Bankchain Briefing: 2021 – a historic year for crypto

Crypto has had quite a year. The industry attracted a record $30 billion in investments last year – more than all previous years combined in the roughly 13-year history of cryptocurrencies.

Thanks to growing acceptance and investor confidence, crypto firms secured a number of record-breaking funding rounds. In July 2021, crypto exchange FTX received a $900 million injection, taking its total valuation to $18 billion. And just last month, Bitcoin servicing firm NYDIG raised $1 billion in a growth equity round that values it at over $7 billion, and is being termed as the largest funding round in crypto history.

Bitcoin and Ether, the top two cryptocurrencies by market cap, both reached all-time highs in 2021. The NFT market had also hit a record $17.7 billion in sales by the end of the year. Moreover, growing interest in the metaverse created a new wave of investment opportunities for crypto enthusiasts, and is likely to drive further investment in the space.

Since 2021 was such a big year for crypto, I decided to kick off our inaugural briefing by taking you through some of our most important and impactful crypto stories over the past year. Taken together, these stories signal a gradual transition toward greater institutional and consumer adoption of cryptocurrencies over the last 12 months.

Anchorage Digital Bank becomes the first federally chartered digital asset bank

In January 2021, Anchorage Digital Bank received the OCC's first national charter for a digital asset bank. The charter places Anchorage under the same regulatory framework as traditional banks in the US, and enables Anchorage to act as a custodian for other traditional banks that want to offer crypto.

“This is a major milestone, not only for us as an organization, but also for the crypto industry and the wider financial world. Crypto deserves a bank, and we are immensely proud of being approved as the one to set the standard,” wrote the company’s founders, Diogo Mónica and Nathan McCauley, in a post on Medium.

In late March, Visa announced it had partnered with Anchorage Digital and Crypto.com to settle a transaction in USDC on the Ethereum network. With this move, the payments giant marked an important first step to breaking the divide between traditional and digital currencies.

A leap of faith: Small businesses dip their toes into crypto

2021 was the year when small businesses like online stores, feeder insect sellers and cosmetic surgeons started accepting crypto payments. SMBs appreciate cryptocurrencies for instant, borderless payments, but their volatility makes them anxious. Experts believe that SMBs incorporating crypto payments would be better off using stablecoins, which aren’t as volatile as something like Bitcoin. But wait – what are stablecoins again?

WTF is stablecoin?

Stablecoin is a kind of cryptocurrency that’s tied to a reserve asset that helps stabilize its market value. Thanks to their inherent stability, stablecoins have real potential to seep into everyday financial services. They offer a lot of the same benefits as traditional crypto — transparency, security, fast transactions, low fees, and privacy — but they also offer stability, something that cryptos like Bitcoin can’t claim. 

For anyone looking to brush up on some basics, also check out WTF is DeFi? and WTF is an NFT?

Crypto is going mainstream — can it go green as well?

Although crypto use is booming, there are still a ton of unanswered questions about how its use impacts the environment. But just like alternatives to sugar come rushing in to cheer up newly conscientious dieters, greener alternatives to crypto mining are starting to enter the picture.

With growing concerns around the environmental impact of Bitcoin mining, crypto exchange Gemini announced the launch of Gemini Green, a long-term initiative to help decarbonize Bitcoin and incorporate climate-conscious practices into the firm’s activities. Gemini purchased carbon credits worth $4 million to prevent over 340,000 metric tons of carbon from entering the atmosphere. The firm claims the resulting reduction in emissions equals nearly a billion miles driven by a typical passenger car.

‘Crypto will be the future of banking’: Abra’s Bill Barhydt

When you talk to Bill Barhydt about his days at Netscape, you can’t help but feel that he’s reliving that excitement today — with cryptocurrencies. He’s the founder and CEO at Abra, a crypto wealth management platform that includes a brokerage, high yield investments, and a cryptocurrency lending service.

Bill joined us on the Tearsheet Podcast to discuss how crypto companies are scaling faster than the .com companies of the 1990s. He also discussed the evolution of crypto and how the old school banking world and digital asset ecosystems are already working together.

Is the move to Ethereum 2.0 a watershed moment for crypto?

Ethereum 2.0, Eth2, or simply ‘Serenity’, refers to a series of upgrades to the current Ethereum network in order to make it more scalable, secure, and sustainable. These upgrades will move Ethereum from a Proof-of-Work to a Proof-of-Stake consensus mechanism. The transition is being touted as a game-changer not just for Ethereum, but for blockchain itself.

Beyond CryptoKitties and bragging rights: A look at the financial use cases of NFTs

NFTs have potential applications that extend far beyond digital art and sports memorabilia. Financial use cases for this technology could potentially include NFT-backed loans, insurance, investments, ownership of rights, and debt management.

