Dubai: On the first weekday of the new year, let’s look back at cryptocurrency market in 2021, while also portraying how the volatile crypto industry is expected to perform in 2022.
Without any doubt, 2021 was a year for the books, in which the total market capitalisation for the crypto market increased from around $800 billion (Dh2.94 trillion) to $2.2 trillion (Dh8.08 trillion).
However, 2021 was not only exciting in terms of price, as there were many epoch-making events and trends throughout the year.
In this article, let’s zoom in on the most prominent crypto-related highlights last year, with similar themes to watch out for in 2022.
Here are the top crypto industry highlights of 2021:
1. 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. And 2021 was the year of the rise of NFTs as out of nowhere they gained traction.
NFTs are unique cryptographic tokens that exist on a block chain and cannot be replicated. NFTs can be used to represent real-world items like artwork and real-estate. ‘Tokenising’ these real-world tangible assets allows them to be bought, sold, and traded more efficiently while reducing the chances of fraud.
2. Coinbase IPO
This is in our opinion the single largest event of the year, and acts as a sort of point of historical reference in terms of regulation and perceived market seriousness worldwide.
In April 2021, top US crypto exchange Coinbase sealed its rank as the seventh biggest new listing of all time in the world’s top economy, besting the likes of global industry giants General Motors and Visa, and finishing $9 billion (Dh33 billion) short of Uber.
Measured in market cap, Coinbase is taking its place among the giants of financial services. Awarding a $60 billion (Dh220 billion) plus valuation means investors expect it to become a colossus whose sales and profits soon rate alongside those of the biggest banks and brokerages.
Its valuation trails that of Intercontinental Exchange, owner of the New York Stock Exchange NYSE, by just $6 billion (Dh22 billion). Coinbase now worth twice as much as Nasdaq, Inc. NYSE is the world's largest stock exchange by market capitalisation, followed by Nasdaq as the second largest.
The Coinbase listing emphasised an industry that first of all should not be ignored, and secondly, but more importantly, cannot anymore be ignored.
3. Stablecoins
The supply of Stablecoins increased from $29 billion to $151 billion, an increase of 421 per cent. Stablecoins are the backbone of the crypto economy and decentralised finance. The significant increase of Stablecoins shows a growing interest in these products.
The key elements of this DeFi ecosystem are novel automated protocols on block chains – to support trading, lending and investment of cryptoassets – and Stablecoins that facilitate fund transfers.
Stablecoins are a type of cryptocurrency that derives its value from some underlying external asset, like a government-issued currency or the price of gold. Currencies issued by governments, can be converted to Stablecoins, which are then used to buy other cryptocurrency.
For example, USD coin is a new US Dollar-dominated Stablecoin and is often recommended as one of the best coins to use. It is a crypto-backed Stablecoin, collateralised by real-world crypto assets that initially operated on the Ethereum blockchain.
Stablecoin, like the name suggests, implies ‘stability’. It provides comparatively safer and secure transactions, unlike the other digital assets that are easily affected by the severe volatile swings of the market.
4. Crypto regulation
Surprisingly there were solely a few surprises in terms of regulation worldwide namely the US infrastructure bill, El Salvador making Bitcoin legal tender, and China banning crypto trading.
The $1 trillion (Dh3.67 trillion) US infrastructure bill, signed into law by President Joe Biden in November, contained provisions that would tax cryptocurrency trades and yield the US government some $2.8 billion (Dh10.28 billion) a year. The infrastructure bill also says a brokerage needs to keep track of them.
El Salvador recently became the first country to use Bitcoin as legal tender. The move led to large-scale protests over fears the cryptocurrency would bring instability and inflation to the impoverished Latin American country.
The Chinese government published a draft regulation on December 31 stating that no organisation or individual is allowed to provide internet marketing for illegal financial activities, which include cryptocurrency transactions.
Other than that, there were not many developments on the crypto regulatory front, which should not shock any cryptocurrency advocate gradually being used to the most.
5. Venture Capital (VC) interest in crypto
Venture Capital funds invested a record $30 billion (Dh110 billion) in crypto companies in 2021, beating the previous record in 2018 of $8 billion (Dh29.4 billion).
The term does not only refer to people but also companies. Google Inc, for example, is a major venture capitalist. Its division, Google Ventures, focuses on venture capital. Google Ventures also has a large European arm, which the company set up with an initial investment of $100 million.
Venture Capital Funds are classified on the basis of their utilisation at different stages of a business. The three main types are early stage financing, expansion financing, and acquisition or buyout financing.
Of course, Venture Capital (VC) interest in crypto 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 decentralised finance platforms, NFT platforms, crypto games, etc.
Here are the top crypto industry forecasts for 2022:
1. ETH 2.0
Ethereum has been gearing up to launch its Ethereum 2.0 upgrade that will substantially overhaul the network and address issues like high gas fees, and congestion in the network.
The highly anticipated update of the second-largest cryptocurrency Ethereum is expected to go live in the first quarter or the second quarter of 2022 named ETH 2.0.
However, be prepared that we are possibly talking the third or maybe fourth quarter since Ethereum Foundation and its developers are known to postpone deadlines.
ETH 2.0 is an upgrade that 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 underlying working 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.
Meanwhile, the prospects of Ethereum is expected to improve over time. Analysts currently predict that the average price of Ethereum could reach almost $8,000 (Dh29,383) by the end of 2022, $10,000 (Dh36,729) in 2023 and over $16,000 (Dh58,767) by 2025.
2. Circle SPAC
The SPAC deal of Circle, which is the issuer of the second-largest Stablecoin USDC with $43 billion (Dh158 billion) in circulation, has reportedly been postponed due to US Securities and Exchange Commission SEC's concerns over Stablecoins.
The SPAC will likely now happen in 2022, whereas was earlier expected to happen in late 2021. Keep in mind 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.
SPACs are basically money looking for a promising private company to invest in. A successful acquisition validates the SPAC's existence and allows the private company to be publicly traded when listed on the stock exchange under the SPAC's symbol, also known as a ticker.
3. More ‘Layer-2’ cryptocurrencies in 2022
Interest in so-called ‘Layer-1’ tokens heated up during November as several top block chain networks pushed incentive programs, while contract pricing fees on Ethereum network remained near all-time highs.
‘Layer-1’ refers to block chains that run independently of other block chains – as contrasted with ‘Layer-2’ solutions that aim to speed up transactions on existing block chains like Ethereum.
Where, for example, Bitcoin and Ethereum, are ‘Layer-1’ cryptocurrencies, you can make them more scalable by building a separate framework on top of them called ‘Layer-2’ or ‘L2’.
A ‘Layer-1’ block chain is a set of solutions that improve the base working mechanism to make the overall system a lot more scalable. Examples of operating ‘Layer-1’ block chains include Bitcoin, Ethereum, among others.
For crypto to gain global adoption, and be the settlement layer of the digital age, L2s are 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.
4. Ethereum to overtake Bitcoin in 2022?
This is somewhat of a cliché. However, it is as imperative as always since if Ethereum flips Bitcoin in terms of market capitalisation, 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.
Also, when it comes to crypto regulation, even though there were only a few surprises in 2021, it is always something to look out for. The regulation sentiment changes daily, so there is no guarantee for 2022.
