Cryptocurrency in Q3 of 2021 wasn’t a happy time, with the market still in the doldrums, the Infrastructure Bill threatening to decimate the U.S. crypto industry, China banning crypto transactions (again), and various regulators throwing their weight around. It wasn’t all bad though, as El Salvador started using Bitcoin as a currency and a key part of Ethereum’s 2.0 upgrade was launched.
July began with confidence in Bitcoin at an 18-month low. Having spiked at $65,000 in April, Bitcoin had fallen to $33,000 and showed every sign that it wanted to go lower. It did, dropping to $29,000 on the 21st.
The Bitcoin price wasn’t the only thing that was cratering – the mining difficulty rate experienced a record drop too. This was great news for miners outside China who were looking to pick up the slack offered by the Chinese government’s latest, and this time meaningful, ban on Bitcoin mining.
Binance CEO Changpeng Zhao spoke up following the onslaught from regulators that had hit the exchange since the turn of the year. Zhao likened cryptocurrency regulation to growth in popularity of automobiles – only when people started driving were the laws created. Zhao also suggested that Binance planned to localize operations in many countries in order to comply with regulations. Later in July it would announce ambitions to become a “fully regulated financial institution”, with Zhao saying he would step down if it was needed to help achieve the goal.
Those who believed the headlines about cryptocurrencies only being used for criminal activity got a nasty shock when the Deputy Assistant Commissioner of London’s Metropolitan Police said that “cash remains king” for criminals looking to launder criminal proceeds, echoing a sentiment from Scotland Yard the year previously who said that ““are not using cryptocurrency”.
The European Commission caused a stir when it announced this month that it wanted to ban anonymous cryptocurrency wallets and transactions in the latest evidence of a global crackdown on the crypto markets. The move, alongside the collection of personal information for transfers over €10,000, was included in a 52-page report to the European Union and matched America’s desire to track all crypto transactions of similar amounts.
Bitcoin ended July on a high, bouncing from $29,000 to $40,000 in a matter of days, but the joy from this would soon be tempered by a nasty surprise that was waiting round the corner – the U.S. Infrastructure Bill.
August started with the biggest regulatory jolt the U.S. crypto markets had ever felt. The U.S. Infrastructure Bill, which aimed to raise $6 trillion through tax increases, contained a cryptocurrency element that sought to define miners, stakers, and others in the same field as brokers and taxing them accordingly.
The move, which showed a complete lack of understanding as to how the cryptocurrency system worked, would require these individuals and companies to obtain a financial license to operate, forcing them to abide by the same laws, which was a factual impossibility. The crypto world rallied tremendously and forced a number of modifications to be made that would at least temper the impact, but a lone senator killed the amendments, leaving the crypto industry in the U.S. staring down the barrel.
The news naturally impacted the Bitcoin price, but only temporarily – a quick drop to $37,000 was the catalyst for a run that would see it hit $50,000 before the month was out, showing that bullishness had returned to the markets.
August saw huge news for Ethereum as the EIP-1559 upgrade, which would see ETH being burnt for every transaction and miners having their rewards massively cut, was actioned. The upgrade went through smoothly and an incredible 4,750 ETH worth over $12 million burnt in the first 24 hours.
NFTs hit the headlines again in August as Marvel unveiled its first creations, a Spider-Man collection, two weeks before Visa announced that it had bought a CryptoPunk for $150,000. There was worse news for those who held their NFTs in their MetaMask wallets however, as a scammer used a new feature in the wallet to steal NFTs from two different users.
A hack of a different sort made news in August as DeFi project Poly Network was taken for $600 million worth of tokens, only for the thief to turn out to be a white hat hacker who eventually returned everything with a warning over the projects’ security. He was also offered a job as a thank you.
BSV got hit by even more 51% attacks in August following some in July, leading to exchanges having to go to court to have the double-spent coins on their platforms frozen. This news somewhat took the shine off a record 2GB block mined by the company’s main miner TAAL, as news also emerged that BSV creator Craig Wright was financing his flurry of lawsuits with a loan based on his fictional (according to the Australian Tax Office) Tulip Trust containing 1.1 million BTC.
September started with news that Uniswap was under investigation by the Securities and Exchange Commission (SEC), news which reinforced comments made by new chair Gary Gensler that he would go after exchanges. This raised the uncomfortable suggestion that DeFi companies could be targeted, something that DeFi lender BlockFi had already experienced. Celsius would realise this occurrence too when they were hit with three whacks of the regulatory belt in late September in a move that suggested the gears were just starting to crank up.
September seemed to be the month for regulations as Coinbase revealed how the SEC had threatened to sue them if they launched Coinbase Lend, saying it constituted an illegal sale of securities. This was after the SEC asked crypto companies to ask permission rather than beg forgiveness and ignored Coinbase’s requests for guidance. Coinbase was urged to fight but ended up trashing Coinbase Lend.
It wasn’t just America that was getting regulation-happy. Following its ban on crypto mining back in May, the Chinese government banned cryptocurrency transactions for the first time since 2017, an act that saw the Bitcoin price drop again and China-serving exchanges pulling their services. DeFi services benefited hugely, with most exchange coins going 25% or more.
Reuters waded into the crypto regulation argument itself after it blamed a lack of regulatory oversight for its decision to quickly re-post a fake press release about Walmart accepting Litecoin. Sure.
The Bitcoin world celebrated Bitcoin Day as the cryptocurrency became legal tender in El Salvador, amid protests in the streets, including burnt Bitcoin machines. El Salvador president Nayib Bukele celebrated by buying ₿400 with government money and promising more.
Bitcoin itself had a less celebratory time of it, with its recovery from $29,000 running out of steam at $52,600 and enduring a swift $10,000 correction. Once more, leverage traders were the hardest hit, with $3.5 billion worth of liquidations occurring across exchanges. Some were still in the money however, as a collection of 101 Bored Ape Yacht Club NFTs sold for $24.39 million at Sotheby’s. Talk of a 2013-style Bitcoin pump to end the year was gathering steam, but so was talk of a crash through to $20,000, and the truth was that as September ended it was too close to call.
Bitcoin’s Political Quarter
Q3 of 2021 was dominated by the regulatory and political battle for crypto, with El Salvador treating Bitcoin as legal tender on one hand and politicians trying to squeeze U.S. users and investors dry on the other, not to mention China’s relentless (although by now highly unsurprising) designs on eradicating it completely. With Bitcoin looking set for either death or glory, much rested on how Q4 would play out.
Check back tomorrow for the final part of our four-part review of cryptocurrency in 2021.