NFTs and the trillion-dollar Bitcoin boom: The year cryptocurrency took off - 31st December 2021

By Sarah Danckert

It was the year cryptocurrency really hit the mainstream.

The value of Bitcoin hit $US1 trillion ($1.4 trillion) this year as interest in the cryptocurrency hit new heights. The market is now so large in Australia some surveys suggest more than one in ten Australians hold some form of the digital currency.

At the same time a range of new developments caught the imagination of the wider business sector, with startups working to expand the uses of the blockchain-based technology.

However, as new opportunities emerged the popularity of the asset class led to concerns about consumer protection and raised the spectre of regulation.

Here are the big crypto stories of the year:

Elon Musk

The eccentric billionaire CEO of Telsa, Elon Musk, became the unexpected market mover for cryptocurrencies during 2021. Musk’s March tweet “You can now buy a Tesla with bitcoin” led to a buying frenzy of the currency that pushed the price of Bitcoin to $US65,000 within a month of the tweet. Tesla reconsidered that idea, and in May stopped accepting payment in the cryptocurrency due to environmental concerns over the large amounts of fossil fuels consumed to mine it, sending Bitcoin’s price downwards.

Musk also managed to help send the price of Dogecoin skyrocketing by dubbing the memecoin “the people’s crypto” in a tweet. He then called the coin a “hustle” while hosting Saturday Night Live, and the price dived. Overall Bitcoin ended the year at around $US50,000, nearly double its January value. Dogecoin fared even better, closing out at 19 US cents from a year start of 0.43 US cents.

The rise of NFTs

Public interest in NFTs – or non-fungible tokens, a one-off original digital asset like an artwork or special-release music album that is created with the technology that underpins cryptocurrencies – soared in 2021.

An NFT by artist Beeple sold for $US70 million at an auction held by auction house Christies, while Twitter founder Jack Dorsey raked in $US2.9 million by selling his first-ever tweet as an NFT.

Even the Australian Financial Review got in on the action, raising 11.8888 Ether (worth $US56,667 at the time) in a charity auction of an NFT of its Young Rich magazine cover.

New opportunities

El Salvador became the first country in the world to accept Bitcoin as legal tender, meaning it could be exchanged for goods and services.

El Salvador has a large money remittance industry and a growing number of locals and nationals based abroad using cryptocurrencies.

Back home, the Commonwealth Bank became the first local bank to allow its customers to trade cryptocurrencies through its app, which is used by millions of Australians.

The corporate watchdog ASIC also gave the green light to a range of cryptocurrency-related ETFs, and an increasing number of fund managers and market watchers announced plans to pursue cryptocurrency-related investment products for their clients.

But there was a step backwards in the development of cryptocurrencies, with China banning the energy-intensive mining of the coins.

New crypto regime

In December, Treasurer Josh Frydenberg revealed a set of sweeping regulatory changes aimed at improving oversight of the cryptocurrency sector and including new taxation treatments for digital assets.

Frydenberg also raised the idea that Australia could become a leader in the cryptocurrency sector through a central bank digital currency, and opened the door for a discussion on a new type of collectivist company structure known as a decentralised autonomous organisation.

Meanwhile, the Australian banking sector got a warning from the transactions regulator Austrac and a Senate committee for its widespread policy of debanking customers - stopping to deal with customers - that ran cryptocurrency trading businesses.

Regulators’ warnings

Amid all the positive buzz, there were sage warnings from regulators about the dangers of this largely unregulated marketplace.

The ACCC said earlier this year that nearly half of all complaints to consumer hotline ScamWatch were about the digital assets.

And the new chair of the corporate watchdog, Joe Longo, told a business summit: “In my view consumers should approach investing in crypto with great caution”.

Risks emerge

A key example of the risks of the unregulated cryptocurrency market was highlighted by the collapse of Australian-based exchange MyCryptoWallet in December.

In April, The Age and The Sydney Morning Herald revealed the website for the exchange had gone dark for more than a year, leaving users unable to access Bitcoin and other digital assets for thousands of dollars.

Meanwhile, young Australian cryptocurrency finfluencers used social media to build fortunes and win legions of fans with crazy trading antics, and this masthead revealed the world’s biggest cryptocurrency casino was being operated out of Melbourne.

(The Sydney Morning Herald)