Where is cryptocurrency heading?

Bitcoin, as of December 2020, has experienced a steady rise to reach new all-time highs, breaking through $20,000 per BTC, but it was not always so steady.

To get a sense of just how troubling the market had been, just look to 2018: Heading into 2018, Bitcoin traded for close to $13,500 after reaching an all-time high of $19,783.06 in December of 2017. It subsequently dropped as low as $3,400, a loss of about three-quarters of its value—and other digital currencies weren't faring much better at the time. Ethereum (ETH), for example, fell from an early-year high of $1,300 to just $91 by December 2018 before rallying back to over $450 by the end of 2020.

Cryptocurrencies like Bitcoin and Ethereum have indeed proven resilient. Investor interest, both retail and institutional, in digital currencies has risen dramatically in recent months. Many early investors who were eager to make gains from the "cryptocurrency craze" have since moved on to other ventures, leaving a smaller group of stalwart HODL-ers behind. But there are still reasons to believe that the cryptocurrency industry has some fight in it left.

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Investors are again asking: how high digital coins could fly? And Bitcoin indeed has risen back to all-time highs as of December 2020, reaching over $23,625 and Ethereum to nearly $700. Now, looking into the end of 2020 into 2021, the better question might be how this space will adapt in order to survive.

Institutional Investors Get in the Game

Although trade figures for individual investors are down in many cases, institutions are climbing on board in a significant way for the first time. Institutional investors allow for significantly larger trading volumes than most individual investors, meaning that even if fewer trading partners are transacting in the digital currency space, the industry can still sustain itself.

There are several potential developments projected to take place in 2020 and 2021 that could significantly impact institutional participation in the digital currency market. If crypto is floated on the Nasdaq or a similar exchange, for example, it will immediately get a boost in reputation—and likely, value.

The Elusive Bitcoin ETF

For years, crypto enthusiasts have pined for a digital currency ETF available to mainstream investors in the U.S. The U.S. Securities and Exchange Commission (SEC) has repeatedly rejected or delayed Bitcoin ETF applications to be decided upon at a future date. One of the most talked-about funds, by provider VanEck, has seen its final approval decision pushed back again and again.

Some analysts believe that the approval of a mainstream Bitcoin ETF could provide a significant jolt to the digital currency world, opening up the industry to investors eager to participate without some of the risks associated with buying and selling tokens directly. As of now, though, the future of VanEck's fund remains to be seen.

Stablecoins Take the Lead

Stablecoins are digital tokens that are pegged to a fiat currency that act as hedging mechanisms against the potential decline of underlying cryptocurrency collateral prices—and they may just be the industry's best hope going into 2021.

Stablecoins may see growth next year for two reasons: one, a result of the long-term instability of non-centralized tokens; and two, the current leader in the stablecoin industry, tether, is positioned to be dethroned.

As one of the earliest stablecoins to reach the mainstream, Tether (USDT) has suffered a number of highly publicized growing pains while the sub-industry developed. Other stablecoins have already entered the field, aiming to wrench away its dominance.

What Do We Know for Sure?

While it's difficult to say which, if any, digital currencies will see dramatic price gains in 2021, we can say with confidence that cryptocurrency is not going away anytime soon. Blockchain, the underlying technology behind many cryptocurrencies, has spread far outside of the digital currency industry and is likely to see new applications this year. Governments and regulators will continue to grapple with how to best facilitate and control digital tokens.

The heyday of cryptocurrencies may have come and gone, but it's also possible that the crypto market still has a lot of upsides to go. We do know one thing for sure: cryptocurrencies were once positioned to upend the entire financial system. That kind of noise doesn't disappear overnight, so expect to hear from cryptocurrency—or at least its number-one fans—for another year at least.