The year 2021 was an eventful one for the crypto market. And it’s not just because token prices increased by thousands of percentage points, reaching new ATHs and demonstrating that massive crypto gains are still very much on the table.
More importantly, last year’s crypto growth was driven by widespread adoption, integration, and innovation, such as El Salvador’s bitcoin policy and the acceptance of NFTs by major brands and mainstream celebrities.
So, what comes after the big crypto year? The fact remains that it’s difficult to predict which aspects of the crypto scene will be the hot topic in 2022. This is partly because cryptocurrency market predictions sometimes seem too good to be true, but skeptics who usually counter such predictions have missed some incredible gains.
As it is, much more is expected in the crypto world in 2022. We have a lot to unpack, so this will be a two-part article. The following are some of the key trends that we believe will emerge or gain traction in 2022:
The Continued Growth of DeFi
Experts predict that decentralized finance (DeFi) will continue to grow due to advancements in automated market-making and other liquidity-providing solutions, resulting in attractive yields on investments.
DeFi, or decentralized finance, has emerged as a transparent and permissionless way for users to interact with one another. DeFi assets were valued at more than $180 billion in 2021, and this figure is expected to rise further this year.
As there is a greater need to replicate the features of physical items, such as uniqueness and ownership proof, we will see the DeFi market expand. Plus, more dedicated DeFi applications will emerge.
Since the DeFi space is here to stay, we will likely witness an increase in regulation. This will lead to greater collaboration between traditional and decentralized finance in the long run.
The banking industry has already begun to recognize DeFi’s potential to transform the rigidity of current processes. As a result of the demands of their clients and shareholders, many well-known financial institutions are now looking into how the best possible ways to engage with DeFi and the crypto markets.
While some big names entered the DeFi space last year to meet their customers’ demand for flexible and decentralized services, this number will grow in 2022, bringing greater exposure to the DeFi space. Furthermore, with the emergence of platforms such as OlympusDAO and subsequent forks such as Wonderland, a new DeFi known as DeFi 2.0 is likely to gain traction.
More Digital Asset Companies Will Go Public
Coinbase made waves in April last year as the first cryptocurrency exchange to go public. The company listed its shares directly on the NASDAQ stock exchange, with so many enthusiasts having high hopes for the project. Its performance at its debut superseded the already high expectations.
Investment experts/managers like VanEck and others believe that more digital asset companies will walk the way of Coinbase into the public markets in 2022. Newly listed companies may include anything from digital asset miners to payment companies and other crypto-related businesses.
Bitcoin Adoption as Legal Tender In More Countries
El Salvador was in the headlines in September 2021 when it became the first country in the world to accept Bitcoin as legal tender. Many crypto experts believe that more countries will take the plunge and accept Bitcoin as legal tender in 2022.
After El Salvador’s Bitcoin adoption announcement, Twitter saw a flurry of politicians and leaders from across various Latin American countries, including Paraguay, Argentina, Panama, Brazil, Mexico, and Nicaragua, uploading new profile pictures with laser eyes, showing support for Bitcoin and calling for the same type of action.
They backed this move because they believe that it will reduce the reliance on the dollar and inflation rates, increase financial inclusion and bring in more entrepreneurs. However, while the move could be motivated by FOMO, BitMEX CEO Alexander Höptner predicts that at least five countries that will accept Bitcoin as legal tender by the end of this year.
And according to him, they’ll all be developing countries. Also, global investment manager, VanEck sees the value of Bitcoin as a currency for certain emerging countries and predicts that at least one will adopt Bitcoin as legal tender in 2022.
The cryptocurrency market positively correlates with Bitcoin price almost all the time; however, things are taking a noticeably different direction this season.
Decoupling occurs in financial markets when the returns of one asset class diverge from their expected or normal pattern of correlation with other asset classes. It means when different asset classes that typically rise and fall together begin to move in opposite directions, such that when one is increasing, the other is decreasing.
In a recent YouTube address, Hoskinson, the founder of Cardano (ADA), spoke at length about how the prices of altcoins are beginning to move independently of Bitcoin. Usually, altcoins positively correlate with Bitcoin, but many new projects are working to have price movements based on their value.
Hoskinson emphasized seeing a significant negative correlation for the first time, with Bitcoin’s dominance falling to 43%. The Cardano (ADA) founder also pointed out that institutional preference is no longer solely for Bitcoin. Crypto users are even starting to distinguish between proof-of-stake and proof-of-work. With more projects decoupling from Bitcoin, we will likely see more counter-cyclic movement this year.
More Regulations Coming To Stablecoins
The Biden administration wants Congress to pass broad regulations for stablecoins, arguing that token issuers should be chartered banks or insured depository institutions. The recommendations were contained in a long-awaited report issued by the President’s Working Group on Financial Markets, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency.
For clarity’s sake, stablecoins are digital assets designed to keep their value constant at one dollar. They’re supposed to be backed by reserves made up of hard currencies, treasury bills, or cash substitutes such as commercial paper. Some popular examples of stablecoins include Tether (USDT) and USD Coin (USDC).
