The cryptocurrency market is in its infancy, and the upside potential for many crypto coins is still enormous. How does an investor find their way in the markets? To succeed in the cryptocurrency market, it is essential to know what will happen in this sphere in 2022. Finnish Bitcoin investor Henri Väkeväinen gives his prediction for nine crypto trends in 2022.
Here are possible trends to follow from this year trends:
- Market stage
- Development of Bitcoin
- Spot ETFs
- Mining development
- El Salvador
- The FED’s tightening monetary policy
- New investors and increased regulation
- New, increased regulation of crypto
- Innovations in the market
1. What Stage is Going on Now?: 2022 crypto trends
Essential to everyone in the market for cryptocurrencies is to note the current market stage. Bitcoin has only been around for a little over a decade, so the industry as a whole is very young. In addition, most other market players have been active in this market for only a few years. In turn, this means that the development of Bitcoin and the whole industry is still very much in its infancy.
However, the market has observed the real charm of novelty towards cryptocurrencies. Especially as a speculative investment target, it has already begun to transform in a more attractive direction for institutional investors. The market has demanded concrete rather than dreams and marketing visions from cryptocurrency development teams for several years. This usually means that in addition to the website, the ICO, and the marketing campaign alone. A viable business and financial plan and a shareholder agreement or equivalent document are essential to demonstrate the project team’s long-term commitment to the project. And also that the set milestones will be achieved. A concrete commitment to the ICO’s financing plan is also now necessary. I.e., an action to first obtain colossal funding from the market project. And then think about what will be done with that funding, which will hardly be possible in a current way.
This year, more individuals are likely to engage in how to explain the added value of an investment. In other words, more attention goes to the implementation of the plans presented in the white paper of the crypto project.
In the E.U., MICA (Regulation on Markets in Crypto Assets) has suggested that ESMA (European Securities and Markets Authority) should in the future keep a register of white papers, bringing the original plans for projects and their marketing under regulatory control. This could mean a reduction in so-called meme and speculative to the moon projects, as product marketing should continue to be a reality in the future.
This does not remove the high expectations for investing in cryptocurrencies from fast and high returns, which are still very high risk. As the market is young, the pursuit of speculative returns is also an essential part of the market. This should still be remembered. As has been the case in recent years, a large proportion of investors are very likely to continue to want a good return on the market. This is unlikely to change in 2022, either.
2. Development of Bitcoin: 2022 Crypto Trends
The most important thing for the entire cryptocurrency market is the development of Bitcoin. And now we are not just talking about Bitcoin’s price development, but also Bitcoin’s technological and infrastructure development. Take into account network implications to ensure that the community around Bitcoin benefits sufficiently from the development of Bitcoin. The development of Bitcoin must therefore continue to help the community around it with sufficient intensity.
For example, the community’s reactions and the market to the success of the Taproot update and, in particular, to the development of the lightning network will be monitored this year. The most significant upgrade of the year was in 2021 (Taproot). It’s possible that this year will be more focused on integrating new advancements with the existing system.
Development work is often slower than most enthusiastic investors would like, but it is usually better to build a more sustainable structure at a time than a more speculative experiment.
Such slow progress for the quarterly investor community is often outrageous to watch as Bitcoin does not promise a new product to investors every quarter that will revolutionize the world.
Instead, Bitcoin seems to live a life outside the quarterly economy. However, this is one element that an investor with temporal diversification can appreciate. In other words, the maturity of the investment object and the time horizon that are exceptional for the quarterly economy may potentially diversify the total risk of the investor’s portfolio.
3. Physical Holdings and Spot ETFs: 2022 Crypto Trends
In 2021, Grayscale Investments filed an application with the U.S. SEC to convert their Bitcoin fund, the world’s largest Bitcoin fund, into a spot ETF. The bitcoins held by the ETF in question would henceforth be holdings comparable to physical holdings in ETF’s balance sheet.
