More than half (55%) of current Bitcoin owners made their first BTC investment in 2021.
A substantial portion of investors are completely new in the world of digital currencies; the world that witnessed enormous rallies and breathtaking crashes this year.
Let’s take a look at what the biggest lessons in the cryptocurrency space were in 2021.
Crypto Lesson 5: Retail Traders Have Power
Since its birth and the first impressive Bitcoin rally at the end of 2017, the crypto space has been known as the Wild West. An unregulated market with massive gains lured in thousands of retail investors but not institutional ones that needed a safer and more controlled environment.
Things changed at the end of 2020, when institutional money, corporate capital, and big investors shifted to crypto as a better store of value than any other assets in times of the pandemic and with growing inflation.
This meant not only recognition but also market manipulations. Big investors have the knowledge, tools, and, most important, enough capital to move the market in their direction.
Retailers were never capable of fighting the professionals. That is, until the very beginning of 2021, when a Reddit-based online community of investors united to form a critical force and “short squeeze” the Wall Street professionals.
Thousands of individual investors pumped the stock price of video store retailer GameStop (NYSE:GME) and brought Wall Street short-sellers into traps. The professional investors were left with heavy losses.
Although the iconic story happened on the stock market, it has a lot of similarities with the crypto space, where individual investors are still considered “dumb money” by big capital funds and their well-trained and equipped wealth managers. However, it turns out that the odds can be stacked against them as well when retailers unite.
Crypto Lesson 4: Free & Easy Comes With a Cost
Free and popular investing apps like Robinhood (NASDAQ:HOOD) brought finances to the masses, especially to younger generations of new investors.
Commission-free and easy-to-use, the Robinhood app came with the mission to “de-mystify finance for all”. It simplified and gamified trading, which brought relatively young and inexperienced users to make unlimited and daily trades – something that investment professionals warned should not be practiced without know-how.
In 2021 alone Robinhood attracted twice as many new users than within the 5 years before. But the consequences were not long in coming.
The app sparked massive outrages for failing to supervise its services like the customer identification program, for providing false and misleading information on a variety of critical issues, and for system shut-offs during severe market crashes leading to massive losses.
A 20-year-old college student even killed himself after his Robinhood account balance dropped to a negative $730,165 due to unsuccessful options trading that allows increasing investment gains but also magnifies losses.
Later in 2021 Robinhood received a historic $70 million fine from the Financial Industry Regulatory Authority (FINRA) for “system supervisory failures and significant harm suffered by millions of customers”.
The crypto space, in the meantime, got the lesson that nothing is what it seems; it’s not always a game. Investment products look simple but their complex nature does not disappear anywhere.
Related: Simple Risk Management Rules for Crypto Traders
Crypto Lesson 3: Players Get in Control
For years gamers have been the ideal audience: they spend massive amounts of money on in-game assets which never really belonged to them. Game developers were the ones to make a profit and control all the ownership rights.
Things started to change with blockchain, NFT and a decentralized play-to-earn working model, which revolutionized the multi-billion online gaming industry. Gamers got the right to truly own their in-game assets and earn crypto rewards for playing a game. Players got the real ability to trade in-game assets on marketplaces inside and outside the game.
Axie Infinity emerged as one of the largest play-to-earn gaming sensations of 2021. The game that allows users to breed, raise and trade tokenized digital pets (Axies) on the metaverse, skyrocketed by more than 2000% in a few months and even became the most traded NFT collection ever.
Hundreds of thousands of players stormed into the game, growing the Axies and trading them online. The phenomenon was particularly pronounced in emerging economies like the Philippines, where masses of players entered Axie Infinity and even managed to earn more from gaming than from their real-life jobs.
To be honest, the average minimum daily wage in the Philippines is around 540 Philippine pesos ($10), which is quite easy to beat in a play-to-earn game.
However, this doesn’t deny the tectonic shift that NFT games brought into the gaming industry and the mindset of players. Tokenized games created a new stream of revenue for gamers by giving ownership and in-game asset control into their hands.
Crypto Lesson 2: Influencers Are the New Fundamentals
Meme coins are not a joke anymore. What once appeared as pure exotic fun, became one of the most profiting crypto assets in 2021.
The iconic Dogecoin (DOGE) shot up by more than 14,700% since the first day of the year to set a record high in May. Its rival meme coin Shiba Inu (SHIB) soared even higher to over 58,000% during the same time. Despite that, SHIB continued the year with another 1025% rally in autumn.
The breathtaking surge was possible, in part, because of a single man: Elon Musk. The CEO of Tesla (NASDAQ:TSLA) and SpaceX regularly endorsed one or another meme coin on his tweets, causing their wild and immediate price swings.
An influencer with a 67 million follower base and highly reactive, speculative, and sentiment-driven cryptocurrency market created a powerful cocktail that turned into a meme coin phenomenon.
Dog coins topped into crypto Olympus; their market caps surpassed the ones of large companies. Brands started accepting meme coins as payments for merchandise worldwide, even reputable blockchain analytics included them in their crypto reports.
It became obvious: it’s not fundamentals that bring you sympathies and wild rides to the moon, it’s a single man from SpaceX.
Crypto Lesson 1: Centralization Hasn’t Gone Anywhere
More than a decade ago Bitcoin was born with the idea of becoming a new kind of money: completely digital, decentralized, and free from the control of central authorities or middlemen.
An open-source protocol was meant to be controlled by its users around the world. 12 years later, the reality turned out to be different.
Back in the late spring of 2021, the historical floods in China’s Sichuan province devastated numbers of Bitcoin mining farms and caused about 20% hashrate losses for Chinese Bitcoin miners.
At the time, the Sichuan region alone accumulated over 50% of Bitcoin’s total power. Bitcoin’s price dropped respectively to the yearly low of $29K.
Months later the country’s communist government initiated a crusade against all digital currencies except its own national digital currency issued by the central bank.
Bitcoin miners left China, hashpower concentration split and dispersed, restoring a bit healthier balance.
However, Bitcoin’s dependence on external big factors has not ended. Corporate and institutional whales flooded the crypto markets. All kinds of funds and companies bought Bitcoin to hedge their capital from inflation.
MicroStrategy alone acquired 122,478 Bitcoins, spending more than $3.1 billion. The company is the biggest corporate holder of Bitcoin, followed by Tesla (38.3K BTC), Galaxy Digital Holdings (14.9K), Square (8K), Coinbase (NASDAQ:COIN) (4.5K), and others.
Bitcoin’s supply is limited to 21 million BTC in total and almost 20% of existing coins are already lost forever. With the Bitcoin concentration being held in several big hands there exists the risk of its centralization.
Since it’s always the whales who control the market and create price patterns, for individual investors centralization simply means more vulnerable Bitcoin and higher chances of market manipulation.
Related: Central Bank Digital Currency (CBDC): What to Know
Why You Should Care
2021 has been a big year for the cryptocurrency space, especially in terms of adoption. However, the $2.3 trillion market is not as innocent as it might seem for newcomers. It is like any other financial market, coming with its own makers, shakers, and risks. Thus for any newcomer, it’s critical to see the picture of the cryptocurrency market as fully as possible.
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