This year has been as volatile as ever for crypto investors, and as we approach 2022, the highs and lows are still cloning thick and fast.
As we end the year, Bitcoin slumped from a record $69,000 a coin but is levelling around the $50,000 mark.
The year in crypto has been a bumpy ride, but here are some predictions for the year ahead – because, if anything is sure, it’s that the journey is far from over.
Table of contents
- Major Crypto Changes In 2021
- Drivers Behind the Crypto Market Crash
- The Key 2021 Crypto Events
- Five Predictions for Crypto in 2022
- 2021: The Year in Crypto
Major Crypto Changes In 2021
All told, Bitcoin may have slumped rather severely, but it’s had a decent year. The $69,000 surge in November has backtracked to around $50,000, but it’s also approximately 70 per cent up on the start of 2021, contributing to a $2 trillion crypto market value.
The first major crypto business has gone public, Wall Street Banks have started to get involved, and the US has approved the first ETFs linked to Bitcoin, so the future is looking bright.
However, there has also been no end to explosive events in crypto, with Bitmart losing a catastrophic $150 million in a hacker attack this month, as reported by Crypto News.
This security breach came through an Ethereum hot wallet and resulted in a suspension of withdrawals while the exchange shored up its security.
Within the same week, Bitcoin collapsed, dropping 16.5 per cent in one day and losing around a fifth of its trillion-dollar worth.
One undisclosed trader, who owns the largest Bitcoin assets globally, lost $2.48 billion in 24 hours, seeing their Bitcoin wallet fall from $16.29 billion to $13.8 billion.
These sudden, huge-value dips reflect the instability of crypto. While it’s often seen as a haven from fiscal policies and inflation, it remains a decentralised asset that is highly susceptible to changes in market demand.
Drivers Behind the Crypto Market Crash
It’s important to note that Bitcoin has begun to recover value, but several contributing factors have led to surges in price and subsequent crashes.
- Financial markets have been under severe pressure since the pandemic began, with inflation rates climbing across the board and higher restrictions from central banks.
- China has clamped down hard on Bitcoin mining, one of the prominent reasons that Bitcoin crashed earlier in the year.
- The recent emergence of the new Omicron COVID-19 variant has also come into play, creating a climate of risk aversion as we wait to see the economic fallout.
In the positive news, El Salvador approved Bitcoin as legal tender in September 2021, adding to the potential for growth, although this landmark had a fair few roadblocks along the way.
The financial services industry plays a part as blockchain and crypto payments become more broadly accepted, and crypto is beginning to establish itself as a secure payments solution.
Digital asset businesses have grown considerably, with Coinbase going public at double the Nasdaq valuation, followed by other crypto enablers and miners, including Stronghold Digital Mining, Bakkt and CoinShares.
Therefore, while the major crashes make the most noise, there is a growing rumble of acceptance that means it is becoming more accessible for all businesses in the crypto space to join the mainstream.
The Key 2021 Crypto Events
Cryptocurrencies have evolved this year, with talk of a regulated framework in most major trading countries, adoption of crypto as a legitimate currency, and investments by ordinary people, not just traders and seasoned fund managers.
Influenced by figures such as Elon Musk and Jack Dorsey, what was once a misunderstood asset deemed ‘shady’ by the general public is now a conventional investment option.
There are perhaps three pivotal events that have factored into the yearly performance of crypto:
- The Coinbase IPO: while share prices are down, the listing of this crypto business has more expansive impacts across the market. A successful listing acts as a marker for market approval and enhances the regulatory appetite to look at the legal framework behind crypto assets.
- The Binance Ban: Binance, the largest crypto exchange, was banned in the UK and Europe. This non-regulated exchange stands outside the normal rules, but the takedown reflected that even the largest exchanges are not immune from restrictions.
- Bitcoin ETFs: The Chicago Mercantile Exchange (CME Group) introduced the first exchange-traded fund, leveraged against Bitcoin futures. This new ETF raised a record capital investment when listed on the New York Stock Exchange in October 2021.
