alongside the rampage of altcoins such as Solana, Ethereum and Cardano.
The rise of smart contracts was another highlight to emerge from crypto-currencies during the year, he says.
Smart contracts are contracts written into computer code that are self-executing and require no human intervention – for example, the ability to borrow money at roughly 5% a year using crypto-currencies as collateral, he explains.
“While Ethereum is known as the biggest and most reputable smart contract crypto-currency, it was Solana that stole the limelight, with returns exceeding 10 000%. Now that is impressive when compared to Ethereum (595%) and Polkadot (430%),” Hope Robertson notes.
Speaking of institutional interest on cryptos, he points out that in November, Bitcoin’s most famous corporate backer, Michael Saylor of Microstrategy, announced his company had purchased another 7 002 BTC, bringing its total holdings up to 121 044 BTC (worth $6 billion).
“Some of the world’s largest fund managers have started to show interest in crypto-currencies, including the world’s largest investment house, Blackrock, as well as Morgan Stanley Investment Management and more than a dozen other fund managers.
“In October, the SEC [Securities Exchange Control] approved ProShares Bitcoin Strategy ETF, one of several futures-backed Bitcoin ETFs now either approved or under consideration.”
Hope Robertson points to the rise of gaming-focused cryptos and the metaverse as the other milestone. “A sector of cryptos that is fast gaining attention from the likes of Facebook and multiple institutions is that of the metaverse and gaming-focused coins. These crypto-currencies have given astonishing returns to their investors, with cryptos like Axie Infinity (21 000%), Decentraland (3 900%), and The Sandbox (11 900%).”
Says Farzam Ehsani, VALR co-founder and CEO: “2021 saw crypto-currencies become a trillion-dollar asset class at the beginning of the year and nearly hitting $3 trillion just last month.
“We saw the tremendous rise of decentralised finance and non-fungible tokens (NFTs), showcasing the tremendous possibilities that crypto offers. We also saw a surge in institutional interest from some of the largest investors of our time (Paul Tudor Jones, Stanley Druckenmiller and many others) to banks and corporates entering the space in size.”
However, Ehsani says sceptics remained, with the likes of Warren Buffet and Charlie Munger representing the divide that remains in the world with respect to this asset class.
“And of course, given this divide, the volatility of Bitcoin and crypto-currency remained extremely high.”
The passive route
On how South Africans are making use of cryptos, De Sousa says the single biggest trend in the South African market has been the ability to own passive income by holding on to crypto-currencies.
“We have seen exchanges rollout staking and earnings platforms. Crypto-currency has changed from a static asset to a dynamic asset that rewards you for holding crypto-currency. That, I believe, is the biggest single trend that we have witnessed in the South African market.
“Globally, we have also seen NFTs come out and we have also seen a lot of use cases for blockchain.”
Looking ahead to 2022, De Sousa believes crypto-currencies are going to defy the normal bull and bear cycles because of the fact there has been so much mainstream adoption, not only from the retail investor but from the institutional investor.
“This will allow crypto to have a lot of power to continue to perform well, as we see adoption growing day by day. So I am expecting a very bullish and a very positive year for 2022.”
For Hope Robertson, in SA, many customers want access to crypto-currencies as a hedge to their devaluing currency and the systemic risk a third world country can have on their financial stability.
He says many people are seeing crypto-currencies as a rand hedge as the assets are denominated in US dollars.
On 2022 prospects, Hope Robertson says: “This is anyone’s guess – normally, for this point in the crypto cycle, we would expect to see a sell-off in January and a coming bear market, but the new institutional want for crypto exposure, coupled with the fact that the halving cycle is having less and less of an effect on Bitcoin has changed things.”
He elaborates that this is due to the fact that fewer coins are being issued to miners every four years, and therefore the inflationary pressure on this asset becomes negligent over time.
“With these two factors, we could see Bitcoin and crypto-currencies, in general, decouple from their four-year cycle and move towards a traditional asset cycle of 10 years.
“We need the world of crypto and regulators to work together to find common ground where both can exist. This will allow institutions to get into a new asset class in a safe and regulated way. Once we get regulation right, mainstream adoption will be almost a given.”
Marius Reitz, general manager for Africa at Luno, says digital assets and crypto businesses showed massive growth and significant market cap gains, indicating maturity in the sector.
He notes Coinbase debuted in 2021 as the biggest digital asset listing in history, coming to market at twice the valuation of Nasdaq.
“This has been positive for the industry, increasing trust and transparency. Having a public company of this size showcases that crypto-related businesses – and the crypto asset class – should be taken seriously.”
In SA, he says, the buying of crypto as an asset still seems to be the most prevalent use case. “On Luno, the number of monthly active customers buying or selling crypto doubled from last year.
“We’re seeing customers hold their crypto for on average 10 months, compared to an average of just three months in 2017. This is perhaps an indication that we are in the early stages of moving away from pure speculation to some customers seeing longer term value.
“While we’re still in the asset phase, we are seeing slow but continuous growth, with crypto increasingly being used for payments.”
Reitz expects price volatility to continue in 2022. “At the same time, greater awareness of crypto and adoption through payment providers will bring the payments use case closer. With the increasing focus on crypto as an asset class, stablecoins are likely to be more broadly adopted.”