Published: January 5th, 2022
Historians might declare 2021 the year that crypto came into its own. The market capitalisation of all cryptocurrencies combined tripled from around USD 800 billion at the start of the year to nearly USD 2.1 trillion at the time of writing. And while bitcoin and ethereum continued to dominate the scene, price gains and user footprints were shared more evenly across the ecosystem. On January 1st, BTC and ETH made up 80 per cent of the market cap. Today they account for just above 60 per cent.
2021 also saw the decentralised finance (Defi) marketplace explode, alongside a surge in demand for non-fungible tokens (NFTs).
It all suggests another year of opportunity for crypto traders. Here are the four major trends we think will shape the market in 2022.
The crypto industry began as a decentralised alternative to highly structured and regulated financial systems that sometimes seemed rigged in favour of entrenched interests. Today, many of crypto’s leading names say they are open to more oversight by financial regulators, accepting it as a necessary step to greater adoption.
It looks like they’re going to get their wish. As crypto adoption and market cap grew last year, Governments took note and began looking for new ways to protect retail investors and stop cybercriminals. At one end of the spectrum was China, which made crypto all but illegal inside its borders. At the other was El Salvador, which made bitcoin a form of legal tender in the country, subject to all the rules and regulations of its fiat currency.
In the US and Europe, investors and crypto startups are hoping for a measured approach, where the major watchdog agencies will work together to create clearer taxation guidelines and potentially smooth the way for cryptocurrencies to find a place in mainstream investments such as retirement savings accounts. If, and it's a big 'if', regulators and crypto projects can work together, it could give adoption another boost by providing investors with an extra layer of confidence.
This year, the first bitcoin futures exchange-traded fund (ETF) arrived on the New York Stock Exchange. Called BITO, it achieved close to USD 1 billion in trading volume on the first day. That record-setting debut confirmed a substantial pent-up demand from investors for a crypto product tradeable on traditional exchanges. It was just waiting to get out.
With an ETF, skittish investors can gain exposure to crypto futures markets without having to hold any crypto directly. While that’s a welcome development, the "spot" bitcoin ETF many crypto traders yearn for has yet to arrive.
That would give investors exposure to movements in the current price of bitcoin, and America's SEC has been inundated with applications for new spot ETFs. So far, its resisted approving any of them. With BITO's performance and investors' faith in it, 2022 could be the year that the first US bitcoin spot ETF comes to market. That could pave the way for the next logical development: ETFs tied to other cryptocurrencies.
One of the significant concerns still haunting crypto adoption is the environmental impact of crypto activity and mining in particular.
The computational power mining requires also requires vast amounts of electricity. The coins that drive most crypto activity use a transaction confirmation system called 'proof of work' that is incredibly energy-intensive, while discarded ASICS mining computers are a major source of e-waste.
However, this year, newer cryptocurrencies like Solana and Cardano are expected to grow their already impressive user base. They use a different system called 'proof-of-stake' method, which uses much less power. And ethereum, the second-largest coin by market cap, is also set to shift to proof-of-stake. That’s expected to prompt other cryptocurrencies to become more sustainable.
Bitcoin will continue to be a power-hungry option. However, if more environmentally-friendly competitors increase their market share, BTC might be forced to follow suit.
The fact that cryptocurrencies are intangible assets has been a barrier to adoption. People naturally associate money with coins, paper notes and precious metals. But with the growing footprint of bitcoin ATMs around the world, people will be better able to visualise digital assets as something real and palpable.
Bitcoin ATMs have grown steadily since 2015 and hit new heights in 2021. Numbers from Coin ATM Radar suggest there are more than 33,000 bitcoin ATMs now operating across the globe.
These crypto cash machines enable consumers to buy BTC using a credit or debit card. That simplified accessibility makes crypto more attractive to newbies and enthusiasts. They could also potentially replace crypto brokers for simple transactions, though ATM fees will likely need to come back to Earth first.
Bitcoin is the biggest cryptocurrency and the benchmark in terms of crypto market price movements.
Last year BTC grew in value by leaps and bounds. But it also had major retrenchments, falling back far enough at various points to suggest it had crashed forever … only to climb again.
In April, BTC hit an all-time high of USD 60,000; then, in July, it plummeted to less than USD 30,000. By November, it had set a new all-time high of close to USD 70,000 before falling back to its current level of USD 46,300 (at the time of writing).
That kind of extreme volatility makes it easy for mainstream commentators to question the seriousness of the asset. In 2022 it will continue to drive accusations that the crypto market remains risky and immature.
Of course, for sophisticated traders, BTC’s volatility makes it attractive. Big price fluctuations open the door to arbitrage opportunities. But many asset managers are still advising clients to stay cautious and cap their exposure to no more than five per cent of their portfolio. In 2022, investors will need to sustain tolerance for an asset that sinks just as often as it soars.