These events contribute to a swiftly changing market appetite and pave the way for future changes to make crypto a widely accepted asset.
Five Predictions for Crypto in 2022
So, what can we expect from the year ahead for this most unpredictable of markets?
Let’s look at five predictions for how crypto will perform in 2022.
1. Big News to Come on the Regulatory Front
Regulation is a significant deal for crypto, and regulators in China, the US, UK and Europe, have flexed their digital muscles to ban certain activities or attempt to control parts of the market.
In 2022, regulation will be the hot topic, with governments tightening up cryptocurrency rules and clarifying many of the vague grey areas surrounding crypto.
Crucial areas include stablecoins and whether Tether (the world’s largest stablecoin) has enough worth to justify the link against the dollar.
2. Introduction of the First Spot Bitcoin ETF
We’ve talked about the Bitcoin Strategy ETF before, but this tracks futures without investors having the opportunity to make spot investments.
While this SEC approval is noteworthy, the cost of rolling over ETF contracts is very high, so there is a drive to approve a Bitcoin spot ETF in 2022, with the market now mature enough to support this kind of product.
3. A Possible Further Crypto Crash
Crashes are par for the course in crypto, but some experts expect a massive decline in 2022, with some economic analysts suggesting a dip as low as $10,000 for Bitcoin, wiping out all the gains made in the last 18 months.
Let’s not forget that Bitcoin crumbled to $3,000 or so in 2018, from a high of $20,000, but this opinion is subjective, and other analysts aren’t convinced the party is over.
4. Sweeping Adoption of Crypto in Major Institutions
Adoption of crypto and blockchain has surged in 2021, with fintech providers like PayPal and Square allowing crypto payments through their platforms.
Global corporations may have a major impact on crypto, with adoption by large banks or retailers adding major credibility to spark a chain reaction of a far more comprehensive rollout of digital currency payments.
5. Expansion of Smaller Crypto Pockets
Defi, or decentralised finance, is growing in a big way. Bitcoin has historically been the market share leader, but competitors like Ethereum have begun stepping up to the plate.
Analysts expect this pivot to continue as smaller coins such as Polkadot, Solana, and Cardano start to make moves, and retail investors switch to coins in other, less notorious blockchains.
One prediction is that the Bitcoin market cap will drop to half that of smart contract coins this time in 2022
2021: The Year in Crypto
Frequently asked questions about Crypto
Any speculations are just guesses, and no one knows how crypto investments will perform. There is little history to base estimates against and a much higher risk than conventional investment structures.
However, economic analysts forecast a year of greater regulation, broader adoption of crypto throughout consumer markets, and the growth of small crypto coins to rival the major players.
Crypto isn’t for everyone, and although it’s tempting to join the flock, it’s equally important to take your time with investment decisions.
Doing your research, establishing long and short-term investment goals, and ideally seeking advice from an experienced adviser are all advisable.
While Bitcoin may (or may not) fall badly in 2022, many competing crypto coins are widely tipped to grow extensively in value.
Investment thresholds depend on the exchange you’re using.
Coinbase has a minimum of $2 spend, but the minimum deposit depends on which method you use to transfer cash to your account.
Every investment has a risk vs reward scenario, and crypto is more exposed than many other investment assets.
One of the notable risks for 2022 will be around legal regulatory frameworks, and understanding taxation liabilities is crucial – in some countries, crypto is categorised as a currency, but in the States, it is a property and taxed accordingly.
The potential of crypto licences for businesses to accept cryptocurrency payments may also restrict the rights of some companies to operate in specific countries.
More and more retailers are starting to accept cryptocurrencies, either directly or through a third-party app.
Shopify, Whole Foods, Microsoft, Etsy, Amazon all have options, with the latter offering the opportunity to buy vouchers through Bitrefill to convert to cash on the site.