For the crypto industry, 2021 is a year of rapid development and that new rising thing iterate quickly; the Meme, NFT, GameFi, meta-universe, and DAO have just stopped in one wave, and the new wave such as ETH2, algorithmic stable coins, BSC, Axie, Layer2, Web3, has followed on; the high return on investment has given the crypto investment and financing life, and also brought about a more explicit regulation; the innovation in the crypto world has attracted great attention and enthusiasm from the capital world, and the digital currency has become an hot topic of economic development and strongly penetrated to the popular brands.
With the new market value, new areas, new policy trends and new groups entering the market, crypto assets are resonating with people like never before, and the AEX Academy will provide you with a better understanding of current crypto regulatory trends, market conditions and annual investment events in this article, followed by more professional industry analysis and interpretation in crypto segments.
1. Regulatory TrendsIn general, developing countries are trying to "shield" cryptocurrencies, while developed economies are strengthening their regulation of cryptocurrencies.
Global Cryptocurrency Regulation Tightens: 51 Countries and Regions Have Implemented BansWith the expansion and compliance of the crypto market. As of December 2021, there are 9 jurisdictions with absolute bans and 42 jurisdictions with implicit bans internationally, for a combined total of 51.
Countries and territories with absolute bans include: Algeria, Bangladesh, China, Egypt, Iraq, Morocco, Nepal, Qatar and Tunisia.
The countries and regions that published the implicit ban include: Kazakhstan, Tanzania, Cameroon, Turkey, Lebanon, Central African Republic, Democratic Republic of Congo, Indonesia, Bolivia and Nigeria. The so-called implicit ban refers to prohibiting financial institutions such as banks from trading cryptocurrencies or providing services to individuals or enterprises engaged in cryptocurrency business, and prohibiting cryptocurrency exchanges from operating in the jurisdiction.
Cryptocurrency Taxation, A Global Issue, Clear Implementation in South KoreaThe number of jurisdictions implementing taxation of cryptocurrencies, anti-money laundering and anti-terrorist financing regulations (AML/CFT laws) has also risen sharply in the world, from 33 jurisdictions in 2018 to 103 in November 2021; and most of them, including EU member states except Bulgaria, as well as the US, Canada, Russia and other countries have have all of the aforementioned regulations in place at the same time.
South Korea proposes that the cryptocurrency trading profit exceeds 7.5 million won, and the crypto asset trading profit shall be taxed at 20%. In September of this year, the relevant financial departments strengthened the supervision of cryptocurrency exchanges. All South Korean cryptocurrency exchanges must register with the financial sector before a specific time, provide an Internet security agency’s compliance certificate, and cooperate with banks to ensure the real name of the account. Unregistered exchanges will close their services after September 24 . This measure led to the closure of hundreds of South Korean cryptocurrency exchanges. However, as the first country to legalize cryptocurrency, the South Korean authorities stated that the original policy was to maintain the healthy and orderly development of the crypto market.
The US Congress proposed the "Infrastructure Investment and Employment Act", which clearly requires "brokers" to report transaction information of more than US$10,000 to the US Internal Revenue Service. There are views that the bill’s definition of “brokers” is “too broad and vague” and may impose these requirements on miners and wallet developers, not just cryptocurrency exchanges such as Coinbase. Some crypto-friendly senators tried to fix the problem and proposed new amendments, but they were eventually rejected. Currently, the bill has been signed by Biden and will be formally implemented in 2022.
The Her Majesty’s Revenue and Customs (HMRC) issued a cryptocurrency taxation guide on March 30, involving companies or companies that buy and sell exchange tokens, exchange tokens, mining, provide goods or services in exchange for transaction tokens All are responsible for paying taxes, which may include one or more of capital gains tax, corporate tax, company income tax receivable, income tax, national insurance premiums, stamp duty, and value-added tax. In addition, these enterprises or companies must report to HMRC through self-assessment tax returns or corporate tax returns every year.
On March 25, the Canada Revenue Agency (CRA) won the lawsuit against the cryptocurrency exchange - Coinsquare. According to a federal judge's order on March 19, Coinsquare must hand over detailed information about its Canadian customers, crypto trading activities, and identifying information to the Canada Revenue Agency. Coinsquare said it will disclose information about 5% to 10% of its 400,000 customers to the Agency. In the Court documents,only high-asset accounts will be required to be transferred. It is reported that CRA believes that data is needed to check whether taxpayers are fulfilling their encrypted tax obligation.
The South African Revenue Service (SARS) included some clear questions about cryptocurrency transactions in its new audit requirements in early February. Taxpayers need to clearly disclose their purpose of purchasing digital assets and related transaction time. SARS emphasized that it is a crime not to report bitcoin transactions or lying, and that people who do not comply with the regulations may be sentenced to up to two years in jail.
