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A Quarter by Quarter Analysis of Cryptocurrency Markets in 2020

Analyzing the performance of cryptocurrency markets in 2020 and short-term future perspectives.

The year 2020 has been a major turnaround for the cryptocurrency and blockchain ecosystem. From easing regulations and corporations venturing into the crypto space to the development of pilot projects based on blockchain technology, the crypto and blockchain sphere has witnessed unprecedented growth in terms of interest, adoption, and expansion.

In this article, we perform a quarter-wise analysis of cryptocurrency markets in 2020. Further, we review what is in store for the last quarter of 2020 for crypto and blockchain.

Q1: The Beginning of a Global Crisis

The start of 2020 brought new hopes for cryptocurrency markets as Bitcoin and other currencies saw gains of nearly 30% amidst the U.S-Iran tensions. The market capitalization of Bitcoin and major altcoins also peaked in mid-February 2020. Cryptocurrency derivatives’ trading volume also surged by 314% from the 2019 four quarters average. However, the stats took a sharp turn for the worst in March with the onset of a pandemic.

The effects of the global Coronavirus pandemic became evident in the later months of Q1 2020. Similar to all the other financial markets, cryptocurrency markets experienced the impact of Covid-19, with investors selling cryptocurrency assets in exchange for liquidity. One BTC trading at around $8,000 in January fell down below $4,000 in March 2020. In the first quarter of 2020, the overall cryptocurrency market capitalization also declined by 5%, as seen on this chart.

While Bitcoin suffered major losses, stablecoins and DeFi protocols managed to put in a positive performance in the first quarter of 2020. Chainlink (LINK) emerged as one of the winners with gains of 31.5% due to its strategic business partnerships and the rise of DeFi industry. Among cryptocurrencies, Dash (DASH) also experienced significant gains, rising 63% in Q1 2020. As investors moved from Bitcoin to the U.S. Dollar, stablecoins like Tether also witnessed an increase of $1.5 billion in supply in the first quarter.

Q2: A Gradual Recovery of Cryptocurrency Markets

Cryptocurrency markets started making a gradual recovery in the second quarter of 2020 with market capitalization increasing by 44.5%. At the same time, the spot trading volume of cryptocurrency markets declined by 55%.

The second quarter of 2020 held the Bitcoin halving event in May, where the issuance rate of BTC reduced from 12.5 to 6.25 BTC per block. Since its price decline in March, Bitcoin grew by 78% in a span of 48 days. However, the average trading volume of Bitcoin was 20% lower in Q2 2020 as compared to Q1 2020. The overall performance of Bitcoin was up by 42% in Q2 2020.

In this quarter, Ethereum outperformed Bitcoin with an increase of 1.6% in market dominance. DeFi assets continued to experience a sharp growth with Chainlink (LINK) and Aave (LEND) gaining +100% by the end of Q2 2020. In this quarter, Cardano (ADA) was one of the assets that displayed a maximum quarterly return of 200%. Tether (USDT) continued to experience as USDT circulation increased by more than 100% in the first and second quarter of 2020.

Q3: The Era of Decentralized Finance

The third quarter of 2020 has been about major regulatory developments, the DeFi craze, and the rise of cryptocurrency markets. The market capitalization continued to grow by 31% in Q3 2020. The trading volume of the top 30 cryptocurrencies also continued to grow by 34% in Q3 2020.

In the last week of July, the OCC announced that banks could offer custodian services for cryptocurrencies in the United States. The news prompted a mini bull run in the cryptocurrency markets. In August, Bitcoin jumped above the $10,000 mark and has continued its streak since then (as of October 2020).

The winners of Q3 2020 were the DeFi protocols and yield farming trends. The DeFi space exploded from $2 billion in July to $10 billion in September 2020. Trading volumes on Decentralized Exchanges (DEX) grew more than 700% from $3.8 billion in July to $30.4 billion in September.

As most of the DeFi protocols are built on the Ethereum blockchain, ETH experienced one of the strongest growths in Q3 2020. The capital inflow in stablecoins accelerated as the yield farming craze continued to grow. More than $9 billion flooded in the crypto markets in the third quarter of 2020 alone.

Future Perspectives of Cryptocurrency Markets in 2020

In the last few months, there has been a lot of momentum in the cryptocurrency industry, with developments from institutions venturing into cryptocurrency investments.

Square, led by Twitter CEO Jack Dorsey, poured nearly $50 million into Bitcoin investments. Institutional investments in cryptocurrencies, especially Bitcoin, is at an all-time high. Grayscale Bitcoin Trust saw a surge in investor interest, with its Bitcoin portfolio up by 90% in 2020. Visa, Mastercard, and even PayPal have ventured into the crypto space by providing services to buy, hold, and sell crypto assets from its network.

The institutional interest and the gradual mainstream adoption in digital currencies have a direct impact on the cryptocurrency markets as well. The recent surge of investments in Bitcoin have positively impacted its price, with BTC trading above $12,500 for the first time in 2020 (as of October 2020).

The year has been transformational for the crypto and blockchain industry. Although the markets experienced an impact of the Covid-19 pandemic, the recovery has been quick and strong. More importantly, the industry has developed strong fundamentals by attracting retail and institutional investors, governmental bodies, and even central banks. Although there are two solid months left in this year, it seems that the industry still has a lot in store for 2020.

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