New York, Frankfurt When Naybik Bukele, the President of the Central American state El Salvador, declared Bitcoin the official means of payment in the state in September 2021, there was great excitement around the world. The news contributed enormously to the popularity of cryptocurrencies and sparked controversial discussions about Bitcoin. But the focus could shift away from Bitcoin as the linchpin of the crypto world in the coming year.
Bradley Duke, Managing Director of the ETC Group, which makes crypto products tradable on the German stock exchange, sees an increase in the institutional acceptance of crypto products, especially with regard to Bitcoin and Ether, the number two on the crypto market.
However, increasingly informed investors would also have “an appetite for the next generation of coins,” predicts Duke. According to the expert, “in particular the proof-of-stake and smart contract protocols such as Solana, Cardano, Polka Dot, Polygon and Avalanche” could come into focus.
Julian Grigo, Managing Director and crypto expert at Solarisbank in Berlin, has also been observing this development for some time, but is critical of it. He thinks: “Fomo rules with traditional financial market players,” says Grigo. “Fomo” in English means the “fear of missing out”, the fear of missing out on something. “They want to quickly bet on the next 50 coins,” says Grigo. “But the future of the industry will not be decided by the number of coins, but by other innovations,” he is convinced.
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It is clear to him: “The greatest innovations in the crypto world in the coming year will also come from the core crypto business – and not from the traditional financial markets.” Countries might consider introducing Bitcoin as legal tender, as well as central bank digital money. But the crypto landscape has “a lot more to offer”.
Bitcoin, however, should continue to serve as a yardstick for the standing of the crypto industry, after all, it is the oldest and still largest of the more than 15,000 digital currencies that the Coinmarket.cap platform counts. In addition, alternative crypto currencies, so-called Altcoins, correlate strongly with Bitcoin, as Sören Hettler, analyst at DZ Bank, only showed in an analysis in December. If Bitcoin becomes more popular, the entire crypto market usually follows – and vice versa.
Analysts believe Bitcoin price of 100,000 dollars is possible
In the course of the past year, Bitcoin was able to gain around 75 percent. But after the digital currency hit several new record highs in 2021, most recently in November at over $ 68,000, there were setbacks towards the end of the year. Investors should now be happy when the forefather of cryptocurrencies is again trading stable above the $ 50,000 mark in the coming weeks, after having recently slipped below this threshold.
The optimistic forecast that Bitcoin could break the $ 100,000 mark this year has not been fulfilled. Bitcoin bulls think this is possible in the coming year, however. The key question is whether Bitcoin peaked in November of this year or whether it is “a consolidating bull market,” write the cryptoanalysts at financial services provider Bloomberg.
Loukas Lagoudis, Executive Director at crypto hedge fund ARK36, says: “We firmly believe that the general upward trend for the crypto market will continue in 2022.” And even if “Bitcoin simply stays on track in 2022, while it is included in the mainstream ”, according to the Bloomberg experts, it is“ well on the way to becoming a global digital reserve ”.
The interest of institutional investors is likely to increase this process further: The Bloomberg analysts write that “naysayers have no other choice” than to participate “when a new asset class outperforms established companies”. Asset managers may be “exposed to greater risks” if they “continue to make no portfolio assignments to cryptos”.
Big banks like JP Morgan Chase are also positioning themselves. “From a technological point of view, JP Morgan is ready to trade cryptocurrencies,” says an analysis of the crypto market. However, like all other financial institutions, America’s largest bank still needs the green light from regulators. But even without crypto trading, JP Morgan hopes for opportunities to increase sales, especially where the old and the new, blockchain-based financial world meet.
Sascha Rangoonwala, Germany boss of the US crypto exchange Coinbase, also confirms this interest of institutional investors: According to him, professional investors are increasingly looking for contact with Coinbase. This is also supported by the large partnerships between the traditional financial world and the crypto industry, which have recently become known. For example, the US fund house Fidelity announced a cooperation with the crypto exchange Nexo from Bulgaria, which will give institutional customers of Fidelity access to new crypto products.