According to the official statement of the Russian State Duma, the Duma State Construction and Legislative Committee approved a bill on cryptocurrency taxation on February 15. As part of the draft bill, the Russian government officially recognized Bitcoin and other cryptocurrencies as private property, aiming to tax crypto transactions.
CBDC Moving Fast, El Salvador Treats Bitcoin as Fiat CurrencyCBDCs are digital currencies that are backed and issued by central banks. As cryptocurrencies become more popular, central banks around the world are spoiling for issuing CBDCs.
Currently, more than 90% of the world's economies are exploring central bank digital currencies. Of the world's four largest central banks (the Federal Reserve, European Central Bank, Bank of Japan and Bank of England), the Federal Reserve is the only one that has not committed to a digital currency testing program. Fourteen countries, including China and South Korea, are currently in the pilot phase of CBDCs and are preparing for a possible full launch.
Analysis of the Central Bank Digital Currency (CBDC) tracker, launched by the Atlantic Council's Center for Geoeconomics, shows that as of mid-December, 87 countries around the world (more than 90 percent of global GDP) were exploring CBDC, up from 35 in May 2020.
In 2021, China's digital RMB opened a wide range of pilots in Shenzhen, Suzhou, Chengdu and Shanghai, and has opened 140 million personal wallets and 10 million public wallets for digital RMB.
On March 31, 2021, the Eastern Caribbean Central Bank (ECCB) launched its central bank digital currency - DCash, thereby becoming the first monetary union central bank to issue a CBDC. and implemented Digital cash systems in the Caribbean, including the Bahamas, St. Kitts and Nevis, Antigua and Barbuda, St. Lucia and Grenada.
Nigeria launched e-Naira on October 25, 2021, becoming the first country outside the Caribbean to issue CBDCs and the first African country to officially launch a digital currency. Nigeria's inflation over the years has led to the devaluation of its currency, forcing its citizens to use alternatives to cryptocurrencies such as Bitcoin.
Saldova bitcoin bill went into effect (Sept. 7), making it the first country to declare bitcoin a legal tender. President Nayib Bukele said the volcano's energy could be harnessed to power BTC mining in the country, airdropping $30 in BTC to every adult in the country, and in late November announced the launch of Bitcoin City, a fully functional city built around bitcoin and initially funded by a $1 billion bitcoin bond.
2.Digital Currency TrendsCryptocurrency Market Value Hits Record High, Bitcoin's Share Drops SharplyOn Dec. 28, the total market value of cryptocurrency stood at $2,341.4 billion, up 1200.4% from $779.5 billion at the beginning of the year. On November 10, BTC reached an all-time peak of $68,366 per coin and the crypto market value exceeded $3,000 billion for the first time.
With the rise of a large number of nascent public chain ecosystems, Bitcoin's market value share dropped to 39.1% from 70% at the beginning of the year. After July 2018, Bitcoin fell below 50% for the first time, which prompted public chains such as SOL, DOT, ANAX and BNB (BSC) to enter the top 10 of the market cap chart.
But as a direct competitor to the public chain, Ether's market cap share has risen sharply this year, from 11% at the beginning of the year to 19.61% currently (Dec. 28).
Stable coin grows exponentially, opens multi-chain issuance mode
Overall, the stablecoin market grows exponentially in 2021, with more than $146 billion in U.S. dollar stablecoins. In contrast, at the end of 2020, it is only $29 billion, i.e. a staggering 400% increase in the whole year of 2021. In addition to Ethereum, public chains such as Binance Smart Chain (BSC) and Huobi Ecochain (HECO) have opened ecological stablecoin offerings.
As a bridge between fiat currency in and out, stablecoin has been an important medium for crypto enthusiasts to hedge and coin turnover, and USDT has occupied more than 90% of the stablecoin market cap share for a long time since 2017. However, all this is changing in 2021, with the impact of new stablecoins represented by USDC, BUSD, DAI, and HUSD, USDT's share of stablecoin market cap is significantly decreasing.
MEME Becomes New Market Favorite, Animal Series Develop QuicklyIn 2021, the Meme market likewise saw exponential growth, particularly in the dog-themed modal coin (Meme coin). As of December 2021, one of the most popular "breeds" is Dogecoin (DOGE) and its competitor Shiba Inu (SHIB). After a peak retracement DOGE is still up 3,966% for the year, tentatively at $0.1811, while SHIB, which was issued in early 2021, has increased 367,399%, peaking at over 1.2 million times; the high point is that they have both stormed into the top 10 of digital currency charts.
