Macro overview of the crypto economy 2021 | Upcoming Novum Insights DeFi report 2021

The year of 2021 began with the crypto market capitalization hitting $1 trillion. The crypto industry enjoyed the bull run during Q1 with Bitcoin, Elon Musk (and his tweets) and his meme coin DOGE. By the end of February the Bitcoin market cap exceeded $1 trillion. Tesla revealed that the company had bought $1.5 billion worth of Bitcoin and would accept BTC as payment. Marching into Q2 with a power move, the crypto market capitalization hit $2 trillion and Coinbase went public on NASDAQ in April. The crypto scene kept gaining traction at an escalating velocity, and the two dominant cryptocurrencies both hit their all time highs of $63k and $4.1k respectively. Then the crypto sell off began in mid-May. Below we chart price movements of major cryptocurrencies and traditional markets in the first half of the year.

Source: Novum Insights up to June 29

In the traditional markets, oil has performed well registering a 50% growth. This is propelled by the resurgence of the travel industry thanks to vaccination progress across Europe and North America. Major indices such as NASDAQ, S&P 500 and FTSE 100 all recorded a positive growth of 12.5%, 14%, and 9.48% respectively. In contrast, gold is down 6%. 

A parallel trend seen in both crypto and traditional markets is the popularity of meme assets. Designed as a joke after a famous shiba inu meme, DOGE coin skyrocketed 55x. Popular on Reddit as meme stocks, GME and AMC stocks have seen 11x and 25x growth respectively.

BTC’s gains since the beginning of the year had been wiped out in May and June. The contributing factors of this crypto sell off trend include: the energy consumption issue concerning crypto mining and Elon Musk’s capricious stance on BTC as payment for Tesla vehicles. There has also been increasing regulatory oversight on digital assets, crypto trading activities and Decentralized Finance(DeFi). The UK’s FCA banned the world’s biggest crypto exchange Binance from conducting regulated activities in the country. South Korea’s tax authorities stepped in to investigate tax evasion using crypto assets. China intensified its crackdown on the crypto industry, shutting down crypto mining operations in multiple regions.

ETH, the main driver of the DeFi boom, recorded a hyper growth of 300% between January and early May. Since then, ETH has  lost its value since the crypto market crash but is still up more than 2x compared to January 2021. 

While the mainstream media puts much of its spotlight on Elon Musk’s unpredictable view on Bitcoin and the price fluctuations following his tweets, there is something more important going on in the wider crypto space that deserves attention - Decentralized Finance.

In our upcoming report, we will take a deeper look into DeFi. 

Decentralized Finance, or DeFi in short, is a new financial infrastructure powered by blockchain technology that functions without any tightly controlled intermediaries such as banks, brokerage firms, and clearing houses. DeFi brings about a paradigm shift in the financial services industry posing a threat to legacy systems, from everyday banking, borrowing and lending, trading, engineering sophisticated financial instruments, to asset management, DeFi provides a wide spectrum of financial services, all without asking any central authority for permission. 

Accelerated by the Covid-19 pandemic, failures of leadership and wide-ranging political unrest, the faith in traditional institutions has been put to the test. In the finance sector, the distrust in Wall Street could be highlighted by the Gamestock saga. Digital native younger generations are increasingly turning to decentralized protocols to manage their funds.

There has been an astonishing growth of DeFi over the course of a year. The total value locked (TVL) in DeFi stands at $54 billion, up 140% YTD. During the height of the crypto frenzy before the market crash, TVL in DeFi exceeded $88 billion.

In our upcoming report, we look at the building blocks of DeFi that redefine how individuals interact with money and exchange value. We focus on trading and asset management activities in DeFi and introduce new concepts including automated market makers (AMM), yield farming, stablecoins, non-fungible tokens (NFTs), risk management tools and decentralized governance. We take deep dives into: SushiSwap, Polygon, Tether, MakerDAO and Synthetix. We also explore various blockchain networks that aim to make the current Ehtereum-dominated DeFi ecosystem more efficient. To wrap up, we present a “sensible” token classification, developed by the  Global Blockchain Convergence, which helps the crypto industry shape a clearer regulatory vision.

Stay tuned for more insights!