Amid another year of the pandemic and transitory inflation, 2021 was undoubtedly the cryptocurrency space’s biggest year to date in almost every sense of the word, from the steady flow of the tech and traditional finance brain drain to the meteoric rise of non-fungible tokens (NFTs) of all shapes and sizes. We also saw the steady growth of decentralized finance (DeFi) projects and ecosystems, as well as increased government scrutiny on stablecoins calling for increased regulations.
However, the interest rate hikes and the subsequent price dips for the stock and crypto markets fully serve as a reminder of the cryptocurrency market’s volatility and how interlocked the cryptocurrency market is with other markets and their price movers.
Bitcoin and Ethereum Predictions for 2022
In a broad Web3 sense, some sites are adopting an authentication standard referred to as “Sign-In with Ethereum” that enables users to use their Ethereum addresses and domains (from the Ethereum Name Service) for digital identification. This process could serve as a clear transition point between Web2 service and their Web3 incarnations and could thus further accelerate the development of Web3 projects and ecosystems.
Ethereum’s roadmap for the suite of upgrades formerly referred to as ETH2 is also scheduled to make significant changes to the Ethereum Network in Q2 2022, specifically the full transition to a proof-of-stake (PoS) consensus system done by merging the current Ethereum Mainnet with the PoS Beacon Chain, which was first launched in late 2020. This transition to PoS will phase out mining, vastly reducing the power consumption currently associated with running the Ethereum Network. Based on these upgrades and the expansion of DeFi and Web3, most price projections have Ether hitting the $7,000 level by the end of 2022. However, this movement could change in either direction with any number of factors.
Following the institutional adoption of Bitcoin in 2020 and 2021, the beginnings of more widespread sovereign adoption is entirely possible, maybe even probable, with some of the precedents set by El Salvador applying to sovereign nations with emerging markets looking to take Bitcoin as legal tender. Both of these changes are happening as a part of a wider paradigm shift towards Bitcoin being a store of value rather than a speculative asset. As such, price projections past the six-figure mark are far from uncommon, although subject to uncertainty based on a large number of factors.
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Could Bitcoin Crash This Year?
Given the uncertainty around Bitcoin’s value by the end of this year, one might wonder how likely it is that Bitcoin crashes this year, especially given the paradigm shift towards Bitcoin being considered as a store of value. Setting aside scenarios where all cryptocurrencies crash, the biggest point of uncertainty with Bitcoin is its many inactive wallets containing billions of dollars worth of Bitcoin.
Many reasons exist to explain why these wallets have been inactive for numerous years, from a desire to stay anonymous on the part of Satoshi to early holders having lost access to hard drives, wallets or private keys to imprisonment for those involved with the Silk Road (a defunct dark web marketplace that used cryptocurrencies in the early 2010s). In essence, most of these wallets’ enormous balances are considered to be out of circulation, so if any were to become active and sell significant chunks of their balances, that action could trigger a positive feedback loop of sell offs, potentially including the growing groups of sovereign and institutional investors.
NFT Market Predictions
Based on Twitter’s recent NFT profile picture integration and Meta Platform Inc.’s (NASDAQ: FB) expressed intentions to do so with Instagram and Facebook, it’s likely that profile picture NFT collections will continue to proliferate over the next year, much to the chagrin of most other people on these platforms. If you want to get into NFTs, you'll need an Ethereum wallet such as MetaMask to use with an NFT marketplace like OpenSea. If this seems too complicated, you can always wait for Coinbase to release its NFT platform.
Gaming NFT projects seem to be stagnating with app marketplaces’ rigid rules around microtransactions and a general oversaturation of half-baked, over-valued demo projects.
Music NFT projects like Audius also seem to be quite promising, with hype building from artists, labels and listeners alike.
Crypto Regulations in 2022
With 2021 being the year that crypto more actively entered political discourse, alongside plenty of input from corporate entities in the space, it’s only natural that more concrete courses of policy begin materializing over the next year.