NFTs, Defi, Metaverse: the future is colorful
If you believe the experts, the really big upswing of next year should not be primarily driven by more Bitcoin fans. It is above all innovations that are currently driving many players in the crypto world – and these developments are now being closely followed by financial market analysts, institutional investors and private investors. Because everyone senses the chance to make enormous profits in a very short time. We are talking about trends such as NFTs, Defi or the Metaverse.
NFTs are so-called “non-fungible tokens” which – based on the technology that is also behind crypto currencies – can represent digital certificates of authenticity or ownership. Roman Matkovskyy, Associate Professor at the Rennes School of Business, believes their potential is “enormous” as they could be used to transfer rights to both virtual and physical property. Museums, auction houses and individual artists or bands were already making record sums of money with the sale of digital art or certificates in 2021.
Experts assume that the trend will continue – even if “the prices for NFTs will not rise incessantly”, as Solarisbank expert Grigo emphasizes. Nonetheless, he assumes that the trend is so profound that it will go beyond a temporary phenomenon: “NFTs can increase capital efficiency because they can be used as collateral for loans, for example,” says Grigo. This would also result in new business areas: “The question of which custody services will be used to digitally secure and manage unique goods in the future will be exciting.”
Soon to be trading around the clock?
JP Morgan also sees an opportunity in the medium term that NFTs and the associated tokenization of assets could play a role on the real estate, but also on the stock market. You could trade these assets around the clock, every day of the week.
Industry observers also attribute increasing importance to the area of so-called decentralized finance, or Defi for short, for the coming year. In this part of the crypto world, users can interact directly with one another, borrowing and lending money or securing assets without having to rely on banks or other institutions that charge fees.
Peters also sees this area growing: “As more and more users are participating in Defi through lending, lending, yield farming and trading on decentralized exchanges, the underlying blockchains such as Ethereum and Solana will continue to show significant growth and will therefore increase in value enforce their native coins. “
In 2022, the tech trends Metaverse and Web3 would also continue to merge with the crypto world, as different crypto currencies are used for transactions in these areas.
Call for more regulation
But the financial supervisors are now also taking a closer look. According to Professor Matkovskyy, “comprehensive regulation is still on the way”, although more and more institutional investors have already started “to recognize cryptocurrencies as a legitimate investment opportunity”. However, it is unclear how much the regulators in the USA will be active in the decentralized financial system.
Gary Gensler, the head of the US Securities and Exchange Commission, has repeatedly emphasized this year that a number of Defi-Tokens must be classified as securities and regulated. The International Monetary Fund (IMF) also called on states to join forces in regulating crypto currencies, this is the only way to achieve something.
For Huong Hauduc, legal expert at the crypto trading platform Bequant, the path is mapped out at EU level. As more and more institutions are interested in the crypto world, it seems “only a matter of time” before the EU regulates digital assets more strictly – not just in order not to lose an important branch of the economy, according to Hauduc. But also “to minimize the potential risks to the broader financial system as the lines between financial and technology companies continue to blur”.
The sustainability situation could improve
So far, cryptocurrencies have also encountered resistance in another field. In the past year, ecological concerns have repeatedly led states to try to prevent the energy-intensive creation of new Bitcoins using the so-called proof-of-work process. A particularly comprehensive ban was met by miners in China in 2021, which is why the mining market is currently increasingly shifting to the USA. The major cryptocurrencies Bitcoin and Ether are particularly affected, while new cryptocurrencies are usually set up using the less energy-intensive proof-of-stake process.
In this area, 2022 could bring a decisive turnaround: In the coming year, the Ethereum network finally wants to switch to the proof-of-stake process. If this succeeds, institutional investors should be happy again: In the context of increasingly stringent sustainability requirements according to the ESG criteria, it could become easier for a number of stakeholders after the move to also invest in ether.
More: These coins performed better than Bitcoin in 2021 – and those are their pitfalls