As 2021 kicks off, the world still feels the impact of COVID-19 from 2020. In the economy, work or school from home, on vacation, and in special occasions — everyone has had to make adjustments to the new normal.

Not everything was in decline — a rising tide in the cryptocurrency market also came out of 2020. Bitcoin (in particular) is over $30K since its low point in March 2020. Is this THE breakthrough year in validation that crypto enthusiasts have been waiting for?

The combination of a struggling global economy, new fiscal stimulus policies, emerging regulatory efforts, and growing institutional support provide a perfect storm for cryptocurrency to gain prominence against traditional fiat currencies. Here’s what’s been stirring in the industry over the last few weeks and months:

XRP delisted on trading platforms following SEC's complaint

On Dec. 22, 2020, the Securities and Exchange Commission (SEC) announced a lawsuit against Ripple and two of its executives. The complaint accuses the crypto leader of a $1.3B unregistered offering with XRP sales (Ripple’s native coin). This same announcement references that was in fact a security and not cryptocurrency.

As a result, multiple exchanges and payments companies(such as Coinbase, Wirex, OKCoin) suspending trading of XRP at the start of the new year. If Ripple can no longer perform sales of its coin, the company may have to shut down by the end of the year. XRP, which is independent of Ripple, would still exist.

Crypto market surpasses $1t as Bitcoin hits $40K

With governments around the world focused on the lagging economy, relief efforts (such as stimulus payments and business loans) are spreading. This influx of cash is fuels the purchase of digital coins from experienced insiders (HODLers) and crypto newbies. Responding to FOMO (Fear of Missing Out), transaction volume continues to climb.

Opponents to Bitcoin only see speculation feeding the growing valuation — anticipating the bubble burst coming at anytime. Supporters see Bitcoin as a hedge against the inflating dollar, retaining its current value as the digital version of gold.

UK’s ban on crypto derivatives is live

UK’s Financial Conduct Authority’s (FCA) approved a ban on the sale of crypto derivatives and exchange-traded notes (ETNs) last October, which is in effect as of last week.  The regulator believes these products don’t fit well for the everyday retail investor, subjecting more financial harm than gain.

Crypto supporters see the new guidelines as benefiting institutional investors, who maintain access to this product. Similar to the opposition in the US, regulation would encourage retail users to use unregulated platforms (such as BitMEX) that can lack consumer protection measures.

Square CEO against FinCEN's proposed crypto rules

FinCEN (Financial Crimes Enforcement Network) is adding new requirements of companies to collect personal information of users making transfers (who aren’t registered with a platform or institution). This info includes names and physical addresses. The heightened security efforts are to help track unlawful activity from “malignant actors” or fraudsters.

Square (a regulated entity) publicly opposes the new measures as they add unnecessary complications for users and can ultimately push transaction activity to non-custodial wallets on platforms outside of government oversight. The company purchased $50M of bitcoin in October 2020 and sees FinCEN’s efforts as having the opposite effect. This balancing act between compliance and user experience is now front and center for cryptocurrency — more announcements anticipated.

OCC regulator announces new cryptocurrency guidelines

At the tail end of 2020, the OCC (Office of the Comptroller of Currency) published Interpretive Letter 1174. This document explained in detail how banks can use the latest innovation, such as independent node verification networks (INVNs) and stablecoins, for payments. Financial institutions can leverage stablecoins (like USDT) for issuance and exchange (between fiat and crypto) towards customer payments. Additional functionality allowed includes validation, storage, and payment records through a blockchain node.

Brian Brooks (who leads the OCC) was very vocal last year in his efforts to be more inclusive of the latest tech that represents the future of payments. Bringing crypto frameworks within bank networks provides the OCC with capabilities to better protect consumers in the future.

JPMorgan SEES Bitcoin on pace to $146K long term

With the end of year rise in crypto markets, companies of all sizes are bullish on the sector and its long-term growth. Key individual supporters have been outspoken in the belief of Bitcoin exceeding $100K, but not many institutions were as supportive. JPMorgan Chase, one of the largest US banks, has stayed consistent in its support and investment in blockchain and crypto as the future of payments and transfers.

Strategists at JPMorgan don’t see the $146K mark taking place this year, but the combination of market volatility against gold may continue the wave of institutional investment in Bitcoin.

What’s next for cryptocurrency this year?

Expect a regulatory hurricane coming for cryptocurrency in 2021 — we’ve seen the OCC, SEC, and FinCEN all take action and get involved. There are other agencies and groups (such as the IRS) that can still make their presence felt, impacting consumers and the platforms that serve them. The critical component that the industry awaits here is how the different regulators in the US interact with one another’s guidelines — will there be a unified regulatory vision in the US?

The recent rise in valuations has everyone asking important questions: when will the bubble burst? OR will will there be a downward adjustment in crypto valuation? The response is tied to two key areas of concern: regulatory environment (covered above) and the economic climate (linked to the pandemic). Both environments are in flux this year, particularly pending on the successful containment or potential resurgence of COVID. What we do know is that these next two months will set the tone for the rest of the year in the financial services industry and global economy.

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