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In 2017, we saw a considerable blockchain rally. Yet, this rally could only convince a small audience of mostly technical people. Many traditional media outlets continued to stigmatize the blockchain industry as the “Wild West” during the upcoming years.
However, this image has changed since the recent blockchain rally that started at the end of 2020 and continued into 2021. The most crucial difference from the previous rally is the increased institutional interest.
This article looks at four elements that played a dominant role in fueling the current blockchain rally and compares them with the 2017 blockchain rally.
During the first quarter of 2021, we’ve seen a growing institutional interest in Bitcoin. While the Bitcoin’s price hovered around $30,000 on January 1, the price has reached an all-time high of over $61,000 during 2021’s first quarter.
Experts argue that institutional players are the driving factor behind this enormous price growth for Bitcoin. This assumption was confirmed by Michael Saylor, the CEO of MicroStrategy Inc., who featured breakout sessions on the future of Bitcoin and how corporations can best position themselves to capitalize on the digital token. Saylor shared with Bloomberg.com that 1,400 firms signed up for the session that covered Bitcoin’s legal considerations.
According to Saylor, Bitcoin’s growing institutional interest can be easily clarified. “If your company has money on its balance sheets and it’s sitting in fiat currencies like euros and dollars, they are losing about 15% of their purchasing power each year.”
Besides a growing interest in Bitcoin, many institutional players like PayPal, Tesla, Square, Morgan Stanley, Goldman Sachs, and Mastercard have invested in Bitcoin or launched crypto-related products.
On February 10, 2021, Mastercard released a blog explaining why they will bring crypto onto their payment network.
“Digital assets are becoming a more important part of the payments world. We are seeing this fact play out on the Mastercard network, with people using cards to buy crypto assets, especially during Bitcoin's recent surge in value. We are also seeing users increasingly take advantage of crypto cards to access these assets and convert them to traditional currencies for spending.”
Mastercard’s philosophy on cryptocurrencies is straightforward: It’s about choice. They don’t want to encourage their users to start using cryptocurrencies, but they want to give them the choice to move to digital currencies.
Consequently, seeing major players like PayPal, Tesla, and Mastercard embrace digital currencies gave a significant confidence and trust boost to the blockchain industry.
Every new industry has to become mature. But how long will it take for the crypto industry?
The crypto industry has been referred to as the “Wild West” for many years. However, this stigma isn’t exactly true anymore. We’ve seen a wave of professionalization hit the blockchain industry.
When institutional players moved in, the blockchain industry had to evolve. It’s a logical step forward as we deal with even larger sums of money, better quality standards, and higher security standards.
For instance, staking services have been one of the most favored financial instruments in the crypto industry. Users can stake tokens with a validator that secures a Proof of Stake network. In return, stakers receive rewards for locking their tokens with a validator. In their hay days, everyone could run validator nodes. However, hobbyists often ran these validator nodes, which were dealing with tokens worth millions.
Luckily, the validator industry has changed drastically. We now find companies running high-quality validator services supporting multiple Proof of Stake networks. Users and companies can pledge any amount of tokens via a simple web interface, and the staking business will take care of all the staking requirements. In the early days, staking was quite tricky as each network had different requirements and different staking methods. It was quite a challenge to maximize your earnings. All these requirements and calculations have been optimized and simplified by staking services like Chorus One, Figment, Stake Capital, or Stake.Fish.
Not only staking services have professionalized, but also peripheral tools like exchanges, crypto wallets (software and hardware), and transaction explorers. On top of that, more companies make a living by offering blockchain consultancy services like blockchain development, smart contract auditing, or tokenomic design.
Many blockchain companies have formed partnerships with traditional companies. It creates a win-win situation for both companies. On the one hand, a partnership with a traditional company improves a blockchain company’s image. On the other hand, a traditional company shows it’s trying to innovate, which puts pressure on their competition.
A great example here is traditional banks. Several banks have formed partnerships with crypto companies offering custody services or even launching a digital exchange to provide customers with a gateway from fiat money to digital currencies. Therefore, many traditional banks are facing pressure to evolve and embrace digital assets. As you can see, these types of partnerships put pressure on competition which accelerates the whole adoption process of new industries such as banking.
In short, we see traditional companies form partnerships with blockchain companies to bridge services and put pressure on their competition. In the case of the Google Cloud partnership, they offer Chainlink developers an easier way to access cloud data from public blockchains and Chainlink’s oracles. It’s an excellent move to adopt blockchain developers to Google Cloud technologies by being the first to offer blockchain-focused cloud tooling.
A study by Crypto.com estimates that the total number of cryptocurrency users has reached 106 million by the end of February 2021. This number is a 16% increase compared to December 2020. Crypto.com has calculated this number based on on-chain metrics, survey analysis, and internal data. But what has fueled this adoption growth?
We’ve already mentioned the increased interest of institutions. As a side effect of this growing interest, traditional media started covering these institutions. This created an avalanche effect where traditional media picked up crypto news while simultaneously social media exploded with crypto-related stories.
Influencers like Elon Musk praised digital currencies like Dogecoin, making it one of the most popular digital currencies on traditional media. Even Belgium’s national broadcaster did a full feature on Dogecoin’s price growth. Combine this renewed media interest with better tooling for new users, and you get a significant adoption boost.
Institutions have realized the potential of blockchain technology and how it can revolutionize many industries. Especially banks and financial players understood their need to evolve, and this has put pressure on their competitors. They understood the opportunities that will emerge from the blockchain industry. For instance, banks realized the potential of servicing participants in the virtual asset industry. In the US, J.P. Morgan has extended banking services to cryptocurrency exchanges Coinbase and Gemini.
For the current blockchain rally, institutional investors are the gateway to mass adoption. The crypto industry needs the support of institutional investors to grow and build credibility. In short, the more institutional investors explore the opportunities of the blockchain industry, the wider are the masses that follow.
When we compare this to the 2017s rally, it was a purely speculative rally. Of course, price speculation still plays a vital role in today’s rally, but it’s different from the previous one. We have many major players that commit long-term to the blockchain industry. This was not the case in 2017 because it was still considered a high-risk instrument.
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