2020 was a big year in many ways. The challenges posed by the events this year have ranged from personal to global. Cryptocurrency had a wild first quarter and is finishing with all time highs.

I’m joined by Pam Draper, President and CEO of Bitvo, to discuss crypto trends in 2020 and how those will continue into 2021.

We’ll discuss:

* One big Bitcoin surprise

* How challenges create opportunities

* Two important trends in crypto

* Big moves that might be in stealth next year

* People coming out of the woodwork for some Bitcoin

* Some anecdotal conversations

* What might be shaping up in the Canadian crypto exchange space

* The regulatory landscape

* The power of market validation

Tristram: We’ve had quite a year in 2020. We’ve had COVID-19, shutdowns, market crashes, the Bitcoin halving, and new highs. Pam, what would you say is your biggest surprise in 2020? Or was there more than one?

Pam: I’d say my biggest surprise is that Bitcoin at all-time highs after what happened in March. I was expecting Bitcoin would have a bull year this year. I didn’t expect that we’d get back to where we were three years ago. There’s a lot of momentum behind it right now, and we still have some time left to go.

What would you say is your biggest takeaway from 2020?

Pam: Biggest takeaway? Be nimble and always be open to opportunities, even in a crisis. When you face challenges as an individual and a team, you learn a lot. As you said at the beginning, we’ve had a few surprises this year. COVID-19 has been the driver of most of the challenges we are seeing. That means internal and external challenges.

Our business model and platform performed well this year, giving our clients a lot of confidence. Internally, we had a couple of people decide to move on. We were able to bring on a couple of others that are ideal for our next growth phase. Our team is tighter, and our operation has made great strides this year.

What are some trends that developed through 2020 in crypto that you expect to continue through 2021?

Pam: I see decentralized finance or DeFi and DeFi tokens as probably the biggest trend. As you know, decentralized finance is built on the Ethereum blockchain.  This includes building apps for lending, DEXs or decentralized exchanges, and yield farming. Many of these ideas are borrowed from traditional finance. They are executed using advanced cryptographic and blockchain technologies. The trend in DeFi took hold throughout the summer of 2020. DeFi tokens were all over the news after some spectacular price moves up and down.  Because many of these use the Ethereum blockchain and ETH as the currency, it has influenced ETH’s price. The other trend appears to be the growth of stablecoins, which also had a big growth year in 2020. Many of these also utilize the Ethereum blockchain. I am anticipating the DeFi and stablecoin trends to be front and center for 2021.

What else are you looking for in 2021?

Pam: We’re anticipating the growing participation of large corporations that aren’t in crypto yet.  This will include companies from traditional finance. These firms have been cautious about getting involved due to risks and fund governance rules. For example, Guggenheim Partners voted to invest up to 10% of their assets in Bitcoin through Grayscale Bitcoin Trust in late November. Insurance company MassMutual announced it had accumulated $100 million in Bitcoin in December. One catalyst appears to be the MicroStrategy announcement of their $250 million investment in Bitcoin this summer. They followed up with additional purchases as well as raising funds via a convertible debt offering to fund even more purchases. Bitcoin now represents a sizable portion of their reserves. Funds that are already involved in crypto like Grayscale and 3iQ are attracting lots of AUM. They’ve been accumulating Bitcoin in record numbers to meet this demand. Grayscale’s Bitcoin holdings alone represent about 2.5%-3% of the entire Bitcoin supply. We anticipate more company reserve allocations from dollars to Bitcoin in 2021. However, we don’t expect all of them will be accompanied by big public announcements.

I would also say people are far more open to cryptocurrency this year than prior years. Clients from my investment banking days were in more traditional Canadian sectors like oil and gas and mining. They haven’t been thinking about crypto or Bitcoin. It was never a priority. Now they’re coming out of the woodwork. Several people who thought I was crazy three years ago are getting in touch to talk about crypto. They’re trying to get a handle on it.

The conversation has moved from: Bitcoin isn’t going anywhere, there’s no value there, I can’t touch it, I don’t understand it, I can’t buy a coffee with it, to –— I can’t ignore it anymore. I expect more of these conversations into 2021.

Crypto is now more mainstream. It’s due in part to recent price appreciation, and part of it might be the buzz around new highs. But a big part of this new interest is due to the traditional financial system catching up. When companies like PayPal start facilitating transactions in cryptocurrency, that gets people’s attention. Every year it’s a more common dinner conversation. And that seems to be kind of snowballing right now.

What are the kinds of questions you’re getting around crypto these days?

Pam: Conversations this year seem to revolve around how can I buy crypto and “explain it to me one more time.”