Meme is a cryptocurrency based on the Meme culture. It is relatively volatile compared to major cryptocurrencies such as Bitcoin (BTC) and Ethereum (ETH). This may be because Meme coins are heavily community-driven tokens, e.g., Dogecoin reached an all-time high of $0.6818 during the month when Musk shouted out crypto most.
MEME coins tend to have a feature of large or unlimited supply. For example, Shiba Inu (SHIB) has a total supply of 1,000 trillion tokens, while DOGE does not have a maximum supply, but also has over 100 billion tokens in circulation. Since MEME tokens generally have no destruction mechanism, the huge supply creates their relatively low price. You can usually buy millions of MEME tokens for $1.
DeFi Staking Hit Record Highs, Coin-for-Coin in Great DemandDeFi Locking Creates New High, the demand of Coin-for-coin Increasing
With the expansion of the crypto market, users with idle assets have increased significantly and the demand of coin-for-coin has increased. Established crypto asset users have made token locking in order to gain more revenue, with DeFi protocol lockings exceeding $2,526.4 billion, accounting for 10.7% share of the entire crypto market cap. Curve, Convex Finance, MakerDAO, and AAVE are a few of the DeFi protocols with the highest locking values.
From the view of public chains, ETH, Terra, BSC, Solana, and Avalanch are listed as the top five in terms of total lockups. Older public chains such as EOS and TRON underperformed.
Comparison of DeFi locking ranking at the beginning of January and the end of December 2021
Ethereum: Ethereum remains the most ecologically rich public chain in terms of projects. The value of TVL lockups has increased significantly, but the proportion is decreasing. The amount of money locked up on ETH grew from $23 billion at the beginning of 2021 to $157.3 billion at the end of the year, an increase of about 583.9%. The largest project in the ecology in terms of TVLs is Maker, accounting for more than 10%.
Terra: The TVL on the Terra chain has grown from $53 million at the beginning of the year to $18.7 billion now, up 351 times, making it the second largest public chain. Terra's on-chain ecological richness is not rich enough now, with only three protocols, Anchor, Lido and Astroport, accounting for 84% of the total TVL.
BSC: BSC and Solana became one of the most rapidly growing public chains in 2021. BSC started 2021 with a TVL of only $19.9 million and by December 28, it had reached $17.2 billion, an 863x increase for the year, constantly hitting new record highs.
Solana: The on-chain TVL grew from $140 million at the beginning of the year to about $12 billion at the end of the year, an 84-fold increase, with the top three projects, Raydium, Marinade, and Serum, currently.
Avalanch: TVL on the AAVAX chain rose 3,324 times from $3.6 million in February at the beginning of the year to $11.97 billion at the end of the year. Three of the agreements, Aave, Trader Joe and Benqi, contributed $3.15 billion, $2.12 billion and $1.6 billion of lock volume respectively, accounting for 57.4% of the total TVL.
Polygon: After MaticNetwork changed its name to Polygon, Polygon's on-chain TVL reached $5.58 billion at the end of the year, ranking 6th and narrowly surpassing the veteran public chain Tron.
Meanwhile, due to the significant growth of crypto users and market scale, a large number of cryptocurrency enthusiasts started to save coins for interest through centralized exchange vehicles in 2021. The head exchanges led by Huobi, AEX, Gate, and Binance have made efforts in the wealth management business, significantly reducing the threshold for earning coins. In AEX, for example, the accumulated investment amount of users exceeds $77.3 billion for the wealth management business module alone. Off-chain platforms such as centralized exchanges or wallets have become an important battleground for token value locking.
3.The investment and Financing of Crypto Field Is in Full SwingFor the crypto industry, 2021 is a year of rapid development and that new rising thing iterate quickly; the Meme, NFT, GameFi, meta-universe, and DAO have just stopped in one wave, and the new wave such as ETH2, algorithmic stable coins, BSC, Axie, Layer2, Web3, has followed on. The innovation in the crypto world has attracted great attention and enthusiasm from the capital world. JPMorgan Chase, Fidelity, UBS, VISA, Goldman Sachs, Facebook, Bank of America and other big Wall Street institutions and giants have been laying out in the cryptocurrency market one after another, and the crypto field is abnormally hot in terms of investment and financing.
Enterprises Join in Crypto Industry, Multiple traditional banks directly connect to cryptocurrenciesIn 2021, enterprises led by Tesla, Microstrategy, and PayPal have ventured into the crypto field.
On March 24, Tesla CEO, Elon Musk, tweeted, "Now you can buy a Tesla with Bitcoin." In May, Musk also expressed his love for dog coins, directly fueling the frenzy in the animal coin market.
