The headlines that defined 2021 in crypto
Bitcoin once again outperforms the stock market
Bitcoin beats both the stock market and gold for the third year in a row – but the ride upwards has been highly volatile.In 2021, asset prices have surged while we have seen higher inflation than in several decades. Both bitcoin and the S&P 500 have performed very well in the inflationary environment of 2021. Bitcoin is up 73%, while the S&P 500 has increased 28%. Gold – the traditional inflation hedge – is down 7%. Although bitcoin has beaten the S&P 500 in 2021, it had a much more volatile year. Bitcoin has increasingly behaved like a risk-on asset, amplifying the most significant movements of the stock market. Therefore, if the stock market continues to increase in 2022, bitcoin will likely outperform. But if we see a red year for the stock market, bitcoin will likely underperform. 2022 prediction: Bitcoin will outperform the S&P 500 in 2022.
Bitcoin in 2021: A risk-on asset
Following the monetary and fiscal policies implemented after the outbreak of the COVID-19 pandemic, bitcoin has seen growing institutional adoption. However, throughout 2021, one trend was evident: Fear in the broad financial markets directly affected bitcoin’s performance. Spikes in the volatility index VIX have accompanied bitcoin sell-offs - suggesting that, as of now, institutional traders broadly view bitcoin as a risk-on asset. Therefore, be aware of stock market headwinds in the next year and their possible implications for bitcoin’s short-term price trajectory. 2022 prediction: BTC will remain closely linked to the VIX. Risk-on will prevail, shocks in tradfi -> Shocks in bitfi.
A year of rising inflation: The inflationistas were on to something?
Inflation has risen continuously throughout 2021 and topped out in November when we saw the largest 12-month CPI increase in 39 years. Most economists didn’t see the high inflation coming, as witnessed by the 1-year ahead consumer inflation expectations. With its 73% gain in the highly inflationary 2021, Bitcoin has proven itself to be an excellent inflation hedge. 2022 prediction: Inflation will continue to reach new highs in 2022.
Source: BLS, New York FED
Binance Coin the winner of 2021
Bitcoin may have beaten the stock market in 2021, but it has been left in the dust by other cryptocurrencies. Binance Coin (BNB) is the best performer of the three biggest cryptocurrencies by market cap, with a 1344% gain. The Binance Smart Chain ecosystem has seen massive growth in 2021, taking some market share from Ethereum. Although Ethereum has lost its indisputable position as the "one and only" smart contract platform, ETH has also crushed BTC in 2021 with its 455% gain. 2022 prediction: XRP and Cardano will fall out of the top 10 cryptocurrencies by market cap.
2021 – a year of altseason
2021 has been one long altcoin season, as most other cryptocurrencies have crushed bitcoin. The altseason is covered extensively in pt. 2 of this article series. The NFT and metaverse narratives have dominated the market this year, especially during the Autumn. The NFT craze has led to enormous gas fees on Ethereum, making the market increasingly focused on other layer-1 tokens. Most of the layer-1 tokens belong to the Mid Cap Index - the winner of 2021 with its 830% gain. 2022 prediction: The Small Cap Index will be the winner of 2022.
Source: NYDIG, Bletchleyindexes.com
2021 has been an emotional rollercoaster for crypto investors
The market started the year with extreme greed. After staying greedy for the first four months as bitcoin pushed through new all-time highs, market sentiment plummeted in May. The market stayed fearful throughout most of the summer as crypto assets struggled to regain the momentum from the spring rally. In August, the market suddenly became euphoric again, and it stayed in a greedy state during most of the Autumn. As usual, the greediness didn't last long, as the market finished the year in a fearful state. Just like it did in 2020, The Fear and Greed Index gave some great buying opportunities to thick-skinned crypto investors in 2021. 2022 prediction: The Fear and Greed Index will give investors some great “buy the dip” opportunities in 2022.
Source: Alternative.me, NYDIG
A year of stabilizing bitcoin spot volume
2021 started with massive spot volume as the crypto market was in the middle of a retail-driven rally. The spot volume stayed high during the spring but decreased over the summer. It has now stabilized on a considerably higher plateau than we saw during similar market conditions in 2020. The aggregated spot volume in 2021 was more than 4 times higher than in 2020. This is part 1 out of 5 in our year in review article series. URL pt 2URL pt 3URL pt 4URL pt 5
Source: NYDIG, Skew