The Breakdown - The Statistics That Defined Bitcoin and Crypto in 2021

Episode Date: December 18, 2021

This episode is sponsored by NYDIG. Today’s episode digs through two excellent end-of-year reports from Messari and The Block to curate a set of numbers and statistics that tell the story of the markets in 2021. These numbers include growth in on-chain metrics, hashrate and other types of adoption.  Enjoying this content?   SUBSCRIBE to the Podcast Apple:  https://podcasts.apple.com/podcast/id1438693620?at=1000lSDb Spotify: https://open.spotify.com/show/538vuul1PuorUDwgkC8JWF?si=ddSvD-HST2e_E7wgxcjtfQ Google: https://podcasts.google.com/feed/aHR0cHM6Ly9ubHdjcnlwdG8ubGlic3luLmNvbS9yc3M=   Join the discussion: https://discord.gg/VrKRrfKCz8   Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW NYDIG, the institutional-grade platform for bitcoin, is making it possible for thousands of banks who have trusted relationships with hundreds of millions of customers, to offer Bitcoin. Learn more at NYDIG.com/NLW. “The Breakdown” is written, produced by and features Nathaniel Whittemore aka NLW, with editing by Rob Mitchell, research by Scott Hill and additional production support by Eleanor Pahl. Adam B. Levine is our executive producer and our theme music is “Countdown” by Neon Beach. The music you heard today behind our sponsor is “Dark Crazed Cap” by Isaac Joel. Image credit: SEAN GLADWELL/Moment/Getty Images, modified by CoinDesk.

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by Nidig and produced and distributed by CoinDesk. What's going on, guys? It is Friday, December 17th, and today we are doing a fun little episode where I'm going to look at some of the most interesting numbers from two awesome end of the year research reports. The first comes from Masari and is their annual crypto-theces report. This started a few years ago with Masari CEO Ryan Selkis just going off on a tangent on Twitter one day and writing 100 theses that he published to Medium, and now it's grown into a nearly 200-page

report that has multiple contributors and a ton of, shall we say, attitude. It's always a really fun read and this year is no different. However, it's not the only great end-of-year report out there. The Block Research also dropped their nearly 200-page 222 digital asset outlook. That project was led by the Block's head of research, Larry Sermak, but has a ton of people contributing as well. So first of all, thank you so much to both the teams at Masari and the Block for their awesome work on these reports.

And now let's dig into some of these numbers. These are presented in no particular order, but I think tell the story of the year in a pretty cool fashion. The first number is $3 trillion. and of course that's the total market capitalization of the crypto industry, or at least that's where we peaked. Now, this is a pretty big and monumental year for total market cap in the crypto industry. In January, it hit $1 trillion for the first time. As Masari put it, crypto's $3 trillion of liquid value creation in 10 years now rivals that of all other venture-backed startups combined,

which is a pretty phenomenal statistic. Now, what I want to add about why it's significant is a couple things. First, one of the themes that is so clearly a part of both 2020 and 2021 is the institutionalization of the asset class, of big companies, big traditional finance players coming into the Bitcoin in crypto space, and frankly, institutionalization gets a lot easier when you're talking in T's, not B's. There is enough market depth at that point to actually play out in a meaningful way, and there's something of a psychological barrier, or in fact, sometimes investment prohibitions that keep big players from doing much in spaces that are less than a trillion dollars.

Also, as Masari points out, institutional capital tends to flow in two directions, in and down. In other words, once it comes into this space, it tends not to flow out. Sometimes, though, when things are going really well, it flows down to higher beta, riskier plays, defy, etc. When things go risk off, it stops, quote unquote, at the blue chips, the Bitcoin, the Eath, etc. I tend to think that if we go through 2022 without some protracted bear market that actively pushes institutions out of the space, their role in it will just continue to grow. The second thing to note, however, about $3 trillion and new market cap highs is that they also

come with more regulatory focus. I can't remember exactly who it was, but one of the politicians at one of the recent hearings said it was kind of easy to ignore stable coins in the crypto industry when it was just dealing with low bees, but not when it's dealing with the T's. This increase in total economic activity and value in the space is going to bring more regulation, but ultimately that was inevitable. The institutions came first, and now there's a lot more people here to defend and try to protect the potential that this industry represents. Now let's talk about some growth numbers, starting with Bitcoin.