In terms of what might happen with crypto regulation in 2022, increased stablecoin regulation in the U.S. (and likely in other places soon after) are almost a given following the Senate’s letters seeking clarification from various entities in the stablecoin space. Additionally, Jerome Powell clinching another term as Chair of the Fed over Lael Brainard means that it’s unlikely that the U.S. enters the CBDC space, which then implies that stablecoins won’t be heavily regulated.
It’s likely that NFTs specifically will enter the political discourse over the next year and will be regulated eventually, though classifying NFTs into an existing asset class is likely the extent to which NFT regulations will develop over the coming year.
Stablecoin Predictions for 2022
Evidence shows that 2021 had winners and losers in all corners of the stablecoin space. With the Evergrande default from 2021, collateralized stablecoins, specifically Tether (USDT), began to receive more scrutiny, potentially shifting the balance of power in the direction of algorithmic stablecoins. In the meantime, Tether’s reputation has been significantly tarnished, even to outsiders to the crypto space. However, USDT’s market cap is 1.5x that of the next highest stablecoin USDC, so a significant gap has yet to be overcome for USDT to be replaced.
Algorithmic stablecoins also caught a lot of flack over the summer with the high profile depegging of Iron Finance’s IRON. On net though, it seems as though algorithmic stablecoins like Terra’s UST have proven that they can be implemented effectively and can hold a steady peg even with substantial turbulence in the crypto market as a whole, which bodes well for their 2022 adoption in more Web3 native DeFi applications that are less likely to object to the stablecoins not being collateralized in the typical sense.
An interesting place to watch in the long term is the intersection between stablecoins and payment services like Visa Inc. (NYSE: V) and Moneygram International Inc. (NASDAQ: MGI), as these companies could bring stablecoin adoption mainstream.
Can Ethereum Flip Bitcoin in 2022?
Bitcoin’s market cap is a little over two times that of Ether, and both tokens have historically trended in the same direction, so for Ethereum to flip Bitcoin this year to become the top cryptocurrency by market cap, one of three things would need to happen:
- Bitcoin’s price would have to decrease significantly while Ether’s price either stays relatively constant or increases slightly.
- Ether’s price would have to increase significantly while Bitcoin’s price either stays relatively constant or decreases slightly.
- Ether would need to be minted at a substantially higher rate than Bitcoin, since Ether has no supply cap while Bitcoin is limited to 21 million tokens.
Scenario Three is highly unlikely to happen over the course of a year, especially with the London Fork’s introduction of burning to Ether’s tokenomic policy. Even if this could happen, Ether would likely depreciate significantly because of the scale of inflation that would need to occur to offset the market cap difference between Ether and Bitcoin.
Scenario Two could potentially happen in the future with a significant boost in DeFi activity and reduction in gas fees coming from upgrades to the Ethereum Network. If a DeFi project on the Ethereum Network can provide a robust store of value use case, then this scenario could potentially happen as well. This scenario is only really likely to happen after the implementation of shard chains to increase transaction throughput, which is projected to be in 2023.
Scenario One is the most likely of these three scenarios (but still isn’t terribly probable as discussed above), relying upon bearish activity from a previously inactive wallet (perhaps even one of those owned by a Silk Road inmate or Satoshi) to drop the value of Bitcoin substantially.
Another potential stimulus for this scenario is some sort of indicator that Bitcoin is no longer a robust store of value, which would likely lead to multiple whale wallets liquidating or shifting assets with a similar effect. This action could then scare away the institutional investment in Bitcoin over the past year, leading to a positive feedback loop of Bitcoin’s value dropping. A situation like this would likely also spill over to a reduction in Ether’s price, but the magnitude of the decrease would certainly be much higher for Bitcoin.
None of these scenarios are wholly impossible, but it’s unlikely that they would transpire in a timeframe any shorter than a year.
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