Cryptocurrency news continues to dominate the financial headlines in 2021 and there are no signs of that changing any time soon. With major announcements from investor and business magnate-celebrities like Elon Musk and others swaying the fortunes of digital currencies and their investors overnight, as well as new developments in the application of the underlying blockchain technology in the works all the time, cryptocurrencies will continue to shake up the financial and monetary policy world for some time to come. Below are 6 cryptocurrency developments to look out for in 2021.
The Rise of Crypto Banking
There is a growing demand from crypto holders and investors for cryptocurrency banking options, either from traditional banks or new entrants offering Bitcoin banking services. Surveys of major banks still show that the vast majority have no interest in offering crypto investments, all the while people indicate that there is an appetite for crypto banking services. While banking leaders are still sceptical of the sustainability of cryptocurrencies as an asset class, some smaller banks are beginning to offer digital asset custody services.
One of the overarching themes of cryptocurrency now and throughout 2021 will be its regulation and taxation by governments by a growing list of countries. While taxes on cryptocurrencies are not yet commonplace, they have been popping up in some of the more mature crypto markets around the world. This is due to governments viewing the revenue generation potential of digital currencies as being more attractive than the potential downsides and unknowns of the asset class.
There are varying tax rules around the world on cryptocurrencies. Germany, for instance, subjects Bitcoin to a capital gains tax of 25 percent, but only if any profits made are done so within one year of acquiring the BTC. Canada, the United States, Australia, New Zealand and the UK all also tax cryptocurrency capital gains. In the U.S., the IRS has ramped up its search for crypto tax evaders and has begun to subpoena the personal records of various exchanges over the past year.
Crypto Tax Havens
Because of the mounting tax pressure in the aforementioned countries, others will continue to try and position themselves as more “tax-friendly” to crypto investors. This role will be filled by countries that already have robust IT and energy infrastructure in place, including Singapore, Korea, Switzerland, Japan and others.
Expect this trend to increase in tandem with the growth in popularity of cryptocurrencies at both the institutional and retail levels. As more investors and companies see cryptocurrencies as a way of hedging currency risk and storing value during tumultuous economic times, governments will be drawn to them as sources of tax revenue, especially considering market caps that are now in the hundreds of billions of dollars.
Increased Environmental Concerns Surrounding Crypto Mining Operations
Crypto mining operations have come under increasing fire and scrutiny for their environmental impact, given the energy required to run the hardware that solves the complex blockchain algorithms day and night. The carbon footprint of these operations has been known for sometime, but perhaps the biggest shock to the crypto markets was when Elon Musk recently backtracked on his statement that Tesla would be accepting payment in Bitcoin (following his $1.5 billion investment) because of environmental concerns.
The statement resulted in a significant decrease in the price of BTC, and major news outlets around the world have been covering this downside of crypto mining with increasing frequency. Some studies show that crypto-mining could consume as much energy as all data centers globally. Expect more people and more news media to be discussing this, especially as advanced democracies around the world continue to discuss reorienting their economies towards sustainable forms of energy use and generation.
Better Risk Assessment Models
Because of the tremendous rise in the price of Bitcoin over the past year, there has been a growing need for better risk assessment models for all the altcoins out there. It is still quite difficult for investors to accurately assess the risks of many of these coins, and much of the price fluctuation still comes down to market sentiment and rush. Any services that can provide investors with reliable risk information with which to make investment decisions will be eagerly accepted and paid for by crypto enthusiasts.
Expect more of these risk assessment services cropping up throughout 2021 as analysts and experienced traders look to create more generalizable risk assessment metrics that investors can apply to all sorts of coins, from Bitcoin to the smallest alts. Better risk assessment models also tend to mean more accurate pricing as well as increased trust from both investors and government entities.
5G is the new standard for data transmission and its changes are still not fully appreciated by many people and investors. 5G has the potential to radically change high-volume crypto trading, especially when it is done by computers since 5G offers unprecedentedly low latency. 5G will also change how mines are built and how mining is done, the kinds of DeFi applications that will be developed, and a range of other technological paradigms.
Currently, the general rule observed by large crypto trading operations is that you must have your server as close to a crypto exchange as possible because wire length has a material impact on how fast you are able to place or retract an order. 5G promises to get rid of this barrier, giving all systems and investors a much more level playing field, even if they are not located right next door to the exchange.
Whether you are an investor trying to keep your finger on the pulse, a curious observer or are brand new to the cryptocurrency space, the market and industry are in flux and will remain that way throughout the rest of 2021. Above are some of the most seismic changes currently underway. They are ones that anyone interested in learning more about digital currencies or anticipating the markets would do well to keep in mind as the year progresses.