Stablecoins, on the other hand, is viewed by regulators as a potentially destabilizing financial instrument. The concern is that coin issuers aren’t backing up their tokens with enough hard currency or ultrasafe securities like T-bills.
Currently, stablecoins are used to trade cryptos and other digital assets such as non-fungible tokens. The amount in existence has more than doubled in the last 20 months, rising 20-fold to over $130 billion.
However, in a financial panic, confidence in stablecoin could evaporate, resulting in a run on the assets if people try to redeem them all at once for cash. This, in turn, could have a cascading effect on other markets, causing them to seize up quickly and forcing federal regulators to intervene with emergency liquidity measures.
Therefore, instead of allowing an unregulated market, the plan is for coin issuers to become chartered bank holding companies subject to federal and state oversight. There would also be prudential standards for new issuers, including asset reserve and liquidity requirements. Entities that don’t get chartered won’t be allowed to issue stablecoins.
The President’s Working Group on Financial Markets believes that stablecoins could enable faster, more efficient, and more inclusive payment options if properly regulated.
Increased Adoption of Metaverse Applications
In 2021, tech companies and brands embraced the Metaverse concept, with Facebook leading the charge after its rebranding move. Also, in November, the Government of Barbados became the first country to establish a metaverse embassy in Decentraland.
In addition, Metaverse Group, a subsidiary of Tokens.com, purchased $2.4 million worth of Decentraland real estate to develop digital fashion shows and commerce. New York-based metaverse real estate firm Republic Realm also bought a plot of digital land worth $4.3 million in one of the virtual world portals -The Sandbox earlier in December.
With Microsoft planning a workplace service, Mesh, as part of its Teams software and Meta beta-testing its professional applications, the metaverse trend will likely take off in 2022. Games such as Fortnite and Roblox have evolved into interactive virtual worlds, and virtual reality headsets will allow users to control their avatars and interact in the metaverse.
The metaverse opens up new avenues for brands to expand their advertising – for example, Nike recently acquired the virtual fashion platform RTFKT, and Ralph Lauren recently launched a digital collection on Roblox.
Also, prices for metaverse-related cryptocurrencies such as Decentraland’s MANA, THETA, ENJ, AXS and SAND, rose sharply in late November, even as Bitcoin and Ether fell from their all-time highs. Therefore, it’s safe to say that there’s a lot of potential in this emerging market.
Decentralization of the Internet by Web 3.0
Web 3.0 is unquestionably one of the most exciting areas to watch in 2022 and beyond.
Web3 refers to the ecosystem of next-generation Internet applications that will run on blockchains. The first version of the Internet focused on static content, while Web 2.0 was fueled by disruptive technologies like mobile internet access and social networks.
However, Web 3.0 is largely based on blockchain technology and aims to give users more control over their data while making the internet more decentralized, verifiable, and secure.
Tim Berners-Lee, the creator of the world wide web, foresaw this next evolution of the web, defined by the absence of any central governing or managing authority. It will not have a centralized control node or a single point of failure. According to Berners-Lee, this also implies freedom from arbitrary censorship and surveillance.
Because of the need for infrastructure in computation, data management, hosting, storage, and other critical services, the rise of Web 3.0 has taken time to fully manifest. This year, we anticipate significant advancements in Web 3.0 technologies, as well as the cryptocurrencies that support them, such as Helium, Arweave, Render, Theta, and Filecoin.
The majority of blockchains are self-contained networks designed to address specific network needs. However, as blockchain adoption grows, the need for different chains to interoperate grows. This is because of roadblocks experienced in specific blockchains that can easily be solved with scaling solutions.
Almost all DeFi projects are based on the Ethereum blockchain or started on the Ethereum blockchain, the de-facto standard for many decentralized apps (DApps) and protocols. Scalability in Ethereum, on the other hand, has brought numerous issues.
Costly gas fees, a cumbersome onboarding procedure, excessive repetition, and obstacles for developers attempting to create new DApps and supporting products are among the issues that have slowed uptake.
However, several blockchain interoperability projects, including Polygon, Polkadot, and Cosmos, are developing methods for different chains to communicate with one another. Users will be able to transfer assets between chains with cross-chain functionality.
Instead of competing in a multichain world, we may support and connect new chains to improve the overall user experience. A multichain ecosystem would allow anyone to build projects anywhere.
Crypto is a volatile, exciting, and speculative market, and its future cannot be predicted with any certainty. Compared to the stock market, which is based on more predictable cash flows and earnings trends yet can’t be predicted with some confidence, the crypto market is still the Wild West.
All of these trends are founded on several premises. As a result, older trends play a significant role in making these forecasts. If all of these forecasts come true, 2022 will be a fantastic year for blockchain and the crypto industry. However, when it comes to the crypto space, one should always expect the unexpected.
As we begin this unpredictable new year, one thing is certain: whatever happens next will be history in the making—and fascinating to witness and document.
However, before making any investment decision, we recommend conducting your own research and considering the most recent market news, technical and fundamental analysis of the crypto market, and expert opinion. Remember that past performance is not a guarantee of future results. Furthermore, never invest more than you can afford to lose. We hope to see you make more profits in 2022!
Read Part 2 Here