Cryptocurrency Analyst
Summary: On the first weekday of the new year, we are looking back at crypto market in 2021 but also portraying what we expect will happen in 2022 in the volatile crypto industry.
Without any doubt, 2021 was a year for the books, in which the total market capitalization for the crypto market increased from around $800bn to $2.2trn. However, 2021 was not only exciting in terms of price actions, as there were many epoch-making events and trends throughout the year. In this article, we zoom in on 5 highlights last year, and 5 elements to watch out for in 2022.
2021:
NFTs: We cannot talk about 2021 without mentioning non-fungible tokens, known as NFTs. It has arguably been the crypto trend of the year. The trend, though, has been more speculative than the crypto market itself. However, it is only a matter of time before we see more use-cases of NFTs, such as music streaming.
Coinbase IPO: This is in our opinion the single largest event of the year, and acts as a sort of point of no return in terms of regulation and perceived market seriousness from the outside. The Coinbase listing emphasized an industry that first of all should not be ignored, and secondly, but more importantly, cannot anymore be ignored.
Stablecoins: The supply of stablecoins increased from $29bn to $151bn, an increase of 421%. Stablecoins are the backbone of the crypto economy and decentralized finance. The significant increase of stablecoins shows a growing interest in these products.
Regulation: Surprisingly there were solely a few surprises in terms of regulation namely the US infrastructure bill, El Salvador making Bitcoin legal tender, and China making crypto illegal. Besides that, no major surprises, which should not shock any cryptocurrency advocate gradually being used to the most.
VC in crypto: Venture capital funds invested a record $30bn in crypto companies in 2021, beating the previous record in 2018 of $8bn. Of course, it illustrates a heated market, but at the same time, it shows a larger variance of crypto companies attracting venture capital money within the space, namely exchanges and brokers, but also decentralized finance platforms, NFT platforms, crypto games, etc.
2022:
ETH 2.0: The highly anticipated update of the second-largest cryptocurrency Ethereum is expected to go live in Q1 or Q2 named ETH 2.0. Though, please be prepared that we are possibly talking Q3 or maybe Q4 since Ethereum Foundation and its developers are known to postpone deadlines. To make a long story short, ETH 2.0 will make Ethereum significantly more scalable, more secure, and more sustainable. The latter is extremely important, as there is likely no future in proof-of-work, which is the current consensus mechanism of Bitcoin and Ethereum. Proof-of-work is known to use a great deal of electricity as many servers across the globe verify transactions on the network. It is simply too easy to heavily regulate the industry based on solely the sustainable argument while institutions have a good reason to keep a safe distance when the industry is not green.
Circle SPAC: The SPAC deal of Circle, which is the issuer of the second-largest stablecoin USDC with $43bn in circulation, has allegedly been postponed due to SEC's concerns over stablecoins. The SPAC will likely now happen in 2022, whereas was earlier expected to happen in late 2021. Remember, the massive increase in the stablecoin supply, and its general importance on the crypto market. The influence of the SPAC will be somewhat comparable to the Coinbase IPO – if it happens, of course.
Regulation: Even though there were only a few surprises in 2021, regulation is always something to look out for. The regulation sentiment changes daily, so there is no guarantee for 2022.
Layer 2s: Where, for example, Bitcoin and Ethereum, are layer 1 cryptocurrencies with their own settlement layer, you can make them more scalable by building a separate framework on top of them called Layer 2 or L2. For crypto to gain global adoption, and be the settlement layer of the digital age, L2s are indeed needed as they presumably scale cryptocurrencies indefinite in the future. In 2021, L2s started to gain traction, but 2022 will likely be the year where they become a solid part of the crypto market, ultimately showing that cryptocurrencies can scale.
The flipping: This is somewhat of a cliché. However, it is as imperative as always since if Ethereum flips Bitcoin in terms of market capitalization, it will change the sentiment of the crypto market. We are arguably approaching the year with the highest probability of it happening since Ethereum caught up with Bitcoin's lead in 2021 with more authentic use-cases and adoption. Whether it will happen, though, depends on institutional adoption of each crypto, decentralized finance, stablecoins, NFTs, increasing competition to particularly Ethereum, and more importantly, how ETH 2.0 turns out.
Cryptocurrencies have become known for their extreme fluctuations in prices. While there is potential for significant gains, there is also risk of significant losses. Please understand the risks before investing.
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
