Private finance is taking crypto mainstream

Last year was a turning point for cryptocurrencies. It turned blockchain from being a space for geeks into one where governments, institutions and retail traders now had a seat at the table. The 2021 GameStop story also played a major role in a change of perception.

Most interestingly, as Alex Shipp explains in an article for Cointelegraph, “cryptography and its primary feature, privacy, have been relegated from the front-and-center role they once played as cryptocurrency’s main attractions.” This has been replaced by the enticements of DeFi apps that offer “enhanced liquidity, yield farming and unprecedented economic models.”

Will 2021 be DeFi’s big year?

DeFI has become the Shangri-La of cryptocurrency it seems. Its allure is pervasive across the cryptocurrency landscape, with investors enchanted by its “double-digit APRs and seamless user experience,” which holds better long-term prospects for them than the “subtle, systemic benefits conferred by a privacy-centric exchange.”

Privacy is no longer the primary reason for entering the crypto space. Moreover, as the perceived benefits of DeFi grow, consumers are more than happy to make trade-offs to keep it growing. They really don’t want to forfeit these for the sake of privacy.

DeFi is the current Disruptor-in-chief within an already disruptive community. Now we can expect another to emerge – PriFi, or Private Finance. This, says Shipp, “brings privacy back on-stage by bringing it back on-chain — that is, into the Ethereum and Polkadot ecosystems — to integrate privacy into a robust network of rapidly evolving applications of decentralized finance.”

It’s significant because until now, “privacy solutions have remained siloed on standalone, privacy-oriented blockchains, isolated from the ever-expanding features of the DeFi landscape.” This ‘movement’ wants users to be able to have access to privacy without any trade-offs. Shipp says it could not have come at a more critical moment. Why?

The answer is GameStop. I won’t reprise the story, because I’m sure you know it. However, one critical factor is that after the hedge funds got caught over-leveraged in short positions, centralized companies, such as Robinhood, Charles Schwab, TD Ameritrade and others, restricted trading “thereby protecting the remaining capital of the exposed funds.”

This caused outrage amongst the retail investors, because these companies had essential hung them out to dry. What they learnt was, as Shipp says, “For retailers in 2021, that has meant awakening to a pair of sobering realizations: that centralized markets only remain free as long as they serve centralized powers and that surveillance is a primary supporting feature employed by such power structures.”

The trading restrictions placed on the retail traders highlighted the need for “a new line of emergent derivatives: fully private, on-chain synthetic assets whose values are securely pegged to traditional financial instruments — stocks, commodities, bonds, insurance products and more.”

The crypto space is opening up in ways the first enthusiasts probably never dreamt of, and while it may not suit purists, it is driven by the demands of the market. You could say everything has changed, and nothing has changed – depending on your perception.

Will the Year of the Ox be bullish?

This year the Chinese New Year is on 12th February and traditionally this event appears to coincide with a ‘Bitcoin dump’ and resulting price drop. However, analysts believe that this year will be quite different, simply because the “impact of retail traders in China has been reduced,” Coindesk reports.

Instead, in recent months, institutional investors in the USA and Europe have been the main drivers of the current bull run, whereas in 2017, Asian retail investors were the driving force.

According to Muyao Shen Chinese language social media platforms have been discussing the possibility that the bull run might have to pause over the New Year holidays, and concerns about Bitcoin have been reinforced by news showing that some Chinese miners sold their Bitcoin in January. There is speculation that this sell-off might have been prompted by the miners anticipating a bearish sentiment arising around the Year of the Ox festivities, as traditionally “Chinese traders tend to withdraw their crypto assets and cash out,” Alex Zuo, vice president of China-based crypto wallet Cobo, told CoinDesk.

The Chinese tradition of giving money to family and friends at New Year is well established. Felix Wang, managing director and partner of investment research firm Hedgeye Risk’s China business explained, “They need cash so they need to liquidate some of their financial holdings, and that could lead to a little bit of pressure in some of the financial markets.”

There is also a need for liquidity, as businesses, including over-the-counter service and crypto trading desks, are closed for a week. Data collected over the past two Chinese New Years shows that trading volume on Binance, Huobi and OKEx were down during the holiday period, and data from TradingView on Binance’s bitcoin/USDT pair shows “in each of the past three years, bitcoin’s price went down before the Chinese New Year.”

Significantly, whilst the Bitcoin price drop at the holiday time was 37.2% in 2018, in 2019 and 2020, it was only 8.3% and 10.5% respectively.

But, as this is the Year of the Ox, perhaps a more bullish sentiment will be sustained with the majority of Chinese traders and investors betting on a positive market trend and so holding on to their Bitcoin.

