2021 has been a wild but successful year for cryptocurrency investors. Despite the recent plunge in the crypto markets, bitcoin still boasts a 64.3% gain over the past 12 months while the crypto market has more than doubled in value to a market capitalization estimated at $2.5 trillion.
Seasoned cryptocurrency traders are no strangers to the excessive volatility that comes with the territory, and 2021 has not been any different. However, the current year will probably be more remembered as the year in which the so-called meme-based cryptocurrencies emerged.
For instance, back in January, a lesser-known crypto coin known as Dogecoin rallied more than 800% in the space of a month after Tesla Inc.’s (NASDAQ:TSLA) CEO Elon Musk, through a series of cryptic tweets, encouraged his followers to "hodl" DOGE.
Not long after, Singapore-based Terraform Labs' native digital token Terra soared 50% in the space of a week after 100M Terra tokens got burned, effectively removing them from coin supply forever, as Alpha Impact CEO Hayden Hughes told Bloomberg.
"This reduction in supply combined with the popularity of Luna staking (where staking participants get new tokens) has created a supply shock that has driven up the value."
Terra has gained more than 10,000% in the year-to-date, and now boasts a market cap of $72.9B, up from less than $200M in the same year-ago period, making it the tenth largest crypto, according to data from CoinMarketCap. Terra remains highly volatile, and is currently changing hands at $87.33 per token.
Meanwhile, the world’s largest cryptocurrency exchange, Coinbase Inc. (NASDAQ:COIN), finally went public via a direct listing on the NASDAQ in April, becoming the first ever crypto exchange to list in the stock markets.
Whereas the Santa Rally has failed to materialize in cryptoland, trading firm QCP Capital says this is a right time to buy and has predicted that a short squeeze could soon come thanks to overly nonchalant traders. Here are top 3 predictions for bitcoin and the crypto markets in 2022.
#1. Expansion in secondary markets
After years of being shunned on Wall Street and by traditional financial markets, bitcoin and cryptocurrencies are finally enjoying their moment in the sun. Earlier in the year, S&P Dow Jones, operator of the famous S&P 500 and the Dow Jones Industrial Average (DJIA) launched three crypto indexes: S&P Bitcoin Index, S&P Ethereum Index and S&P Crypto Mega Cap Index, designed to measure the performance of digital assets tied to them.
Although it’s been reluctant to do so, the Securities and Exchange Commission(SEC) could approve a bitcoin or crypto ETF in 2022. After all, its neighbor the north has shown it can be done: in February, Canada’s Purpose Investments launched what it claims to be the world’s first bitcoin-based ETFs: Purpose Bitcoin ETF. The new fund now boasts $1.4 billion under management less than a year after launch.
Meanwhile, individual investors are increasingly warming up to the idea that they can build a profitable crypto portfolio, despite the risks, and even borrow against it thus extending the crypto ecosystem.
#2. Bitcoin Could Hit $100,000
Over the past two years, bitcoin and the leading cryptocurrencies have been taking out new highs, with bitcoin hitting an all-time high of 68,000 in November.A cross-section of Wall Street is now saying this trend is set to continue in the coming year.
Indeed, Bill Barhydt, CEO of crypto exchange Abra and an avid bitcoin bull, says bitcoin could hit $100,000 in 2022. If that sounds tad ambitious, consider that the leading cryptocurrency kicked off the new year at a lowly $3,200, and few experts could have predicted it would come anywhere near the previous all-time record of 20k let alone 70k.
The major difference between cryptocurrencies and other traditional financial assets is that crypto is notoriously volatile, meaning the journey to $100k could throw in several 20% crashes in the mix.
#3. More Government Backlash
At this juncture it’s safe to say that the 2022 outlook is decidedly bullish. But that does not in any way mean that it’s going to be smooth-sailing.
This year, the tiny Central American nation of El Salvador made history after its government declared bitcoin as legal tender. Still, bitcoin has some way to go before it can gain wide acceptance by the world’s governments, and is illegal in more jurisdictions than those that have legalized it.
And some experts are saying to brace for more crypto opposition from governments. Technically, a total ban on crypto is all but impossible, but governments can make life very hard for citizens who want to use it.
For instance, with the global transition to clean energy, more and more governments are likely to start scrutinizing the climate impact of cryptocurrency mining, a well-known energy hog. But a more insidious measure would be the launch of central bank digital currencies (CBDCs).
In fact, it’s already happening as we speak.
After all, China’s central bank has begun rolling out the e-renminbi--an all-digital version of its paper currency that can be accessed and accepted by merchants and consumers without an internet connection, credit or even a bank account--in cities across the country.
No less than six big state banks have been quietly promoting the digital yuan or e-CNY, a state-sponsored digital currency primarily focused on domestic use meant to replace coins and cash in circulation. Apparently, the People’s Bank of China (PBOC) has been working on e-CNY since 2014.
The PBOC has been carrying out a number of trials on digital yuan across major cities in China though a national rollout is yet to happen. The pilot projects are being conducted in the form of lotteries whereby the PBOC is handing out "red envelopes"of free digital cash or discounts to online shoppers ahead of a May 5 shopping festival. Interestingly, digital wallets can be bundled with a dozen popular apps including JD.com, Meituan, Didi and Bilibili, but conspicuously can not be linked to Alipay or WeChat. In other words, none of the participating banks can transfer digital yuan between their digital wallets and Alipay or WeChat.
Apparently, Beijing does not like the fact that WeChat Pay and Alipay happen to own an ocean of data, which probably makes sense considering that Big data is wealth, and whoever owns data thrives. The two dominant platforms control a combined 94% of China's online payment market.
More than $5 billion in e-CNY transactions have already been processed, and China has moved to the next step and opened its digital currency up to foreigners. Indeed, authorities are expecting to let the world test drive its new currency next year when Beijing hosts the Winter Olympic Games.
The U.S. appears nowhere close to completing its multi-year exploration into the possibility of an e-dollar let alone releasing it. In fact, an upcoming Federal Reserve paper on a potential U.S. digital currency provides no position on whether the central bank will, or even should, create one.
Other countries, however, are clearly moving in China’s direction. Australia, Malaysia, Singapore and South Africa plan to launch the world’s first cross-border central bank digital currency exchange program while the Bahamas recently announced the integration of its digital Sand Dollar into a stock exchange.
“The reason you could say the U.S. is behind in the digital currency race is I don’t think the U.S. is aware there is a race. A lot of policymakers are looking at it and concerned…but even with that I just don’t think there’s this sense of urgency because the risk from China is not an immediate threat, ” Yaya Fanusie, an Adjunct Senior Fellow at the Center for a New American Security, and a former CIA analyst, has told TIME in an interview.
It’s not hard to imagine governments imposing over-the-top regulatory hurdles and heavy taxation in order to make their new digital currencies much more attractive than Bitcoin.