This year has been not a clear path up, nothing really ultimately, like 2017. Bitcoin's price has ranged wildly. For the last month or so, we've been in kind of a low period, yet. it's still worth noting that Bitcoin is up about 100% this year. At its high of 69K, it saw a year-to-high return of 140%. Now, both the Masari and the Block Report make a comparison to gold, which is down about 2.5% on the year and up only 2% over the last 10 years. Although I think that's sort of the idea for gold bugs, right, that it just keeps its value. But still, I think it's pretty clear after this year that the digital gold thesis isn't just gold bugs but on the internet. The

differentiated liquidity, portability, divisibility, and all of the other attributes that make Bitcoin fundamentally different than gold means that the digital version of gold has a potentially radically larger addressable market than the old version. On top of just a price increase, Bitcoin is being used a lot more as well. On-chain volume increased 317% this year. Bitcoin processes 300,000 transactions per day. That's at least in the same universe as FedWire. buyers 800,000. Bitcoin processed a massive $4.2 trillion in transactions last year, a massive amount that shows just how solid this network is. Ethereum had an even crazier year in terms of on-chain volume growth. Ethereum on-chain transaction volume grew 729% from $403 billion to

3.3 trillion. Combined total on-chain volume, what the block calls a proxy for economic throughput reached 7.5 trillion between Bitcoin and ETH, a combined 435% increase from last year. And then there were stable coins. The stable coin supply was up 389% from $29 billion to $140 billion, and transaction volume crossed $5 trillion, up $370% year over year. That means between Bitcoin, Ethereum, and stable coins, you're talking about $12.5 trillion of settled value over the last year. NIDIG sponsors this podcast and they're integrating Bitcoin into everyday life, not only for Wall Street, but also for Main Street, because NIDIG is built for Bitcoin and Bitcoin is built

for everyone. Learn more at NIDIG.com slash NLW. That's NYDIG.com forward slash NLW. Let's now shift back to Bitcoin for a minute and talk about one of the most insane stats of the year. Bitcoin's mining hash rate is up 19. 18.6% year over year, despite the China mining ban. I want to walk through this with you just because I think it's so remarkable. Bitcoin's hash rate reached an all-time high of 166 million terra-hashes per second in April, but of course, over the next couple months, it dropped nearly 50%.

On May 21st, the Chinese central government published a meeting memo that suggested a Bitcoin trading and mining crackdown was coming. And of course, it was from a high-ranking official and so taken much more seriously. On May 25th, Inter-Mongolia became the first province that reacted to the central government's call by enforcing measures to drive Bitcoin mining activities out. Over the course of June, even more provinces followed, and this all cumulatively led initially to basically a halving of the Bitcoin hash rate. The crazy thing, though, is that the network was just fine. That hash rate distributed elsewhere, much of it coming to the U.S., minor revenue everywhere

else went up, it's up 206% year over year, and all of a sudden entire categories of FUD were obliterated. China had previously controlled as much as 70% of Bitcoin hash power. There was a constant looming threat since 2013 of China somehow seizing access to the network through miners. When it comes to the environmental footprint of Bitcoin mining, moving it out of coal-focused mining centers in China, two more renewable sources in the U.S., for example, makes a big difference on that front as well. The clear story here is the resilience of Bitcoin. And it could not come at a better time as we enter into a new era of political discussions around the future of Bitcoin and crypto in the U.S. Back to some market numbers now. This year saw the second biggest

ETF first day ever in the fastest ETF to $1 billion in assets under management. That was, of course, the pro-share's Bitcoin Strategy ETF, a Bitcoin futures ETF that was listed under B.S. ITO. It was further confirmation of the significant institutional market interest in the space. Speaking of market interest, the crypto markets this year saw 25.1 billion in venture funding across 1703 crypto deals. That's more than the previous six years combined, which added up to about 14.4 billion. That's a 126% increase in the number of deals and a 718% increase in year-over-year funding. So why is this significant? Well, first, it obviously reinforces this institutionalization narrative, but it also, I believe, significantly downturn proofs the industry.

The way that this industry comes out of a downturn is narrative shift and excitement returns, and one of the best ways for that to happen is for people to do and launch exciting new things. However, of course, to do and launch exciting new things, you have to have capital. That's why bare markets can be so self-perpetuating. The lack of cool things further reduces capital, which further reduces the cool things, which makes it even harder to get that momentum back. If we do go into something of a crypto-bare market at some point over the next 12 months, the huge capitalization of these companies means that they're going to be able to continue to build and create these cool things that even in a bare market could re-excite participants

and help shift the narrative once again. Related to all this funding, we saw a 400, 991% increase in the number of crypto unicorns this year. At least 65 companies have reached a valuation of $1 billion or more, and that's across trading in brokerage, infrastructure, financial services, data and analytics, and NFTs in gaming. Now, it is worth noting, I think, that a lot of these companies have stronger fundamentals than their Web 2 peers, in the sense that they're actually super profitable and just taking this money to either supercharge their growth or acquire other companies and generally just expand what they can do. Let's quickly now go through some growth in other areas. Dog coins. Frigan dog coins, huh? What a theme to have for a year. Doge peaked at up

