What I Got Right (and Wrong) about Crypto in 2020
At the beginning of 2020, I wrote my 15 crypto predictions for the year, and reflecting back, I got several things right (e.g., bitcoin investments from big global macro traders), but also had some big misses (e.g., the DeFi explosion). Before writing my predictions for 2021, here is a reflection on how I did for each of my 2020 predictions.
What I Got Right:
- The Global Macro Investors Come In
- Got this one spot on, as some of the all-time best macro traders announced bitcoin positions in 2020. This included Paul Tudor Jones calling his investment in bitcoin a hedge against “the great monetary inflation,” and Stanley Druckenmiller announcing an investment and saying, “if the gold bet works, the bitcoin bet will probably work better.”
- Traditional Asset Managers Continue to Trickle In
- Traditional asset managers continued to show strong interest in crypto, but most have not yet gotten off the sidelines. A prime example of this interest but lack of action phenomenon is from BlackRock, which is not yet allocating to bitcoin, but their Head of Global Asset Allocation, Rick Rieder, recently said about bitcoin "Do I think it will take the place of gold to a large extent? Yeah, I do.”
- Stats Get Stacked (and Earn Interest)
- As predicted, crypto holdings have increasingly migrated to places where they earn interest, such as BlockFi, Celsius, and Voyager, and holdings at these firms have skyrocketed. Demand for interest-bearing crypto accounts has also caused firms across the world, such as Luno in Africa and Zipmex in Asia, to offer interest-bearing accounts.
- I also predicted that earning crypto for retail activity would accelerate. This has been somewhat true, as Lolli continued to grow, and crypto-rewards credit cards such as Fold were launched.
- Lending Market Grows
- Crypto lending books grew exponentially across the industry in 2020 and Genesis, the industry’s flagship lender, had quarterly loan originations increase from $1.1bn in Q4’19 to $5.2bn in Q3’20.
- Emerging Market Adoption Continues to Grow
- Volumes on P2P and centralized platforms showed strong growth in emerging markets across Africa, Latin America, and Asia.
- Growth was particularly strong in Africa, with daily volumes on P2P platforms such as Paxful and LocalBitcoins doubling in 2020, and centralized platforms such as Luno and VALR also experiencing strong growth.
- Crypto Friendly Banks Scale
- Crypto friendly banks such as Signature and Silvergate grew impressively in 2020, with Silvergate Exchange Network quarterly volume increasing 4x from $10bn in Q4’19 to ~$40bn in Q3’20.
- Counterparty Risk Flares Up
- Counterparty risk flared up this year on several occasions, including Cred (which offered interest bearing crypto accounts) losing customer funds and declaring bankruptcy, and withdrawals from OKEx being suspended after the detention of the company’s founder.
- USD Stablecoin Market Cap and Volumes Accelerate
- I expected Tether to grow, and USDC to experience “huge” growth. Tether outperformed my expectations with supply growing from ~$6bn to ~$22bn, and USDC experienced huge growth, with supply growing from ~$500k to ~$3bn.
- CBDCs Remain Mostly Conceptual
- While the concept of CBDCs continues to generate a lot of noise, the only major CBDC launches in 2020 were pilots by the People’s Bank of China.
Partially Right, Partially Wrong:
- Bitcoin Derivatives Trading Grows, Altcoin Trading Shrinks
- Bitcoin futures volumes continued to grow, surpassing $400bn in several months, and bitcoin options gained steam with monthly volumes going from ~$1bn / month in 2019 to ~$6bn / month in Oct. 2020.
- Altcoins trading did not shrink, but rather had a huge resurgence in volumes largely thanks to decentralized exchanges such as Uniswap. The rise of DeFi and associated volumes was a big miss for 2020 (more on that below).
- Fewer Exchanges, More Brokerages
- While the pace of new centralized exchanges being launched did slow in 2020, there was an unexpected explosion of new decentralized exchanges.
- The brokerage model did continue to gain traction in 2020, as many new entrants emerged focusing on customer acquisition and sourcing their liquidity from existing venues and market makers.
- Use of Third-Party Custodians Increases
- I was correct in predicting that new crypto brokerages and exchanges would use best-in-class third party custodians such as BitGo; However, most existing exchanges continue to self-custody client assets – even as BitMEX and OKEx demonstrated the risks of this approach.
What I Got Wrong:
- DeFi - Impressive Innovation, Little Adoption
- Wow, I whiffed on this one big time. Fueled by the yield farming phenomenon, activity in DeFi accelerated much quicker than I expected in 2020.
- Realizing my error, I represented Jump in co-founding the DeFi Alliance and its Accelerate DeFi accelerator (both along with DRW Cumberland, CMT Digital, and Volt Capital), and we’ve now accelerated two cohorts of DeFi startups..
- International Stablecoins Grow
- As USD stablecoins experienced explosive growth, stablecoins for other major currencies failed to gain significant traction in 2020. At least for now, most stablecoin demand is for dollars and dollar-denominated trading.
- Automated Tax-Loss Harvesting Becomes Available
- Despite the significant tax savings available through tax-lost harvesting, no major platform launched an automated solution this year.
Overall, not too bad for crypto predictions – 9/15 right, 3/15 partially right, and 3/15 wrong. For my upcoming 2021 predictions, I am hoping to keep up that ratio, but with some bolder predictions.