Digital assets, including cryptocurrencies, non-fungible tokens (NFTs) and central bank digital currencies (CBDCs), are having an exciting year 2021, with many developments and booming adoption witnessed in Q1’21, DBS’ latest quarterly update on digital assets outlines.
In Q1’21, digital assets rose in value, product offerings and use cases against the backdrop of cryptocurrencies’ ongoing bull run. Total market capitalization of cryptocurrencies jumped 1,035% over the past year, rising from US$196 billion in April 2020 to US$2.225 trillion 12 months later.
Bitcoin (BTC) crossed its previous all-time high in December 2020, breaking through US$20,000. During the first quarter, the cryptocurrency surged by 100% and is now trading at over US$63,000.
Rising adoption of cryptocurrencies
Over the past year, there has been a significant deepening of broadening of interest and participation in the bitcoin market, the DBS report notes.
In the retail market, the number of bitcoin addresses holding between 0.01 BTC and 10 BTC increased 5.1% in less than three months, implying greater adoption in the segment. In the institutional market, inflows have spiked this year with an estimated US$3-4 billion going into the Grayscale Bitcoin Trust, and a US$1-1.5 billion surge in open interest of CME Bitcoin futures.
Corporate treasuries also began actively investing in cryptocurrencies with firms including electric car maker Tesla, Chinese photo-editing app company Meitu and Norwegian engineering company Aker Solutions, all announcing that they had purchased bitcoins. In parallel, known bitcoin-investing companies such as MicroStrategy and Square, increased their holdings in Q1’21.
Across the broader cryptocurrency space, banks and payment service providers continued to warm up to cryptocurrencies. In Q1’21, MasterCard announced that it will start supporting select cryptocurrencies directly on its network. Meanwhile, BNY Mellon unveiled plans to form a new enterprise unit to develop a multi-asset custody and administration platform for traditional and digital assets.
The surge of NFTs
NFTs are another big topic this year, having captured the public’s attention through several high-profile transactions.
NFTs are tokens that are not interchangeable with one another. They are primarily used today to track ownership of digital files such as art, audio, videos, items in video games and other forms of creative work.
In Q1’21, collectors and speculators spent more than US$2 billion on an array of NFT-based digital items, more than 20 times the volume of the previous quarter, according to NonFungible.com.
Investors are now joining the NFT craze and pouring millions into startups in the booming space. Data shared with CNBC by Pitchbook suggest that investors have poured US$90 million into NFT and digital collectibles companies so far in 2021.
Deals closed this past quarter included Sorare, a blockchain-based fantasy football game, which raised US$50 million, and OpenSea, an NFT marketplace, which raised US$23 million.
CBDC initiatives move into more advanced stages of development
This year, central banks around the world continued to pursue their CBDC ambitions, and CBDC initiatives are now moving into more advanced stages of development.
About 60% of central banks are conducting experiments or proofs-of-concept (PoCs), while 14% are moving forward to development and pilot arrangements, according the Bank of International Settlements’ latest survey of central banks.
Others, including the European Central Bank (ECB) and the US Federal Reserve, are warming up to the idea of issuing their own digital currency. In February, Jerome Powell, the chair of the Federal Reserve, mentioned in his semi-annual congressional testimony that the Fed was looking carefully at the possibility of issuing a digital dollar. In Europe, the ECB is exploring the introduction of a digital euro within the next five years.
In Asia, efforts are ongoing to develop cross-border CBDC transaction capabilities. The multi-CBDC (mCBDC) Bridge initiative, unveiled earlier this year, seeks to explore PoCs to link wholesale CBDC in different currencies to allow international transfers. It will use distributed ledger technology (DLT) to facilitate real-time cross-border transactions.
