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Cryptocurrencies were front and center in financial news in 2021, with Bitcoin hitting record prices and investors increasingly seeing the digital currencies as assets that are here to stay.
In a broader sense, COVID-19 dominated new cycles. While 2020 will be forever immortalized as the year the pandemic began, 2021 will likely be recalled as a sort of in-between year — vaccinations were first made readily available, but the pandemic still raged with new variants spinning out and creating calamity. Still, there were plenty of other stories, including those involving cryptocurrency that gripped the world’s attention.
Bitcoin breaks records
While people’s wallets were still flush with several rounds of COVID-19 stimulus payments from the federal government, some amateur (and not-so-amateur) investors decided to sink their funds into cryptocurrency. Bitcoin began the year at about $30,000 but broke its all-time high several times in 2021.
The beginning of the year started with a quick upward bounce for the flagship cryptocurrency, which ended in it reaching nearly $65,000 in April before it retreated from that summit. The summer was rough for Bitcoin, which languished over concerns about regulation, although its value once again exploded near the end of September and rallied to an all-time high of $69,000 in November.
Institutional investors also began to take notice of Bitcoin in 2021. This year marked the launch of the first Bitcoin-linked exchange-traded fund. The ProShares Bitcoin Strategy ETF tracks contracts speculating about the future price of Bitcoin rather than being tethered to the actual value of Bitcoin. Prominent institutional investors such as Paul Tudor Jones also revealed they had bought into the digital asset this past year.
China bans Bitcoin
When the value of Bitcoin dipped over the summer, a major factor was regulatory pressure from China. In May, China called for the dissolution of cryptocurrency mining operations in the mainland. Bitcoin mining is how new Bitcoins come into being. To mine for Bitcoin, high-powered computers are used to verify virtual coin transactions. Bitcoin operates on what is known as a blockchain, essentially a public ledger that contains the history of every transaction. The miners’ computers solve complicated math problems in order to add new blocks to the chain and are in turn rewarded with the digital token, making the endeavor profitable. China’s central bank also said it asked banks and payment institutions to crack down harder on the trading of digital assets.
China later took an even stronger stance against cryptocurrencies in September when it declared all cryptocurrency transactions illegal. Beijing said online services offering trading for cryptocurrencies are strictly banned and that overseas cryptocurrency exchanges were also outlawed. The government also reiterated its pledge to stamp out cryptocurrency mining across the country.
In October, Britain’s Cambridge Center for Alternative Finance released data that showed just how stark the global shift away from China has been. In 2020, China accounted for a whopping 67% of the world’s mining operations. Now, the United States now accounts for more than 35% of the global share of Bitcoin mining, a figure far higher than just a year ago, when it accounted for just 4.2%.
El Salvador embraces Bitcoin
While China will remember 2021 as the year it banned Bitcoin, El Salvador will remember 2021 as the year it adopted the cryptocurrency as legal tender. Salvadoran President Nayib Bukele, a young technocrat, announced that his country would make Bitcoin a legal tender, the first nation to make such a move.
The historic decision excited cryptocurrency evangelists despite the rollout encountering some speed bumps. El Salvador introduced federal digital wallets called Chivo, which is slang for “cool,” as part of the country’s initiative. Bukele is banking on Salvadorans using Chivo to pay for an array of products and services, and his government has invested more than $225 million in dozens of Bitcoin ATMs throughout El Salvador. The government also offered adopters of the Chivo system $30 in free Bitcoin.
Bukele also drew international headlines when he announced that his country was harnessing the power of volcanoes to mine for new Bitcoin. He posted a video on Twitter in October of what appeared to be rigs at a geothermal Bitcoin mining operation.
The rise of Dogecoin
While Bitcoin, the flagship cryptocurrency, is largely what investors have flocked to, there are hundreds of other cryptocurrencies that have been created. Some of those cryptocurrencies have real-world uses, such as purchasing items, while others simply exist by virtue of the value that investors place in them.
Cryptocurrencies such as Ethereum, Cardano, and Ripple have been cited as possible competitors to Bitcoin, and advocates have touted their potential to work in the digital marketplace (all three saw growth in 2021). Other cryptocurrencies, such as Dogecoin, were created as jokes but had some investors laughing all the way to the bank in 2021.
Dogecoin was the foremost “meme coin.” Its mascot is a Shiba Inu, a Japanese breed of dog that was popularized as an online meme before the coin was created. The cryptocurrency has hordes of devoted followers and was popularized by Tesla founder Elon Musk, who tweeted about the obscure and essentially useless cryptocurrency multiple times, sending its price of less than a penny through the stratosphere.
Amid a buying frenzy fueled by memes and news coverage, Dogecoin skyrocketed from being worth just $0.004 last December to $0.74 earlier in the year. Since then, the hype has died down, and the price has deflated to about $0.17. If one were to have invested $5,000 in Dogecoin at the start of the year, it would now be worth more than $200,000, a staggering return.
NFTs take center stage
NFTs, or nonfungible tokens, exploded in popularity in 2021. NFTs are units of data stored on a blockchain that often take the form of art that can be sold or traded. “Nonfungible” means something that can’t be replaced by another item. Bitcoin is fungible because it can be exchanged for another bitcoin, but NFTs, for example, a unique digital drawing, represent a distinct underlying asset and thus cannot be exchanged for one another.
Former Twitter CEO Jack Dorsey’s first tweet from 2006 was made into an NFT and sold for a whopping $2.9 million in March. An NFT version of the “Doge” meme sold for $4 million in June. And one created by fugitive whistleblower Edward Snowden sold for more than $5 million.
While NFTs gained massive traction in 2021, some experts believe they exist in a bubble and that prices will eventually come crashing down. For now, though, creators and buyers are still pumping time and money into the new realm of art.
Bitcoin becomes key in ransomware attacks
While cryptocurrency has been heralded by many investors and those who seek to move away from traditional currencies, cryptocurrencies (Bitcoin in particular) have also been a lightning rod for criminal activity.
This past year had criminals demanding Bitcoin in a spate of ransomware attacks against companies. The most publicized attack occurred in May against the Colonial Pipeline, a major pipeline that supplies gas to the Southeast. Colonial Pipeline was forced to cease operations in order to contain the hack, which led to panic-buying at gas stations and fears of gasoline shortages.
The company decided to pay the ransom, which was more than $4 million worth of Bitcoin, but what happened next is what was really surprising. Days later, the FBI announced it had seized 63.7 Bitcoins from a wallet thought to be controlled by cybercriminals tied to a Russia-based collective called DarkSide. The caper caused a sell-off among investors who were concerned about how the FBI was able to get the “private key” used to unlock and pull assets from the criminals’ specific Bitcoin address, a feat that is still a mystery.
In May, meat supplier JBS USA ended up paying hackers some $11 million in Bitcoin after a ransomware attack disrupted its operations. German chemical distributor Brenntag was also the target of a ransomware hack in which attackers threatened to release data, although the company negotiated a demand for $7.5 million down to $4.4 million, which it paid.
Original Location: The biggest cryptocurrency stories of 2021
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