So part of it is logistical. It’s around, how do I get a wallet or how do I purchase cryptocurrency for the first time? They want to know what information they are required to provide, how long the sign up to purchase process takes, and things like that. People want to understand the transactional elements like how you make that first purchase. These are all great questions.

And then the other part of the conversation is around understanding what Bitcoin is. They want to understand what gives it value and what drives the value of it. So it’s a discussion around the history of Bitcoin going back to Satoshi’s white paper. The fact that there is a maximum supply and why there might be demand for that maximum supply.

How have the crypto markets evolved over 2020, and how does this affect the crypto exchange business?

Pam: What we have seen throughout 2020 is that crypto continues to build on the existing foundation. Along with an increase in activity, we are seeing a broadening user base. Last year at this time, we talked about how crypto markets were maturing, and this is what we saw this year. For example, when we first got into business, almost anyone could get into this business. An exchange could be two guys and a laptop. Failures like Quadriga and others have demonstrated that this wasn’t necessarily a good model. These failures resulted in an expansion of scrutiny and regulation. It’s now more difficult for these failures to start in the first place. Today, you have to have professional management teams backed by financial and regulatory knowledge. You also require solid financing. All of these things together help to create essential checks and balances to protect consumers. Exchange platforms that uphold these high standards will remain. Smaller exchanges lacking any or all of these attributes will likely exit the business or be acquired. Not all exchanges have the kind of backing that Bitvo has to meet today’s financial, management, and regulatory requirements.

We built Bitvo in anticipation of this business environment. So as a business, we find ourselves well positioned for this environment and the future.

Let’s talk about the crypto regulatory environment. What are you expecting for 2021?

Pam: For regulation, it’s been a pretty big year in Canada. The main development was registration for all virtual currency exchanges in Canada. Registration with FINTRAC as Money Services Businesses was announced over a year ago. It became a requirement in June. So Bitvo and every other crypto exchange are required to register with FINTRAC.
Then there’s the Canadian Securities Association (CSA) side. They released guidance in early 2020 about how they might view their involvement with platforms dealing in virtual assets. The main item for virtual currency platforms was based on the topic of custody. The question is around what role custody of client assets plays in the businesses dealing in virtual assets. And if custody is required, are businesses considered to be dealing in securities and subject to existing securities laws in Canada? As a result, most platforms have been in discussions with their local regulators. The objective is to protect consumers without stifling innovation. A framework must protect clients and be reasonably consistent with existing securities laws. It must also promote Canadian innovation. We are all working together towards a viable digital asset market framework that includes made in Canada innovation. Several jurisdictions made steps towards this outcome in 2020.

More broadly, across the globe, other jurisdictions are probably in a similar place to Canada. Some are a little further ahead, others a little behind. Regardless of where they are, all major jurisdictions are in the process of coming up with a framework that allows virtual currency businesses to operate within their jurisdiction. Singapore and Bermuda appear to be front of the pack. They haven’t attempted to force cryptocurrency into their existing framework. Instead, these two jurisdictions have developed a robust cryptocurrency regime within which businesses in that space can operate. In the US, states like New York and Wyoming are leading the pack nationally. They are focused on fostering cryptocurrency businesses through more robust structures. Some steps are being taken at the national level as well through a variety of federal regulators. But it always feels slower than everyone thinks it should be.

Are there any big regulatory events or decisions that you’re looking for in 2021?

Pam: I think it’s a reasonable expectation that Canadian regulators will provide additional clarity around their guidance from 2020.

Thinking about 2020, what is one thing that newer crypto traders can take into next year?

Pam: One of the biggest lessons is that having a trading plan of some sort is valuable. Something like planning to dollar cost average would have helped traders during the big moves earlier his year. Gaining exposure to an asset class over time can help manage emotions during these big price swings. We emphasize the concept of developing trading plans in our education section to help traders and buyers of any crypto asset. As we’ve seen, these markets can be very volatile at times. So the value of a trading plan is one key lesson from this year that can help in the year ahead.

Speaking of next year, what’s in store for Bitvo in 2021?

Pam: We’re looking to continue our growth trajectory in Canada for 2021 and beyond. Our approach to the cryptocurrency business continues to be validated by the market and our growing roster of clients. As a business, we’re happy to be the right choice for existing traders and people who are just starting in crypto. Lots of people are entering the crypto markets in Canada for the first time this year. Our 24/7 customer service, Bitvo Cash Card, and secure, easy to use platform are all designed to help traders of all levels as they learn and develop. There’s still lots of room to grow in Canada.

In the year ahead, we are also looking at expanding out to other jurisdictions. Our team has a lot of international market experience, so we will be exploring strategic moves in the months ahead.

Thanks, Pam. Great to get your thoughts.

Pam: Thanks Tris.

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