Cryptocurrency had a wild year in 2021. Despite its recent decline, price of bitcoin has still increased by more than 70% over the last 52 weeks.
More importantly, bitcoin and other cryptocurrencies have made tremendous strides, not only in terms of valuation — the cryptocurrency market cap is now estimated to be $2.5 trillion, more than double what it was a year ago — but also in terms of growing acceptance.
According to one midyear survey, there were 221 million cryptocurrency owners, more than double the number in January. Additionally, El Salvador declared Bitcoin legal tender this year, and several countries, including the United States, have issued Bitcoin-based exchange-traded funds.
Simultaneously, we saw a strong backlash against cryptocurrencies. China has been one of the most forthright in its crackdown, evicting crypto miners and prohibiting the majority of cryptocurrency transactions for its billion-plus citizens. India is contemplating comparable measures.
And even in jurisdictions where governments are hesitant to prohibit crypto, 2021 has been a year of skepticism about the energy drain, and thus climate impact, that crypto may entail.
What does the new year hold in light of these contradictory signals? As editor of the fintech newsletter FIN, here are the key crypto trends I see for 2022:
Many El Salvadors
We will see further advancements in the adoption of cryptocurrency by the general public. While they may not always take the form of legal tender, financial institutions will increasingly embrace cryptocurrency as a part of their portfolio as a result of customer demand. Numerous banks and financial service providers will use cryptocurrency to attract and retain customers.
Bitcoin Expansion of secondary markets or derivatives
Purpose Investments of Canada launched what it claims are the world’s first bitcoin-based exchange-traded funds in February. It now manages approximately $1.4 billion less than a year later.
There is no reason why this cannot be replicated ten or one hundred times in markets outside the United States. And, despite its reluctance, the Securities and Exchange Commission may approve a bitcoin or cryptocurrency exchange-traded fund in 2022.
Individual investors are also increasingly likely to recognize that, despite the risks, they can profit from a crypto portfolio and borrow against it, thereby extending the crypto ecosystem.
The Ethereum battle will continue.
In recent months, an intriguing competition has developed between Ethereum’s crypto-titan status and several crypto blockchains claiming to be faster and cheaper.
While the debate may not be resolved by 2022, prudent investors are likely to rebalance their portfolios to be safe.
For the time being, the end of Big Tech competition
The year 2021 has been a remarkable retreat for tech behemoths that once aspired to crypto dominance.
Meta, formerly known as Facebook, has been dragging its feet regarding their digital currency, dubbed Diem, for years. Diem’s recent departure of Meta’s head of cryptocurrency David Marcus all but guarantees that it will be irrelevant even if it makes it out of the starting gate.
This departure comes on the heels of Google’s October announcement that it would abandon its ambitious plans for a full-fledged payment and banking service. The exit of humbled technology companies should provide an opportunity for existing cryptocurrencies and stablecoins to grow.
Bitcoin backlash against the government will continue.
It’s perplexing, but the more the world desires crypto, the more certain governments seek to suppress it.
While banning cryptocurrency is technically impossible, governments can make it extremely difficult for citizens to trade (by denying licenses to exchanges, for example). Expect increased scrutiny of cryptocurrency mining’s climate impact in the United States and Europe.
Volatile growth for the most valuable coins
Occasionally, the crypto rollercoaster can obscure the fact that the market for the largest coins was significantly higher in 2021. There is no reason to believe that pattern will shift in 2022.
Bitcoin could reach $100,000 in 2022, according to Bill Barhydt, CEO of crypto exchange Abra and a well-known bitcoin bull. That is audacious but not insane. However, investors must accept that the stock may fall another 20% on its long journey to that level.