What matters here is not whether a Bitcoin-based ETF is accepted but what kind of an ETF is accepted. For example, Pro Shares’ futures-based ETF is already approved by the SEC in the fall of 2021, but this Pro Shares’ ETF does not have to hold “physical” bitcoins; the derivatives represent Bitcoin holdings.
A spot ETF would thus be completely different from a futures ETF in that a spot ETF would also have to own a sufficient number of bitcoins to determine its market value as close as possible to the market price. This means that the ETF’s tracking error should be as small as possible so that the ETF can be considered following Bitcoin’s price. This, in turn, is one of the essential features of an ETF. That is, how closely does the price of an ETF follow the price of the item, which in this case would be the price development of Bitcoin.
Crypto ETFs may also be a more significant phenomenon in the market than many would guess. If spot ETFs are adopted, institutional investment in such Bitcoin-based ETFs could be allowed. Even a few larger institutional investors invested in such ETFs, such as an investment bank and an insurance company. It would create a strong need for such ETFs to source bitcoins from the market so that the ETF price follows Bitcoin’s price as closely as possible. In turn, this would put upward pressure on the price of Bitcoin. Which, in turn, would lead to a more expensive market price for Bitcoin.
4. Mining Development: 2022 Crypto Trends
The main focus of Bitcoin mining shifted from China to the U.S. last year. China banned the mining of cryptocurrencies and also all transfers of cryptocurrencies. Thus, the excavation needed a new port to sail into. The United States is now the country with the highest concentration of Bitcoin mining.
Keep in mind that mining is a low-margin operation. Thus, for example, the cheap cost of electricity in Texas fascinates miners. In addition, Texas offers a much more crypto-friendly political environment than China. The U.S. also provides a lot of access to renewable energy sources (e.g., Washington, New York, Texas), which is a very integral part of modern mining.
Investments in the mining industry are also likely to rise considerably next year, focusing on developing mining infrastructure, e.g., in a more environmentally friendly direction.
This may mean that one can consider mining as an environmentally friendly business in the future, which may open up new possibilities for financing mining through various channels. Compared to previous years, the key to mining is that many mining companies now receive funding from banks and the market through stock exchange listings. As a result, mining companies no longer have to use their bitcoins to finance investments but can now hold these coins on their own balance sheets.
5. Bitcoin Adaptation of El Salvador: 2022 Crypto Trends
El Salvador is currently following with interest the success of Bitcoin-positive President Nayib Bukele in El Salvador’s leadership. Last fall, El Salvador made Bitcoin legal tender. In addition, El Salvador acquired a large number of bitcoins. Today, the state of El Salvador already owns 1391 bitcoins.
However, one thing is good to keep in mind. If El Salvador’s “Bitcoin experiment” succeeds in any way, it means that FIAT currencies such as the dollar and the euro will have a new competitor in the currency market. At least on a small scale. Bukele’s plans to build a Bitcoin City, where residents of the city do not have to pay income, capital, property taxes, or even withholding tax, also seem to be plans that are of global interest.
However, the United States wants to protect the dollar’s position as the world’s reserve currency. Bukele has already become an interest for the U.S. Especially as Bukele openly seeks to challenge the U.S. dollar’s position as El Salvador’s reserve currency. Thus, the United States would probably like to see a situation in which Bukele’s experiments would fail, and his revolutionary reforms would collapse at the same time.
El Salvador is also financially under the supervision of the IMF, so the Bukele Bitcoin experiment should be successful and preferably as soon as possible so that, for example, the government can repay the $ 800 million debt to El Salvador bondholders according to the payment schedule in January 2022.
Thus, El Salvador is not just about Bitcoin but also about politics.
6. The FED’s Tightening Monetary Policy and Bitcoin’s Inflation Protection
The U.S. Federal Reserve announced in December 2021 that it would curb its bond-buying plan next year by stopping bond purchases in March 2022. In addition, the FED is raising the key interest rate three times next year.
As a scarce asset class, Bitcoin has fared well whenever the central bank revived the market with debt, as Bitcoin has been seen in the market as a hedge against inflation. When the central bank has begun to revive the market, the price of Bitcoin has often risen.
