2021 was a volatile yet highly fruitful year for cryptocurrencies. The crypto market capitalization tripled from under $800 billion on January 1 to around $2.2 trillion today, with some assets doing astronomical returns in terms of both price and users. And those increases were distributed across the ecosystem, as Bitcoin and Ethereum went from making up 80% of the market cap to just over 60%.
Moreover, the continued prosperity of DeFi (decentralized finance) applications and non-fungible tokens (NFTs) indicate that the upcoming year could be even more profitable.
Here are five major crypto storylines to look for as we kick off 2022.
1. More regulation
The crypto industry has thus far thrived thanks to (or despite) its decentralized structure and unregulated nature. But many in the industry will tell you they are open to regulations as long as the rules are transparently applied.
Governments have been trying to find a way to regulate cryptocurrencies in a way that hampers cybercriminals and increases retail investor safety. China has demonstrated one (unpopular) way of doing that, which is to make crypto activities within its borders all but illegal, except those sanctioned by the government. (See: China’s digital yuan.)
Crypto investors and entrepreneurs are hoping for a more moderate approach stateside, where the SEC, CFTC, and offices under the Treasury Department have all been advocating for new regulations. For investors, regulations could mean clearer taxation guidelines and even the ability to incorporate crypto investments into retirement accounts. And if prominent cryptocurrency trading tools tailor themselves to regulations, they could help boost adoption by providing an extra layer of security to investors.
2. Bitcoin ATMs multiply
The intangible nature of cryptocurrencies has long worked against them; many people have trouble seeing Bitcoin as real money since they can’t see or touch Bitcoins. But now that the installation of Bitcoin ATMs is slowly becoming a reality in various parts of the world, people will be able to perceive digital assets as palpable investment instruments.
The number of Bitcoin ATMs has been increasing steadily since 2015 and reached new highs in 2021. Today, there are more than 33,000 Bitcoin ATMs across the globe, according to Coin ATM Radar.
Bitcoin ATMs essentially allow people to purchase BTC using their credit or debit cards. This makes cryptocurrencies highly accessible for enthusiasts and newbies alike. Bitcoin ATMs can actually eliminate the need for crypto brokers as people can carry out crypto transactions easily using them—though fees may still have people looking elsewhere for better rates.
3. Environmental improvements
Crypto skeptics have targeted the environmental impact of blockchain networks, and the issue even haunts some crypto enthusiasts.
Bitcoin mining does require a lot of computational power, which uses a lot of energy. Since most of the cryptocurrency market cap is generated by coins that use proof of work for their mining process, any major shift on energy costs is unlikely for 2022. In addition to the high energy costs of Bitcoin mining, the process also generates high e-waste from discarded mining rigs.
On the other hand, newer cryptocurrencies such as Cardano and Solana have been lauded for adopting a proof-of-stake method, which does not entail high use of energy. And Ethereum, the No. 2 coin by market cap, is on the cusp of shifting to proof-of-stake, which should lead other cryptocurrencies to follow suit and make their processes a lot more environmentally friendly. If adoption of environmentally-friendly crypto grows in 2022, it will be beneficial to the space, even if Bitcoin’s energy use doesn’t improve.
4. Continued Bitcoin price volatility
Bitcoin is by far the largest cryptocurrency in the world and its price remains the most widely accepted benchmark for the crypto market.
In 2021, Bitcoin displayed a consistently volatile performance by setting an all-time high in April above $60,000, then crashing to less than $30,000 in July, then setting a new all-time high of nearly $70,000 in November, then dropping down to its current level well below $50,000.
That volatility—the characteristic Bitcoin bears point to when dismissing the seriousness of the asset—is likely to continue well into 2022 and beyond considering that the crypto market is not yet fully mature.
The volatility is one reason why many sophisticated traders like Bitcoin—its fluctuations allow for arbitrage opportunities—but also why many asset managers advise caution, and tell clients to only allocate 5% of their portfolio to crypto. Investors should be fully prepared for Bitcoin to plunge just as often as it soars.
What crypto bulls expect is that Bitcoin and others will continue to be volatile in the short term, but will steadily grow in value over the long term, despite periodic steep corrections. Hence, investors need to be patient and not fret over temporary ups and downs, and commit to a long-term outlook.
5. Crypto ETF approvals
When BITO, the first Bitcoin futures ETF (exchange-traded fund), hit the New York Stock Exchange this year, it reached nearly $1 billion in trades on its first day, edging up toward a record debut. It was an immediate confirmation of the long-building investor interest in a crypto product they can buy and trade on regular exchanges.
But BITO does not hold any Bitcoin—it’s a way for retail investors to get exposure to Bitcoin futures, not actual BTC. It is not a “spot” ETF. The SEC has been inundated with applications for ETFs that are based on the current price of cryptocurrencies, but has never allowed one. However, based on the performance of BITO and the faith that investors are putting in it, a Bitcoin spot ETF looks highly likely to get through in 2022 or very soon after—along with potential ETFs tied to other cryptocurrencies, which could bring in a flood of new retail investors.
Disclaimer
The views and opinions expressed by the author are for informational purposes only and do not constitute financial, investment, or other advice.
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