2021 has been action packed so far in the cryptocurrency world. From wild price swings, the increasing adaptation by public companies, and the overall increase in demand, it is hard to argue that cryptocurrencies are a fad. The emergence of cryptocurrencies as a new asset class have further fueled interest by both retail and institutional investors globally. Blockchain, the technology behind many cryptocurrencies is increasingly applied even beyond the digital currency industry. In this article, we provide insight on the top cryptocurrencies today and highlight noteworthy developments throughout the first half of 2021.

Major retailers have increasingly warmed up to payment in the form of cryptocurrencies, particularly Bitcoin and Ethereum. Currently, the companies below accept some form of cryptocurrency as payment:

Current Top Cryptocurrencies

The following summarizes the top six cryptocurrencies in circulation today by market cap:

According to CoinMarketCap, the entire crypto market has a market cap of US$1.43T on July 5, 2021. The cryptocurrency market cap hit an all-time high of US$2.02T on April 5, 2021, according to CoinGecko and Blockfolio following record demand from both institutional and retail investors. Since then, overall prices have fell. Bitcoin’s market cap represents 43.95% of the total crypto market cap, followed by Ethereum with a 18% market share.

To put this into perspective, the scale of the cryptocurrency market compared to other national currencies are presented below:

The following chart summarizes Bitcoin’s pricing since the beginning of 2020:

Why the recent decline?

Based on various sources, the recent pullback across the crypto industry can be partly attributed to the following:

1.       Regulatory concerns

Crypto assets are increasingly being scrutinized by regulators worldwide as these assets gradually become a larger part of global financial markets. As examples, the following briefly summarizes both the US and China’s current, public stance on cryptocurrencies in general:

•  The US Treasury announced on May 20 that all cryptocurrency transactions worth US$10,000 or more will be required to be reported to the Internal Revenue Service. The announcement was part of a broader announcement by the Biden administration to crack down on tax evasion and promote better compliance. Both Democrats and Republicans are prioritizing crypto-asset regulation following the massive run-ups in 2020 that have sparked concerns of market manipulation.  

•  In addition, prominent figures have voiced concerns over the need for crypto regulation. Newly appointed Securities and Exchange Commission (SEC) Chairman Gary Gensler recently commented that more investor protection is required in the crypto markets, as well as the need for regulation to prevent fraud and other issues. As well, Senator Elizabeth Warren called for cryptocurrency regulation during the Senate banking committee hearing on June 9.

• On May 21, 2021, China banned financial institutions and payment companies from providing services related to cryptocurrency transactions, as well as called for a crackdown on crypto mining and trading. This is China’s latest attempt to clamp down on the digital trading market. China concurrently warned investors against speculative cryptocurrency trading, claiming it “seriously infringes the safety of people’s property and disrupts the normal economic and financial order”.  Thus far, China has banned cryptocurrency exchanges and initial coin offerings but has not prevented Chinese citizens from holding cryptocurrencies yet.

2.       Concerns over lack of traceability

Cryptocurrency enthusiasts proclaim digital currencies are a secure, decentralized and anonymous way to conduct transactions. However, US investigators were able to recover US$2.3MM of the US$4.4MM in Bitcoin ransom paid to a group of hackers who hacked the pipeline network of Colonial Pipeline on May 7, 2021. Court documents released in the Colonial Pipeline case say the FBI got in by using the encryption key linked to the Bitcoin account to which the ransom money was delivered. However, officials have not disclosed how they got that key. The news raised concerns over cryptocurrency security and thus, contributed to a decline in crypto pricing across the board.

3.       The Musk effect

Despite being touted as a decentralized industry, the overall cryptocurrency market appears susceptible to one individual - Tesla Motors’ CEO Elon Musk. To be clear, no one knows exactly what causes crypto prices to fluctuate, but Musk certainly seems to contribute to some of the recent price changes. Over the past few years, crypto market prices seem to rise or fall based on Musk’s tweets and public comments regarding cryptocurrencies.

Other crypto updates:

Conclusion

Following the explosive rise of pricing and popularity, cryptocurrencies will continue being scrutinized by governments and regulatory bodies going forward to ensure consumer protection and to prevent material market disruptions. Despite this and the wild fluctuations in pricing, cryptocurrencies will still become increasingly prominent within the global financial system. In Canada alone, we have witnessed the formation of Bitcoin and Ethereum exchange-traded funds (ETFs) in the past few months. In addition, portfolio managers are increasingly regarding cryptocurrencies as another portfolio component for further asset class diversification. The growth in cryptocurrency names (especially the smaller ones) have garnered the attention of many speculators, which further contributes to the high volatility. It is a fool’s errand trying to predict what crypto prices will be at the end of the year, let alone next month. However, we do expect cryptocurrencies to remain in the spotlight amidst high volatility.