Understanding The 2021 Bull Run

Preface

Alas, the moment many of us have been waiting for, the great crypto boom of 2021. I believe that there are a multitude of reasons as to why we are seeing the great crypto boom of 2021.

The craziness with the pandemic that led to a financial collapse back in March, compelling the Fed to print trillions of dollars out of thin air in order to prevent further catastrophe. Loss of trust in our financial and political overlords and leaders.

The Federal Reserve is a major driver behind our economy, and the two major weapons that they have in their disposal are: 1) to print more money 2) to raise or lower interest rates. Interest rates are at 0 already, so that weapon is out. Some European countries have negative interest rates, and it’s entirely possible for us to get there as well.

Bitcoin’s Explosion

Many of the other top 100 cryptocurrencies are starting to see some serious money pump into it as well. Ethereum has had a 50% gain over the last week. Some coins have seen over a 100% gain as well seemingly overnight. Scary times overall with the global financial markets, but exciting times for cryptocurrency.

Tech Companies

Banks

No more under the table deals or cash payments. Governments would be able to track every single penny, transacted by anyone, and anywhere.

This is a historical moment for cryptocurrency, as it has been unclear what stance the major government players would take regarding crypto.

But let’s dive into the technical reasons as to why this crypto boom is happening. I wanted to start with something called the “Bitcoin Halving”.

It’s not necessary for you to understand how exactly this works if you aren’t super technical. Just know that over time, Bitcoin will be harder and harder to come by, leading to digital scarcity similar to mining gold. The more gold you mine, the less there is out there to be mined, and the harder it is to acquire.

Since then, it has been a bit of a brutal bear market, with Bitcoin and virtually every other cryptocurrency taking about an 80% nosedive from their peaks. We are finally coming out of this bear market, and all the signs are signaling that the next bull market has officially started.

Next up on the technical list is Ethereum. Ethereum is a platform for creating smart contracts and decentralized applications. Smart contracts aim to fully replace all contractual agreements as we know them today with self-executing, fully autonomous, highly secure digital agreements.

With DeFi, you can earn attractive interest rates with your money if you store it in these DeFi apps, something that the banks do not offer. DeFi already has tens of billions of dollars stored within their smart contract applications. It’s extremely exciting stuff, but that’s not the topic of this blog.

Ethereum went from a major transition in its software. It upgraded from Ethereum 1.0 to 2.0. There is a long journey ahead before Ethereum 2.0 is fully realized, but Ethereum 2.0 is a major step in the right direction for direct consumer, institutional, banks, and even government adoption.

There is only one Ethereum network, and it has become quite popular. That means that everyone in the world that wants to use it has to fight to get their transactions in on the platform.

Ethereum 2.0 aims to solve this by increasing the transactions per second into the thousands per second, with greatly reduced costs of those transactions.

One such exciting scaling technology is called Arbitrum which was created by Ed Felten, the former deputy Chief Technology Officer of the White House.

The people behind Ethereum are trucking along with its development, but like I said, it isn’t exactly a simple task to do this with such a groundbreaking and revolutionary technology that has never been done before. It’s no doubt though, that Ethereum is making serious progress and moving in the right direction.

Why would people want to use banks and receive 0%, or even negative interest rates, on their hard-earned money when they could use DeFi and earn a stable 6%?

Other bloggers such as Bankless do this topic much more justice than I could, but if you aren’t aware of it, you need to be. Check out this post that explains this concept more in depth.

It falls under all three asset classes. It can be used as a capital asset such as equities and bonds, a consumable/transformable asset such as physical commodities and precious metals, and a store of value asset such as real estate and currencies.

In cryptocurrency, even the “experts” are often wrong. Cryptocurrency markets aren’t immune to market crashes either. We saw this back in March, when just about every financial market tanked. Cryptocurrencies took a big hit as well.

I would be cautious investing large sums of money right now into cryptocurrencies. The greatest single piece of advice that I can give anyone is not to FOMO into Bitcoin or Ethereum. Be smart about it, and do your own research.

Conclusion

There are some other great plays in the DeFi sector such as Aave, SNX, and Maker, but for the average person, stick with those three. If at least part of your portfolio is not in cryptocurrencies, it absolutely needs to be. At this point, it’s too risky not to invest in it.