14,000 percent and closed up about 4,000 percent on the year, and Shiba Inu is currently up $632,000 in price. I think a fair question, is there anything that these things tell us? One lesson, I guess, is about just how powerful memes are. A second is there's a lot to learn. about unit bias and the idea of if it only gets to $1. There's also a lot to learn about influence in social media. Certainly the dog coin story is largely overlapping with the Elon Musk story. But I also think it's fair to say that they help us understand that in internet world, in crypto world, the key question has shifted from why to why not.

Over in NFTs, we could point to big banner numbers like $69 million for people's every day's first 5,000 days auctioned in March, but instead let's look at an aggregate number. 600%. That's the increase in the number of active wallets in the space. The block calls it at $8.8 billion in trading volume this year, which is a huge jump but still relatively tiny and shows just how very early we still are. I loved Ryan from Asari's Metaverse case for NFTs when he wrote, if a big part of our future lives are spent living in global virtual interconnected worlds, the Metaverse. Then NFTs are some of the primary building blocks for everything in that world. You don't want to live in a virtual world where your entire industry is at the mercy of a big tech

cancellation tribunal. This is intuitive if you've ever switched social media platforms and had to build back an audience and reputation from zero. Or if you've ever purchased virtual goods in a game, but then realize that the game maker controls all of the trading rules and you can't sell the goods you've earned or take them elsewhere. Or if you're a believer in VR, but shudder at the prospect of getting unpersoned by Mark Zuckerberg's meta-dispopia. Over to DeFi, the total value locked was up 974% to $166 billion. ETH alone saw rise from $16.1 billion to $101.4 billion in total value locked. However, ETH's share of total value locked is also down to 63%,

which tells the story of another major trend, the battle among alternative layer one smart contract platforms. Now, I think the story of DeFi in 2021 is a lot more complex than this. There are tons of projects way off their all-time highs. there's also been a huge increase in exploits and 8x increase in stolen funds to 610 million from 50 exploits and clearly a lot of regulatory scrutiny coming. However, it's impossible not to see Web3 interest growing and growing and growing as witnessed by an 1,800% increase in monthly metamask users, from 550,000 in July 2020 to 10 million in August of this year.

But let's wrap with one of my absolute favorite numbers of the year. That one is 6 million. 6 million more Bitcoin users in El Salvador. And although a lot of both of these reports were great, I think one of my favorite passages comes from Ryan Selkis of Masari, who writes, For all their progress, neither ERC 20 stable coins nor any other crypto asset accomplished what Bitcoin did this year as money. I'm talking, of course, about Bitcoin's acceptance as legal tender in El Salvador. It's amazing what happens to usage when you complete the closed-loop payment system without forcing a reconnection to a Fiat Reserve. We're still talking about small numbers in comparisons to defy, but it's still a legal actual currency we're talking about

for 6 million people, not tokenized fiat currency that rides crypto's rails and might be shut off at a moment's notice. I'm sure I'll be wrong about lightning again, but I could see lightning capacity getting to 30,000 Bitcoin of capacity by the end of 2022, another 10x next year, thanks to Twitter, taproot, and President Bukle's aggressive lightning rollout plans, potentially higher if other countries like Paraguay or Ukraine follow the Bitcoin game theory. I like lightning. It's cool. I'm a sucker for the strike demos. I'm a sucker for the news. 2.7 million Salvadorans will get airdrop $30 in Bitcoin for downloading their new Chivo wallets, in which allows users to pay with lightning on their phones. I'm sure it's all just propaganda. I'm a sucker for Twitter's

lightning tipping service going live for 186 million users. And I'm a sucker for believing Snowden might be onto something when he estimates countries with 650 million underbanked adults could make similar moves to El Salvador as part of a post-USD monetary strategy. I think there are a lot of remarkable things that happened this year, but you have to count sovereign adoption of a non-sovereign currency as one of the top. I want to say again another big thank you to the teams at the Block and Masari for these awesome end of your reports. I hope you guys keep doing this forever, and I am constantly in awe about how much incredible free alpha there is in this space to anyone who's willing to take the time to read.

Until tomorrow, guys, be safe and take care of each other. Peace.