The year 2021 is quite remarkable in terms of crypto market evolution: we've seen the rise of many blockchains challenging Ethereum’s dominance, new all-time highs of several coins, the NFT craze, new milestones, and a step towards the actual mass adoption of cryptocurrencies.
CoinGecko released its quarterly reports highlighting these and other trends that are shaping the future of the market.
Here's a quick breakdown of the 7 most important features characterizing the current state of the industry. To understand where it's heading, you need to be aware of the following trends:
1. The Rise of Cryptocurrency Market Capitalization and the Beginning of the Altcoin Season
In April 2021, the value of the cryptocurrency market surpassed $2 trillion for the first time. The metric almost doubled in a short period of time, driven by the rising price of Ethereum and Bitcoin. Both coins renewed their all-time high price points, and the Bitcoin market cap was holding at the $1 trillion mark for one week.
BTC continues to dominate the market, taking 65.2%, but the metric fell by 5.7% on the previous quarter. The current trend is the rise of altcoins, and the market is entering the altcoin season. The main indicator of the altcoin-led market is the decrease in Bitcoin’s market cap against the overall market capitalization of other crypto assets, leading to a surge in the price of altcoins. Thus, it can be a great opportunity to diversify your altcoin portfolio.
2. Multiple Bitcoin All-Time Highs
In the first quarter of the year, BTC showed a 103% price return and renewed its all-time high price points several times. The major driving forces pushing Bitcoin to new milestones are:
- Bitcoin's listing on exchange-traded funds (ETFs), introducing additional investment tools to institutional and retail investors.
- Institutional investors entering the market and public companies buying BTC as an asset to hedge against inflation (public companies hold 0.95% of the total supply). Coinbase IPO and general acceptance of the crypto market.
- Visa, Mastercard, PayPal adopting cryptocurrencies and enabling crypto payments.
- Growing inflation. In the past 6 months, the central banking system of the U.S. printed two-thirds as much money as it has over the last 11 years.
These factors indicate a growing demand for Bitcoin, while the supply remains limited at 21 million tokens.
3. Growing DeFi Market Cap and the Rise of DEX Coins
The DeFi market cap has shown a 382% increase since the beginning of the year, setting a new all-time high at $95.7 billion. Total Value Locked (TVL) on Ethereum and Binance Smart Chain hit $72 billion.
The continued growth of DeFi in Q1 is correlated with a corresponding increase in other sectors within DeFi. During this period, the supply of stable coins on Ethereum almost doubled, the DEX volume increased 2.5 times, and the total value of outstanding loans increased 3 times.
Approximately 50% of the total DeFi market cap is held in DEX native tokens like UNI, SUSHI, CAKE. These three tokens showed substantial growth in Q1. For example, on January 1, the price of one CAKE was around $0.64, and at some point, the price rose to $44.18.
4. The Multi-chain Future of Crypto
The multi-chain paradigm continues to grow in popularity. As a result, projects are running away from the rising costs on the Ethereum network, exploring alternatives and a new audience.
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Projects like SushiSwap, Tether, bZx, and others are entering the Avalanche ecosystem.
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Many companies are preparing to launch on Polkadot.
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The Fantom ecosystem is growing and welcoming new platforms.
The multi-chain nature of a project is often seen as the future of blockchain technology. That's why projects that enable interoperability and free flow of liquidity within several blockchains will continue to grow and gain more users.
5. Binance Smart Chain Slowly Eating out the Ethereum Market
In Q1 of 2021, Binance Smart Chain (BSC) has become the second most active blockchain and increased its user base by 61%. The blockchain was peaking, which can be illustrated by many metrics:
- The number of unique active wallets grew by 50% month-on-month.
- The average number of daily unique active wallets reached 105,000.
- BNB, the network’s native token, became the third-largest cryptocurrency by market capitalization and set a new all-time high at $690.93.
The BSC ecosystem continues to evolve and expand, but dApp developers are still heavily focused on DeFi. This provides projects with many opportunities to find their niche - many have joined the network specifically for this purpose.
6. Development of Ethereum Scaling Solutions
The growing interest in DeFi and crypto, in general, has highlighted the well-known problems that Ethereum has been experiencing with scalability and network congestion.
Amid high demand, Gas fees increased by almost 400%. In response to the problem, Ethereum introduced Layer 2 solutions. Currently, there are four major scaling solutions: Optimism, Polygon, ZK Rollup, and xDAI.
- Projects like Uniswap and Synthetix have chosen Optimism.
- Popular NFT marketplaces like OpenSea and Decentraland migrated to Polygon.
- Balancer and Cuve are working on ZK Rollup solutions.
- xDAI attracts smaller projects.
Looking forward, a project must consider the technical characteristics of the Layer 2 solutions and services already present on it. Many projects may follow Uniswap and Synthetix to stay connected to bigger liquidity and larger projects.
7. NFT Market Boom
The market of non-fungible tokens (NFT) exploded at the beginning of 2021. The total NFT market cap reached $27.9 billion, amounting to 10% of global art market sales.
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The biggest percentage of NFT sales comes from collectibles and art like Cryptopunk, Hashmasks, Beeple.
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Sport is the second-largest category. Some of the popular projects are NBA Top Shot and Topps MLB.
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A big portion of sales pertains to NFT games like Axie Infinity, games built on Enjin and Ultra platforms.
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Metaverse sales account for 8% of overall NFT sales. A metaverse is an alternative digital reality where people can play, work and buy goods.
Interest in the NFT market won't be fading away any time soon. Famous musicians, artists, and athletes are joining the craze. In addition, people are selling NFTs for charity and reselling art for millions of dollars. The key here is that any project looking to stand out must have a unique offering or address NFT-related problems.
Closing Thoughts The beginning of the year saw the introduction of many changes in the market, bringing more users on-chain and the emergence of new blockchain use cases. However, most of the problems all users and dApp developers face have remained the same: scalability, interoperability, user experience, token price stability, etc. Considering the number of projects and new names popping up each month, the way for a company to break through is to address the issues all market actors are struggling with.