In August 2021, Visa jumped onboard the NFT train, paying $150,000 in Ethereum for a CryptoPunk 7610 NFT — a female Punk with a mohawk, lipstick, and green-rimmed clown eyes. While the purchase is not a significant investment for the company, what could it mean for Visa and the NFT market?

‘There’s a two-sided integration going on between fiat and crypto’: How banks are gearing up to move into digital currencies

Recently, many banks in the US have started to dip their toes in the digital asset economy and offer crypto-related services. There are a number of use cases and crossover products emerging that link together the seemingly disparate worlds of traditional finance and crypto.

A recent example of this crossover is the launch of a crypto banking service by Vast Bank, an Oklahoma-based bank that became the first federally chartered institution in the country to allow its customers to buy, sell and manage cryptocurrencies alongside a traditional checking account. If successful, this may prompt other banks to launch similar services in the future.

A growing number of brick-and-mortar banks are also looking to offer crypto custodial accounts. While this may be seen as an encouraging development, it forces one to reflect on whether such institutional involvement contradicts the basic thesis of cryptocurrencies — with banks acting as custodians, is crypto’s decentralization under threat?

First-ever Bitcoin ETF BITO launches

ProShares debuted a first-of-its-kind Bitcoin ETF on the New York Stock Exchange, running with the ticker name BITO. The ETF doesn’t hold Bitcoin directly, but instead invests in the cryptocurrency’s futures.

For the first time, investors are able to invest in Bitcoin via an ETF, without having to buy the cryptocurrency on a crypto exchange. Crypto enthusiasts had been advocating for such an ETF for several years, with the SEC turning down several proposals before approving this latest one. 

How crypto firms are using Marqeta’s platform to build crypto spending and rewards products

Marqeta has announced new applications of its platform to support cryptocurrency payments and crypto-based rewards on debit and credit card spending. Coinbase, Fold, Shakepay and Bakkt are some of the firms using Marqeta’s platform to build card solutions around crypto spending and rewards.

Consumers may not get crypto, but they are still buying it

With almost 2 in 10 people in the US owning cryptocurrencies, their popularity continues to climb. But crypto knowledge seems to fall quite a bit behind crypto optimism. Only 4% of people in the US can pass a crypto literacy quiz.

If hybrid is the future of finance, Current aspires to be the key that unlocks it

The emerging concept of Hybrid Finance, or HyFi, refers to a mechanism that bridges the gap between traditional and decentralized finance. According to Trevor Marshall, CTO at Current, the DeFi space offers greater returns than traditional finance, and investors are eager to participate.

This week’s takeaway article

83% of millennial millionaires own cryptocurrencies – and they want to buy more in 2022 

Most millennial millionaires have the bulk of their wealth in crypto, and they’re planning to buy more this year, according to the CNBC Millionaire Survey.

83% of millennials with investable assets of $1 million or more own cryptocurrencies, according to the survey. More than half (53%) have at least 50% of their wealth in crypto, and nearly a third have at least three-quarters of their wealth in Bitcoin, Ether and other types of cryptocurrency.

Despite the recent price declines, millennial millionaires have no plans to dial back their crypto investing. About half (48%) plan to add to their holdings this year, while another 39% intend to maintain their current crypto levels. Only 6% plan to reduce their crypto investments over the next year.

The crypto holdings of millennial millionaires stand in stark contrast to those of older generations. Only 4% of Baby Boomers hold any cryptocurrency, and more than three-quarters of Gen X investors don’t own any crypto, according to the survey.

The results suggest that crypto is creating a generational divide in investing and wealth creation, and a new dilemma for wealth management firms. Most of the existing business of private banks, wealth management firms and advisors comes from older, wealthier clients who don’t want crypto and its associated risks in their portfolio. Yet their future relies on the next generation of clients, who are increasingly demanding crypto products and advice.

What we’re reading

• The rich get richer: Rethinking Bitcoin’s power as an inflation hedge (TechCrunch)
• NFT marketplace OpenSea valued at $13.3 billion in $300 million funding round (CoinDesk)
• Twitter users to Airbnb CEO: accepting crypto payments would be awesome (PYMNTS)
• Bored Ape Yacht Club NFT sales jump past $1 billion amid heightened interest from celebrity collectors (Insider)
• MoneyGram buys stake in crypto cash exchange Coinme (Finextra)
• Visa onboards first Solana project to its Fintech Fast Track program (CryptoSlate)
• 3 takeaways from the launch of China’s Digital Yuan wallet on Android and iOS (Finovate)
• In 2022, workers will be paid in Bitcoin and cryptocurrency (Forbes)
• Goldman Sachs says Bitcoin could reach $100,000 (Finextra)
• Coinbase took 53% market share of Bitcoin trading in the past 30 days (Crowdfund Insider)
• Kraken will double team, employ 5k to bring mainstream crypto products and tokens to market (Crowdfund Insider)
• SWIFT to explore tokenized assets, may expand network into digital asset market (Crowdfund Insider)