Despite all odds, Bitcoin had a good run in 2021. The cryptocurrency was almost 70% up since the beginning of 2021, spearheading the entire crypto market combined to $2 trillion in value.
2021 was a huge roller coaster for cryptocurrencies. However, throughout 2021 below are the milestones achieved after creating $2 trillion worth of value in the crypto market.
- The debut of Coinbase in April, the first major crypto company to go public.
- Wall Street banks like Goldman Sachs increased their participation in the crypto market.
- Last but not least, approval of a trading fund linked to Bitcoin by the U.S. Exchange.
However, Bitcoins prospects were reduced due to heightened regulatory inspections and intense price fluctuation in the market. As a result, experts warn that the market could be heading towards a slump.
2022 looks like another roller coaster for cryptocurrency, as the analysts provide their most significant predictions.
Some experts believe that Bitcoin will head towards a significant slump in the coming months. Bitcoin jumped $69,000 in November 2021. Currently, it is sitting below $50,000, which is roughly 30% from its peak. However, the Wall Street pundits define a bear market when it declines more than 20% from recent highs. Bitcoin is notoriously famous for its volatility.
A professor of finance at Sussex University, Carol Alexander, said that she predicts that Bitcoin will go far below $10,000 in 2022, almost wiping out all its gain which it achieved in a span of year and a half.
She further continued that she would try to exit Bitcoin as soon as possible as the possibility of it crashing cannot be ruled out in the next year. Her notion is that Bitcoin has no fundamental value and is rather a toy than an investment.
Carol Alexander informs that Bitcoin will crash-dive as it has done in the past after a long run-up in the price. After nearing high at $20,000 a few months earlier, Bitcoin crashed close to $3,000 in 2018. However, as more institutional investors are joining the market, the cryptocurrency backers would most often say that things are getting better.
Union Bank’s private banking arm, Chief equity strategist Todd Lowenstein, said that historical data of Bitcoin appears to have bubbles and bursts. However, it’s a different narrative this time, similar to other bubbles.
Bitcoin as a common investment serves as a hedge to increasing inflation caused by government stimulus. Todd Lowenstein further added that the risk of a hawkish approach by the Federal Reserve might hinder Bitcoin’s progress.
As the liquidity tide is reducing, the Goldilock condition is ending, which will to large extent harm overvalued classes of asset and speculative market, which included cryptocurrencies, he said.
Only a few people think that the cryptocurrency party will end in 2022. However, a crypto market analyst at Japanese exchange Bitbank, Yuya Hasegawa, said that the most significant risk factor quantitatively tapering by the Federal Reserve has been decided and already priced. The crypto investors in 2022 are on the lookout for the approval of the first Bitcoin ETF in the U.S.
Even though the Security and Exchange Commission has given the go-ahead signal for launching ProShares Bitcoin Strategy Exchange-traded funds, the product only allows the investor to trade in futures rather than directly exposing the cryptocurrency itself.
When an investor is obliged to buy or sell an asset at a later date upon an agreed-upon price, it is called Futures, a financial derivative. Experts warn that tracking the future price of ProShare’s exchange-traded funds can prove too risky for novice traders, most of whom have invested in crypto.
Vice president of corporate development, and global expansion at crypto exchange Luno, Vijay Ayyar, said that the Bitcoin Futures ETF is widely regarded as not very retail-friendly, which was launched this year. Around 5-10% of the amount is attributed to its high cost of rolling over contracts.
He further adds that the Bitcoin Futures ETF is allowed in 2022, as the market is now not only large enough but is mature enough to support one.
The world’s biggest bitcoin fund, Grayscale investments has filed to convert its bitcoin trust into a spot exchange-traded fund. However, there are many other Bitcoin Exchange-traded fund applications that are waiting for an opportunity.
The crypto industry is evolving; Bitcoin, the front runner in the crypto markets, has its market share waned with other digital currencies like Ethereum, playing a much more significant role. According to the experts, this trend will continue well into 2022, as the investors are continuously looking for a smaller pocket of crypto, hoping that it converts into significant gains.
Sussex University’s Carol Alexander identified Ethereum, Solana, Polkadot, and Cardano as cryptocurrencies to watch in 2022.
Chances of retail investors switching trading Bitcoin to other coins belonging to the blockchain after realizing the danger of trading on unregulated venues is high. She said it would serve a fundamental and essential role in decentralizing finance.
She even predicts that around this time next year, the combined market capitalization of smart coins like Ethereum and Solana will be at par with Bitcoin’s market capitalization or even greater.
Network steward at crypto platform ICHI, Bryan Gross, said that there is likely to be the highest growth area of crypto due to emerging developments like decentralized finance and decentralized autonomous organizations. Decentralized finance focuses on creating traditional financial products without mediators. At the same time, decentralized autonomous organizations can be deemed as a new type of internet community.
For the first time this year, the total money deposited into decentralized financial services surpassed $200 billion, and according to the experts, this demand is expected to grow even further in 2022.
In the tech world, DeFi is broadly known as Web3. Web3 is a movement that is calling for new, decentralized reparations of the internet and is also likely to gain more popularity next year. Web3 surrounds DeFi as well as other blockchain technology like non-fungible tokens. Elon Musk and Jack Dorsey are already cynical about this.
Regulators this year have begun to flex their muscles on cryptocurrencies. Right from altogether banning crypto-related activities in China to cracking down on specific aspects of the market by the U.S. authorities. According to the analysts, in 2022, further regulations will play a vital role in the sector.
Vijay Ayyar said that the regulation would be at the forefront in 2022, further adding that the interest from the various governments, especially the United States, is poised to bring regulation into the crypto space.
He further wished that the ambiguity caused by the Security and Exchange Commission be addressed. He said that on the legal “gray zone” of the cryptocurrencies, which states that the rest are not securities except for Bitcoin and Ethereum.
Ripple, a blockchain company, is entering a legal battle with the United States watchdog over XPR, which is closely associated with Ripple. The Security and Exchange Commission alleges that Ripple and two of its executives illegally sold $1.3 billion worth of tokens as XPR is unregistered security. In defense, Ripple said that XPR should not have been considered security.
Experts say that stablecoins would be the next target of the regulators next year. The value of these tokens is pegged to the price of the current U.S. dollars. The world’s biggest stablecoin, Tether, is pulled into the controversy, questioning whether it holds enough assets in its reserve to be valued against the dollar.
Todd Lowenstein said regulators would go after the stablecoin as they wish to know if the amount of underlying assets justifies the leverage deployed. Unfortunately, the memory in the people’s mind about the housing and mortgage crisis is all too fresh, which led to the suspect and the risk appetites reprising aggressively.
As the regulators have begun questioning decentralized finance, the central bank umbrella group, the Bank for International Settlements, called for regulation of the decentralized finance. However, it was worried that it was not the case as they were marketing the service themselves as decentralized.