By Mads Eberhardt, Cryptocurrency Analyst at Saxo Bank
On the first weekday of the new year, we take a look back at the crypto market in 2021 while also predicting what will happen in the turbulent crypto business in 2022.
Without question, 2021 was a year to remember, as the overall market value of the cryptocurrency sector grew from roughly $800 billion to $2.2 trillion. However, the year 2021 was not only thrilling in terms of market movements; some other epochal events and trends occurred during the year. In this post, we focus on five highlights from last year and five trends to look out for in 2022.
NFTs: It’s impossible to discuss 2021 without considering non-fungible tokens or NFTs. It is, without a doubt, the crypto trend of the year. However, the trajectory has been more speculative than the cryptocurrency market. However, as we said in our Outrageous Predictions 2022, it’s only a matter of time before we see more NFT use-cases, such as music streaming.
The IPO of Coinbase is, in our perspective, the single most important event of the year, and it serves as a type of tipping point in terms of regulation and market seriousness from the outside. The Coinbase listing highlighted an industry that, first and foremost, should not be overlooked, and, more importantly, cannot be overlooked any more.
Stablecoins: The quantity of stablecoins surged by 421 percent, from $29 billion to $151 billion. The crypto economy and decentralized finance are built on stablecoins. Stablecoins have seen a huge surge in popularity, indicating that people are becoming more interested in these items.
Regulation: Surprisingly, there were just a few regulatory shocks, including the US infrastructure bill, El Salvador’s adoption of Bitcoin as legal tender, and China’s ban on cryptocurrency. Aside from that, it was business as usual, which should come as no surprise to any cryptocurrency supporter who has been accustomed to it.
Venture capital investors invested a record $30 billion in crypto startups in 2021, surpassing the previous high of $8 billion set in 2018. Of course, it depicts a hot market, but it also depicts a wider range of crypto startups seeking venture capital funding inside the industry, including exchanges and brokers, as well as decentralised finance platforms, NFT platforms, crypto games, and so on.
ETH 2.0: The much-anticipated update to the second-largest cryptocurrency Ethereum, dubbed ETH 2.0, is likely to launch in Q1 or Q2. Please be aware that we may be talking about Q3 or Q4, as the Ethereum Foundation and its developers have a history of delaying deadlines. To cut a long tale short, ETH 2.0 will greatly improve Ethereum’s scalability, security, and long-term viability. The latter is crucial, as proof-of-work, which is Bitcoin and Ethereum’s present consensus method, is unlikely to have a future. As multiple servers throughout the world validate transactions on the network, proof-of-work is known to consume a lot of electricity. It is far too simple to extensively regulate the business just on the basis of sustainability When the industry is not green, institutions have a legitimate reason to remain a safe distance.
Circle SPAC: Circle’s SPAC agreement has reportedly been postponed owing to SEC worries over stablecoins. Circle is the issuer of the second-largest stablecoin USDC, with $43 billion in circulation. The SPAC is now projected to take place in 2022, rather than late 2021 as previously planned. Keep in mind the significant increase in stablecoin supply, as well as its overall significance in the crypto market. The SPAC’s impact will be comparable to that of the Coinbase IPO — assuming it happens.
Even though there were few shocks in 2021, regulation is always something to be on the lookout for. Because public opinion on regulations shifts on a daily basis, there is no certainty for 2022.
Whereas Bitcoin and Ethereum are layer 1 cryptocurrencies with their own settlement layer, you may make them more scalable by constructing a distinct Layer 2 or L2 framework on top of them. L2s are required for crypto to attain global popularity and become the digital age’s settlement layer, as they presumably scale cryptocurrencies indefinitely in the future. L2s began to gather traction in 2021, but 2022 is expected to be the year when they become a significant component of the crypto market, demonstrating that cryptocurrencies can scale.
The flipping: It’s a bit of a cliche. However, it is as important as ever because if Ethereum overtakes Bitcoin in terms of market value, the crypto market’s mentality would shift. Since Ethereum overtook Bitcoin’s lead in 2021 with more authentic use-cases and adoption, we’re entering the year with the best chance of it happening. But whether that happens relies on institutional adoption of each cryptocurrency, decentralized finance, stablecoins, non-fungible tokens (NFTs), increased competition for Ethereum in particular, and, most significantly, how ETH 2.0 pans out.
