Will Digital Currencies Become Mainstream in 2021?

Digital currencies performed remarkably in 2020, thus laying the foundation for 2021. With major companies such as Facebook and PayPal establishing their own cryptocurrencies, could 2021 be the year for digital currencies?

Digital currencies have had their share of ups and downs, but they have always had the narrative of a strong future going forward. For example, Bitcoin, considered the pinnacle of cryptocurrencies, has been trading at an all-time high of $46,813Opens a new window . The need to digitize the economy and replace paper currency has been very critical, especially during COVID-19. 

Bitcoin has been garnering the most with a market cap of around $500 billion as per market estimatesOpens a new window . It has been trading at around $20,000Opens a new window , eclipsing its recent highs. Many financial institutions and national economies are developing newer regulations for broader adoption of Bitcoin and other digital currencies. There has also been wide speculation about stock market volatility and its impact on digital currencies. The central banks of various countries have been issuing CBDCs — the e-krona pilot project initiative launched by Sweden’s Central Bank is one such example. 

Blockchain plays an important role in the evolution of digital currencies and their integration and application in day-to-day operations. Most digital currencies are being powered by blockchain, and there are various new applications in the pipeline for 2021. Digital currencies such as Bitcoin have always been considered as a strong trading option and are also considered as a positive option when compared to gold and other equities. 

Cryptocurrencies such as Bitcoin and Ethereum have proved to be resilient, which has increased the interest of investors dramatically in recent times. The latest forecast has shown that both the currencies will reach highs, with Bitcoin predicted to be valued at $23,625 and Ethereum close to $700Opens a new window . The question is: could this rise lead to adaptability for digital currencies to sustain and survive in the coming period? 

The advantage of digital currencies is that institutional investors allow for its trading in larger volumes. Tesla’s $1.5 billion investment in bitcoinOpens a new window is an excellent example of this. Even when transacted by only a few trading partners, digital currencies can withstand it. Several potential and possible developments are planned for digital currencies introduced by NASDAQ or any other famous stock exchange, which will be a major boost and add to its value. Although individual investors’ trade figures have been low, institutions have been significantly weighing up for the first time. 

Digital currencies such as cryptocurrencies are considered to be game-changers for the whole financial system. There have been many positive trends in the form of ETF, Stablecoins, and increased demand for institutional investors’ interest. If the trend of extraordinary returns continues, it can be said that the future of digital currencies is secure and stable. Though there have been occasional hiccups on the way, the ability to bounce back strongly and regain momentum has been seen in digital currencies, especially Bitcoin.

Stablecoins are the Potential Lead Generators for Digital Currencies

Stablecoins are a form of digital token backed by a fiat currency and act as hedging instruments contrary to the downfall in the cryptocurrency indemnity prices. There have been a lot of positive indications benefitting stablecoins. Among the most influential have been the effect of the long-term instability of non-centralized tokens and the present leader of digital currencies, tether being on the verge of losing its top position. 

Though Tether is a widespread Stablecoin to achieve mainstream status, due to the exposed mounting pains it has suffered. Various stablecoins have already been launched and are making their way up to achieve dominance in the domain of digital currencies. There are over 200 stablecoins available such as Tether and Gemini Coin. Even a financial institution like JP Morgan introduced its own coin last year called JPM Coin. 

As per a blockchain research company CHAINALYSIS, only 1.3% of worldwide cryptocurrency transactions Opens a new window were carried out in the first quarter of 2019. But there have been speculations about the primary usage of Bitcoin, which is a positive sign of things to come.

Bitcoin — The Core Contributor for Digital Currency

Bitcoin is noted for being the first cryptocurrency in electronic cash payments tracked and verified through a secure network at a blockchain. The technology makes the Bitcoin application simpler as the transactions made are done using digital currency exchange. Transactions are the payments processed by the users, such as international payments to purchase services/goods, send or receive payments, etc. This shows that this is close to any other digital payment made on different applications such as Amazon, PayPal, and Paytm, where the money is spent virtually. 

Now, this brings us to the next question: How is the money converted to digital currency or a Bitcoin? 

There are virtual market places to purchase Bitcoins where a user can buy and stock digital coins ready in the wallet and the blockchain concept where every transaction is organized as a block, leaving the miners to resolve the block. Cryptocurrency transactions are predominantly in use because of the validation process that involves Proof of Work or Proof of Stake methods. 

Bitcoin being the major component of digital payments, the wallets of users are protected through a private key that secures the transactions performed. Due to easy and transparent and safe and secure digital transactions supported by cryptography, most of them are actively using cryptocurrencies and have thus brought the rise of Digital Currency in recent years. 

As per the Bitcoin Market Journal, users are actively transacting Bitcoin on a daily basis, extended to 1 million. Bitcoin reached a record high price of $41000 and more on January 8, 2021, fell to $30000Opens a new window , followed by a rise again. This shows how volatile Bitcoin has been in months. According to Deutsche Boerse, there have been more than $60 Million of Bitcoin trading volumes in the current year so far. 

The demand for Bitcoin depends on factors such as Governmental Decisions, Regulatory Approval, Low-Risk Trading, etc. There is also an interesting stat which states that only about 23% of central banksOpens a new window are permitted legally to allocate digital currencies.

Among the various cryptocurrencies introduced until now (5,392), the top ones as per market capitalization include Bitcoin, Ethereum, XRP, Litecoin, EOS, Binance Coin, and Tezos. Countries such as China have introduced digital currency activities through lotteries and draws where it offered about CNY 200. If not linked to the bank accounts of the winners, the digital money would vanish, which saw almost all the winners linking and using it. 

There have always been predictions of wild swings in digital currencies as it is decentralized and doesn’t have any monetary authority or policy. Analysts and research estimates forecast that this year the pricing might reach as high as $50,000Opens a new window , but there can also be a vice versa scenario. So, the bumpy ride of 2020 might continue in 2021 with highs and lows on a cyclical basis. Though the SEC has always rejected claims of cryptocurrencies, with the change of administration there might be acceptance of virtual assets. 

U.S. President Joe Biden is going to have his portfolio according to the expertise in the relevant sector. News is that he has a clear intention for Gary Gensler as the new incoming chairman of the United States Security and Exchange Commission. Gary Gensler is a professor teaching Blockchain and Cryptocurrency courses at MIT. Similarly, the former Prime Minister of Canada Stephen Harper has watched out for Bitcoin with the positive news in the form of Vote of Confidence for it. As of January 2021, cryptocurrency market capitalization is at $1.03 trillionOpens a new window . 

In conclusion

2020 was driven by the changes COVID-19 brought; one such major dependency was on digital payments, which ensure contactless purchases, banking, etc. In the same year, Facebook and Google made major strides, with Facebook launching its own digital currency Diem and Google announcing its big plans for digital currency. During this pandemic, the scale of online purchases rose double-fold. 

This led to digital payment companies like PayPal Holdings, Inc. to widen the scope of using cryptocurrency for its users. This quick adaptation to digital transactions made digital payments more powerful. Likewise, companies such as Overstock, Alternative Airlines, Subway, Shopify, etc., also supported cryptocurrency. This quick adaptation to digital transactions made digital payments more powerful in 2020. The demand for digital currency is certainly growing, and it is evident that digital currencies will become mainstream in 2021. 

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