Bitcoin buying made easy

There have been some grumbles in the crypto media recently about the difficulties people are encountering when trying to buy Bitcoin. This excellent article by Bailey Reutzel summarises his problems, which is surprising considering he is a seasoned cryptocurrency owner who has been buying it for years. He found that at a number of exchanges he was locked out because of his New York location. In the end he went to PayPal, and after he’d discovered that you can’t buy Bitcoin from a PayPal business account, he set up a personal account and successfully completed a transaction.

PayPal entered the crypto market recently, making it easier for the regular Joe to buy BTC, and it appears to have paid off. According to Martin Young at Cointelegraph, “$242 million worth of digital assets changed hands on the platform during 11th Jan.” PayPal’s recent record was $129 million on 6th January. And, since 1st January, its daily volume has increased by 950%.

This is a moment to reflect on, because as Nuggets News’ Alex Saunders tweeted, “retail has arrived.” That is important for achieving mass adoption.

There is a downside to using PayPal the critics say, because PayPal is like a ‘gated community’ that doesn’t “support withdrawal functionality.” Twitter user Toomas Zobel suggested that the surge in PayPal volume maybe have resulted from retail capitulation, and that there was no way to see if this was a buy or sell volume. He remarked that retail buyers were probably rushing to realise profits when BTC hit $40,000.

However we should be mindful that the PayPal and crypto relationship is just beginning, and that it has plans to extend cryptocurrency services to its 26 million merchants in the coming months. Undoubtedly this will fuel further demand for cryptocurrency and for PayPal’s services. Above all, for the inexperienced crypto buyer, it is a far easier proposition to set up a PayPal account and buy crypto there than venture into the exchanges such as Binance and Coinbase. When you make buying crypto easier for those who have never invested in stocks, you open up the market to the mainstream: something that crypto has been waiting to happen for years. Let’s see if 2021 advances the buying and use of crypto even further.

Why this bull run is not a repeat of 2017

Do you remember the last months of 2017 in the cryptocurrency market? It was everywhere. Even the MSM started talking about it, although its journalists tended to get it all wrong. The ‘haters’ compared it to the Tulip Fever of the 1600s, and when Bitcoin crashed after reaching an ATH of $20,000, perhaps they felt vindicated.

It has taken three years for Bitcoin and the altcoins to retake their 2017 positions, and who would have guessed that it would happen at the same time as the world was mostly staying at home due to a rampaging virus. But that is what has happened, and in the last few days we have seen Bitcoin break through the $40,000 barrier to become ‘virtual gold’.

The question most cryptocurrency owners must be asking themselves is this: is this bull run the same as in 2017? Jeff Wilser has taken a look at it, starting by saying, “for some reason this bull run feels different – not as mainstream, not as talked about, not as Paris Hilton-y.” Dare I suggest this is because people are more hooked on Covid numbers right now?

As Wilser says, there are ways to measure a bull run by looking at the frequency of Google searches for ‘Bitcoin’, and expert market analyses. However, what he has done is take a qualitative approach, to see how it ‘feels’, particularly to those he calls the “OG Bitcoin HODLers.”

One example is Erik Finman, the ‘Teenage Bitcoin Millionaire’, who bought 100 Bitcoin in 2011 with money his grandmother had given him. He dropped out of school at 15 and set up a crypto payments company, Metal Pay. Oh yeah, he also launched a satellite with Taylor Swift. He has a theory about why this new cycle is going relatively unnoticed: “The cultural space that was once occupied by crypto is now gobbled up by politics (Trump) and the coronavirus pandemic.” What did I say earlier?

“[Donald] Trump gets more clicks than crypto,” says Finman. Exactly! He thinks the Biden presidency may change that. Not because he dislikes Biden, but because he believes Bitcoin may be more interesting. And, if Covid-19 becomes about as interesting as the common cold that too will make space for crypto. It’s worth noting that during the shocking scenes of rioting at the Capitol on 6th January, Bitcoin surged by 10%.

Erik Voorhees, the CEO of ShapeShift, takes another view on it. He says: “You see the bull and the bust cycles that repeat several times over the last decade, and you see that each time bitcoin “crashes” the new level is higher than the prior cycle.” So, why the quiet now? Because, “We’re not in the real bubble yet,” Voorhees claims. It needs to get more exciting before the media starts shouting.

Others, such as Jill Carlson of Slow Ventures, says that with 20% of US dollars printed in 2020, Bitcoin has become a hedge against inflation. That doesn’t have quite the same ring for retail buyers as ‘When Lambo!’

There’s less hype this time round, but surely that is a sign that the market is maturing, and those of us who have owned crypto for some time are less anxious about the inherent volatility, while still quietly excited to see where this bull run goes.