The past year was an exceptional one for digital assets as this new asset class went mainstream with huge interests from financial institutions. Let's start the year with the hot topics that will drive crypto markets in 2022.
- Crypto market dominance
In 2021, Bitcoin slid from 71% to 42% market dominance and the Ethereum smart contract platform slid from 80% to 60%. Thousands of new digital assets are issued every year, and some of them directly challenge their larger competitors.
- Ethereum 2.0
Eth2 refers to a set of upgrades that will make Ethereum more sustainable and scalable. The process started at the end of 2020 and shall reach a major milestone in 2022 with the “Merge” phase, where the whole ethereum blockchain changes its protocol for Proof of Stake consensus, deeply cutting energy consumption.
- Blockchain Interoperability
As blockchain technology grows, services for the end-users tend to be more and more complex involving various blockchains to inter-communicate. Cross-chain solutions are needed to bridge the restricted capacities of segregated blockchain protocols and achieve higher scalability, faster transactions, and improved security. Seamless interoperability is key to creating an integrated system, building the future of finance.
- Bitcoin legal tender
El Salvador officially adopted Bitcoin as legal tender in Sept 2021. In addition to El Salvador, crypto adoption has grown tremendously in many developing countries, mainly as a way to send remittances and as a store of value. Last October, BitMEX CEO Alexander Höptner predicted at least 5 developing countries will be accepting Bitcoin as legal tender in 2022.
- Crypto regulatory framework
Europe is on the way to set up MiCA, a unique framework for crypto businesses across 27 European countries. The US is also looking to regulate crypto assets and has announced the appointment of Corey Frayer at the SEC to focus on policy making. Federal Reserve Chairman Powell has also been speaking before Congress on the possibility of the US Central Bank issuing a digital US Dollar.
- Crypto bans
2021 was the year China cracked down on crypto-assets forcing relocation of all Chinese mining activity abroad. Globally, over 50 countries have somewhat restricted the use of crypto-assets and 9 (including China) have imposed a full ban on all digital assets. 2022 may see India following China’s footsteps, which won’t impact any mining activity but might hurt crypto market capitalisation.
- Bitcoin sustainability
Despite consuming more energy for its mining process, Bitcoin has moved towards cleaner electricity consumption in 2021 as miners moved from China (where electricity is massively coaled based) to greener areas. The carbon footprint of bitcoin should definitely improve in 2022 with new sustainable mining facilities. While Bitcoin miners are mostly set up in Texas (US) because of its ample wind- and sunpower, they are also established in Canada which has ample hydro energy, and in El Salvador which benefits from geothermal facilities. Bitcoin miners avidly buy the cheapest sources of energy available. As coal-based energy becomes more punitive, and renewable sources of energy get progressively cheaper, bitcoin miners will hopefully switch and subsidise the buildout of renewable energy sources.
- CBDC emergence
A CBDC is digital money backed and issued by a central bank (central bank digital currency). As the demand for cryptocurrencies and stablecoins grows, some central banks have realised they need to provide an alternative to keep control over their currency. Some small countries in the Caribbean, along with Nigeria, have already launched their own CBDC. China, South Korea and 12 other countries are in the pilot stage, with a potential launch imminent. It is safe to say almost all central banks are now looking into the advantages of a CBDC.
- Crypto ETFs
For now in the US, only future bitcoin ETFs have been authorised, triggering high demand in future contracts compared to spot. As a result of this demand, higher prices might reduce the return on investment for investors. Thus, we believe the best way to gain exposure to crypto assets is to invest in physically-backed indices such as Trakx CTIs.
In addition to the above topics, we will also continue to follow the evolution of NFTs, Metaverse, Web 3.0 and DAO themes. These concepts are currently disrupting many sectors: from art, to gaming and entertainment. They may also impact other traditional sectors like real estate, car ownership, or governance of charities.
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