On June 14, Microstrategy, the world's largest independent BI (Business Intelligence) company, announced that it had completed a $500 million junk bond (also known as high yield bonds) offering and would spend the proceeds to buy more bitcoin. The company also held a "Bitcoin Enterprise" summit to educate and encourage business leaders to buy bitcoin.
This year, many known companies have purchased bitcoin, including Square, which has allocated about 5% of its assets to bitcoin. Companies such as WeWork, Substack and AXA (insurance giant) began accepting bitcoin payments.
In 2021, many traditional banks or payment institutions around the world began to establish direct links with cryptocurrencies such as Bitcoin.
On March 9, payments giant, PayPal, added the ability to allow users to buy, sell and hold cryptocurrencies on the Venmo app after acquiring crypto-hosting company - Curv.
In late June, State Street, the world's second largest custodian bank, announced a new digital finance division and a partnership with crypto custodian Lukka to provide crypto services to private equity clients.
In late June, NYDIG partnered with Fiserv to launch a third-party crypto custody solution. enabling U.S. bank customers to purchase bitcoin directly.
In December, Brazil's Nubank raised $2.6 billion in the U.S. IPO, making it the largest bank in Latin America by market capitalization. This offering was led by Morgan Stanley, Goldman Sachs and Citigroup.
In addition, Goldman Sachs relaunched its crypto trading business in March; Morgan Stanley opened three funds offering bitcoin exposure to high-net-worth clients; and Spanish bank, BBVA, launched a crypto trading and custody service for its Swiss private banking clients.
The Single Investment Amount Has Increased SignificantlyAs of Dec. 20, the crypto industry has publicly disclosed 1,529 primary market funding rounds in 2021, up 252.3% year-over-year, for a total amount of approximately $32.6 billion, up 814.2% year-over-year (Odaily data). By specific track, the largest single investments by vertical are as follows.
In the mining market, Blockstream closed a $210 million funding round led by Baillie Gifford and iFinex, with a portion of the new funds to be used to explore clean energy mining methods such as solar.
In the public chain track, Solana received $314 million in new funding led by A16z and Polychain Capital, making it an emerging public chain with a fast-growing ecosystem in 2021.
In the wallet project, veteran hardware wallet, Ledger, closed a $380 million funding round at a valuation of $1.5 billion, allowing users to store and control their cryptocurrency private keys.
For the trading platform module, decentralized exchange-NYDIG-closed a $1 billion round led by WestCap, the largest single funding round in cryptocurrency history, and centralized exchange FTX received $900 million in Series B funding and has since received a $420 million capital injection in an additional Series B-1 round.
In the stablecoin market, USDC developer, Circle, closed a $440 million funding round and began pursuing an IPO in the form of a SPAC.
DeFi protocol. BitDAO closed a $230 million funding round co-led by Peter Thiel, Founders Fund, Pantera Capital and Dragonfly Capital.
NFT market. Dapper Labs, the manufacturing company behind the encryption, has received $305 million and $250 million in two funding rounds, for a combined total of $555 million.
In the Layer2 field, Arbitrum developer, OffchainLabs, closed a $120 million Series B round at a $1.2 billion valuation, and its mainnet went live in the second half of the year.
In the gaming market, Forte closed a $725 million round of funding led by Sea Capital and Kora Management, surpassing Sorare, the soccer game that received $680 million in investment.
For the social module, DeSo received a $200 million investment with participation from leading VCs including a16z and Sequoia Capital.
In the cross-chain sector, Multichain, a cross-chain protocol, closed a $60 million seed round with participation from Binance Labs, Sequoia China, IDG Capital, Three Arrows Capital and others.
In addition, Facebook officially announced its name change to Meta, investing resources toward the meta-universe market, and will integrate multiple social media and real-time communication platforms to create a new Meta platform. Coinbase Global, the largest cryptocurrency exchange in the U.S., listed on NASDAQ, becoming the first crypto company to list on a U.S. stock exchange. Regrettably, the Securities and Exchange Commission (SEC) denied VanEck's application to list the VanEck Bitcoin Spot ETF.
In 2021, not only are we seeing more and more VCs in the traditional space starting to lay out the crypto market, but we are also seeing many well-known traditional companies and popular brands making broader use of crypto assets. Taking Token NFT as an example, tech giants (Mega, Microsoft, Twitter, etc.), public media platforms (Time, CNN, Vogue, etc.), goods and big IP parties (Nike, L'Oreal, Coca-Cola, McDonald's, Disney, Sony, etc.), sports and cultural stars (Jay-Z, Whitney Houston, Pele, Curry, etc.), and political and business people (Jack Dorsey, Musk, Snowden, Melania Trump, etc.) have all purchased, distributed or laid out NFT.
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