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The Bithumb Blog

[Insight] Looking Back Digital Asset Market in 2020 through Bitcoin and Ethereum

Much had happened in the digital asset market in 2020. We’ve been through turbulent times because of the unexpected factor called Coronavirus Disease (COVID-19). And again, Bitcoin’s price reached its peak in its history due to the partaking by the institutional investors. Furthermore, the new price mechanism called Decentralized Finance (DeFi) created a sensation, challenging the existing financial system, and researches related to Central Bank Digital Currency (CBCD) by the countries around the world have hit the main road. As for domestic affairs, the Amended Act on Reporting and Using Specified Financial Transaction Information and the amended tax bill has been issued, bringing the digital asset industry to the formal sector.

There were also some particular major events, including the half-life of the 2 leading figures in the digital asset market, Bitcoin and Ethereum, along with the news about Ethereum 2.0. In this article, we would like to look back on various issues these two coins had been through and take a glance at the digital asset business.

The most major issue that had shaken the very foundation of our entire world was the COVID-19 pandemic. The coronavirus that had been confined in some of the places rapidly spread to the whole world, eventually causing massive casualties and financial damages. The global stock market and digital assets were no exception. If we have to pick the worst moment in the year, that would be the March 12, a.k.a. ‘Black Thursday.’ On this day, the 3 major indexes of the U.S. experienced a free fall of 9%. The gold price had also dropped to lower than USD 1600 per ounce Bitcoin’s price had been dropped to lower than USD 6000, and Ethereum’s price also plummeted down to USD 100 and below. Due to this sudden crash of the price, some exchanges like Bitmax experienced some server crash issues. Even Bitcoin, which was escalating as a risk-free asset, could not stand against this catastrophe on a global scale.

But investors did not lose their hope. For the first time in the recent 4 years, Bitcoin came to its half-life for the third time in May. The half-life of Bitcoin means that its block reward is cut by half. Due to this half-life, the block reward of the Bitcoin reduced from BTC 12.5 to BTC 6.25. Since the reward has been reduced, the reduction of its supply amount is inevitable. Therefore, it was usual for Bitcoin to show some bull market since the scarcity of the Bitcoin rises after its half-life period. It was a great opportunity for the investors to recover from the damage of COVID-19. But unexpectedly, there was no dramatic rise in price after the half-life. The experts of the business analyzed that this was due to the favorable factor of the half-life had been reflected in its early-year price beforehand. Due to this, the frustration of the investors was quite strong.

However, in June, the digital asset industry has reached an unexpected turning point. And that was the DeFi boom caused by the new profit mechanism called yield farming that was gaining popularity. Beginning from Compound, many DeFi protocols such as Uniswap, yEarn Finance, SushiSwap, etc., attracted the attention of the investors by issuing governance tokens that guarantee a high profit. This drew the attention of Bitcoin investors who had been bored being within the box pattern to the DeFi market. As a result, the scale of the WBTC, an ERC-20 coin linked to Bitcoin in a 1:1 ratio, also grew rapidly. The most beneficiary of this DeFi boom was Ethereum. For most of the DeFi protocols were based on Ethereum. Though, there were some issues, like communication bottleneck due to the tremendous network demands or the sudden increase of the fee. But considering the expansion of the Ethereum’s ecosystem, the popularity of the DeFi is indeed a favorable factor.

But the most heartening news for Ethereum was the launching of Ethereum 2.0. The long waited Ethereum 2.0 has been finally launched in December 2020. Ethereum 2.0 includes changes like a change of consensus mechanism for miners from proof-of-work (POW) to proof-of-stake (POS) and the establishment of a reward mechanism through staking. Now, everyone with ETH 32 can receive their reward through Ethereum staking. (Though it seems it will take a few more years for its withdrawal.) This was one of the most important issues in the history of Ethereum and therefore functioned as a driving force in the rise of Ethereum’s price. The Ethereum’s price that remained between USD 400 to 500 last November breached the USD 600 at once. Since Ethereum 2.0 is not a one-off issue, this will make some impact on the Ethereum’s price rise in the long-term.

From the beginning of the year, one of the news that the digital asset business has heard was the incoming of institutional investors. One of these institutional investors that drew the most attention was the money management company, Grayscale. The Grayscale Bitcoin Trust (GBTC) that Grayscale is currently operating has shown rapid growth in 2020. It grew almost 16 times compared to the beginning of the year. The one that took the leading role of this Bitcoin bull market, seems to be Paypal, a global payment service provider. Last October, Paypal introduced trading services for digital assets including Bitcoin. The news that a traditional financial firm released a self-established digital asset service was a shock to both inside and the outside of the industry and resulted in a price rise of Bitcoin. Though it did not receive so much attention back then, there is another company that drew people’s attention by purchasing Bitcoin in bulk. And that is Microstrategy, a company enlisted on NASDAQ. The company has invested more than 80% of its money, showing a very bold move than any other Bitcoin enthusiasts.

The result of the issues above combined is the price of Bitcoin and Ethereum nowadays. The price of Bitcoin and Ethereum showed growth of 275%, 461%, respectively, compared to the beginning of the year. Especially, Bitcoin is outshining above all by recording the highest record in its history.

There is no doubt that the digital asset market is currently in the bull market cycle. But, what will it be in 2021? We can’t be so sure about what kind of factors will occur, but the recent moves indicate that it will be optimistic. Bitcoin is writing new pages in its history with records unseen before. And Ethereum’s ecosystem is solidifying since the coming of Ethereum 2.0. The partaking of institutional investors seems to be accelerated even further. Though there may come some turbulent times, the digital asset business will do just fine for it had already been through some harsh times, ensuring its internal stability.

*This research and analysis document has been prepared for the purpose of providing information that can be used as a reference based on our reliable data and information but we cannot guarantee its accuracy or completeness.

*The document has reflected the individual’s opinion and it may not be consistent with the company’s official point of view.



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