However, the FED is tightening its monetary policy by reducing the amount of money printed in the market. Bitcoin will be tested to see if Bitcoin is seen as an investment other than inflation protection in the market. It is thus possible that the market attractiveness of other features of Bitcoin, such as its technological development and network impact, will now be in the test. That is, how attractive investors see these other features of Bitcoin.
However, the advantage of Bitcoin is that in the last 13 years, every time, the global economy has suffered even the slightest signs of a slowdown in growth. Debt purchase programs have often been relaunched very quickly, and interest rates have been cut in turn. Thus, the world economy has not grown on its own over the last decade but has always needed the help of the central bank. Therefore, it would come as no surprise if we will see the relaunch of debt purchase programs at some point this year with low-interest rates.
7. New Investors in Cryptocurrencies: 2022 Crypto Trends
In general, the more professional investors there are in the market, the less regulation is in need. But the more not-so-professional investors in the market, the more regulation will emerge in the market. This is because professional investors tend to take advantage of regulatory gaps. Professional investors can concretely protect their investment better than the average investor in an unregulated market.
Less professional investors want as much regulation and supervision as possible because they want the market to be safer and easier to trade. Such is usually only possible with increasing regulation.
The number of people investing in cryptocurrencies has only grown steadily. This, in turn, has meant that the number of so-called retail investors in the market has risen. According to a study by Cardify, 70% of new crypto investors have only traded for less than a year. These new investors believe that their comprehension of the bitcoin sector is not even solid. Again, this means that more and more new inexperienced investors are in the cryptocurrency market. Of course, the degree of market regulation is likely to expand in the future.
8. New, Increased Regulation of Crypto
The actual significant new regulation may also be in the pipeline. In particular, the designation of specific cryptocurrencies as securities would lead to tighter regulation of such cryptocurrencies. The same applies to the regulation of various cryptocurrency products.
It is possible that the less regulated new products offered on the market by the crypto exchange Coinbase, for example, could in the future be equated with more traditional investment products, which would make these products more tightly regulated than before.
This is very likely to intensify competition in the financial sector: cryptographic players are already competing with traditional financial players for the same customers, so traditional players obviously want the same level of regulation for cryptographic players as for themselves.
Stable coins may also come under tightening regulation. At least this has already been the subject of preliminary recommendations in the report of the President’s Working Group on Financial Markets in the United States.
Similarly, at least some stable coins such as DAI may be subject to tightening legislation.
However, keep in mind that it usually takes years to complete the laws. Especially now, where pandemic-related regulation takes precedence over everything else. It may be possible that bills related to cryptocurrencies are not progressing very quickly.
In addition, every country has its cryptocurrency regulations based on differences in national legislation. Tightened regulation in one country does not necessarily mean that all countries behave the same way.
9. New Innovations in the Market
In every industry, players have to compete to stay in the market. This means that every player strives to be better than their competitors. So we will see more and more innovative products on the market every year, especially when it comes to a new industry.
Of course, it’s hard to predict the most attractive craze of the year, but at least based on a Coinlist membership survey, gaming-related projects could be like that. This would be, above all, a matter of so-called mass adaptation, i.e., the general public’s enthusiasm to join cryptocurrencies.
The second most popular projects were DeFi (decentralized finance), and the third most popular was NFTs (non-fungible tokens). L1- (layer one token). L2 tokens (layer two tokens), cryptocurrency infrastructure development projects, DAOs (decentralized autonomous organization), social tokens based on the interaction between the content provider and his successors, and governance tokens related to the blockchain were also popular with Coinlist members.
Of course, it’s difficult to predict which of these crypto trends will materialize or whether any of them will develop at all, but this article has at least a few perspectives for 2022.
However, the writing does not present investment recommendations and should not be construed as such. Making a profit in the investment market requires long-term familiarization with the subject and often several years of experience.
The author is a member of the board of the Finnish Cryptocurrency Association Consensus Association and has years of experience investing in various types of investments, including cryptocurrencies.
