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In what was supposed to be a COVID recovery year, 2021 turned out to be more of a pandemic hangover rather than an endemic. As we enter 2022, still nursing said hangover, we’re taking the time to reflect on the tumultuous year in the markets whilst we brace for what’s to come.
Cryptocurrency’s notorious volatility has made estimating price targets a challenging job. Bitcoin alone started the year at just under USD 30K before jumping to USD 63K in four months. Just three months later, the cryptocurrency crashed to USD 30K again before surging to USD 67K four months later. As bitcoin exits 2021, its price has bounced the high USD 40K mark.
Economics
With the crypto market embracing more fundamental analysis, its vulnerability to varying macroeconomic environments enables us to make projections into the new year.
Although one Bread author is adamant that bitcoin’s relationship with gold is not worth discussing, cryptocurrency’s relationship with interest rates is still worth considering. When the Fed announced that it would keep interest rates unchanged for now, the crypto market responded positively with bitcoin and ethereum jumping 3% and 4% respectively. Although the Fed also revealed 2022 will see three interest rate hikes, the crypto market appreciated Chairman Jerome Powell’s focus on combating inflation.
Moving forward, we expect to see macroeconomic impacts having a greater effect on the cryptomarket for better or worse. As cryptocurrency becomes a staple in traditional portfolios, the crypto market’s exposure to external shocks and macro concerns will increase.
Users
According to Crypto.com, there are currently 292 million crypto users globally as of November 2021. Compared to the 4.72 billion internet users across the world, the number of crypto users is a drop in the bucket. Growth in the market in terms of adoption has skyward potential. From January 2021 to November 2021, crypto users grew 175% – we expect further growth in 2022.
It goes without saying that as adoption increases, so too will the value of cryptocurrency. Finite cryptocurrencies such as bitcoin stand to gain here, with more market dwellers clambering over each other for a piece of the shiny digital coin.
Growth drivers
It’s true that only 6% of internet users are crypto users, but what are the drivers to encourage the other 94% to adopt digital currency?
The answer comes from the ever-changing landscape of the crypto world.
As well as seemingly endless coronavirus variants, 2021 also introduced the world to NFTs. Although the technology dates back to 2015, NFTs only recently gained traction. In March 2021, the most expensive NFT sold for USD 69.3 million at a Christie’s auction, demonstrating to the world that the NFT business means serious business.
Throughout 2021, brands and companies across all sectors dabbled in selling their own NFTs – even our parent company Rice Media gave it a go. Combining fashion with generational trends, Nike acquired digital studio RTFKT to generate NFTs for metaverse users to sport its iconic tick on their digital outfits. Sneakerheads who thrive off scarcity will have their attention directed to the NFT space.
While 2021 saw the (re)birth of NFTs, 2022 is expected to serve as the testing ground for the sustainability of the tech – some USD 26.9 billion was poured into NFTs in the first 10 months of 2021.
Skeptics are expecting the NFT bubble to burst, whilst blockchain fanboys will undoubtedly continue to chase the latest, greatest NFTs. Our view is that the NFT market will continue to thrive alongside the evolution of the metaverse. Consequently, cryptocurrency will continue to play an important role in the NFT space.
2022 will also be a testing year for the metaverse. With Facebook pivoting its focus towards the metaverse with their Meta rebranding, Zuckerberg and his tech peers want us to buy into their vision of a digital parallel universe. One Bread writer remains skeptical about the metaverse, but cryptocurrency’s role in the space will fuel the metaverse no matter which direction it’s headed.
Ethereum vs. Bitcoin
Ethereum has been crowned the victor of the war between the leading cryptos in 2021. Skyrocketing over 430% this year, ethereum vastly outperformed cryptocurrency veteran bitcoin’s 82% rise. Ethereum’s success has not been unwarranted either. The growth of decentralised finance (DeFi) projects and NFTs has showcased the importance of ethereum’s utility. Unlike bitcoin’s blockchain, ethereum is widely integrated into new digital projects and platforms.
As we enter 2022 and gradually embrace Web 3.0, we still see ethereum playing an integral role in the digital space. With most DeFi projects continuing to be built on the ethereum blockchain, we believe ETH will continue to outperform bitcoin in 2022.
Whether ethereum will retain its 430% growth pace into 2022 is another question. Ethereum’s upcoming Protocol 2.0, which shifts its mining from proof of work to proof of stake alleviates energy concerns, with energy consumption falling about 99%. The market is expecting Protocol 2.0 to be rolled out in 2022. Much of ethereum’s 2021 success has already priced-in its integration in DeFi projects as well as Protocol 2.0. If the new update fails to hit the market in a timely manner, ether could suffer badly as developers look towards other blockchain networks. Investors’ patience with ETH’s sky high gas fees will inevitably run out.
2022 will be a testing year for ethereum, but we’re still backing it as our favourite coin.
For bitcoin, bullish analysts have their sights set on the six-figure mark. JP Morgan is predicting a long-term high of USD 146,000 whilst Bloomberg thinks it could reach USD 400,000. With such a large disparity, it would be foolish for this writer to give a bitcoin price estimate for 2022. However, bitcoin’s strength in scarcity should not be underestimated. There is only around 18–19 million BTC currently in circulation. Minting will stop at 21 million. As time goes on and bitcoin becomes increasingly scarce, its value will continue to surge.
We also expect altcoins to become less correlated with bitcoin. Different sectors and different blockchains will experience their own cycles. The bitcoin dominance rate – which measures the ratio between the market capitalisation of BTC and the total market cap of the crypto market – recently approached its yearly low as it fell below 40%. As different chains take on their own identities, they’ll spawn their own bull and bear markets.
Crypto crash?
Cryptocurrency’s notorious volatility lends itself to repeated speculation that its market will crash. Bitcoin, which has the largest market cap among cryptocurrencies, is a good measure of the market as a whole. Although set to decorrelate, as explained above, bitcoin’s dominance in the market serves as a good gauge for market behaviour. In any case, if bitcoin suffers a significant crash, it’ll bring down the rest of the market with it.
Carol Alexander, professor of finance at Sussex University, is expecting bitcoin to crash to USD 10,000 in 2022 due to the cryptocurrency “toy“ having “no fundamental value”. Alexander isn’t alone; skeptics have never warmed to the concept of value derived from scarcity alone with no fundamentals. However, this argument is starting to wear thin. Clearly, scarcity has proven its worth as value in the market.
That’s not to say that the cryptomarket won’t sporadically plunge in 2022; its notorious volatility will persist throughout the year. But, it’s the general upward trajectory investors need to concern themselves with. Because of this, setting price targets in the crypto space is a task we’re not going to embarrass ourselves with.
Outlook
The crypto market has a great deal going for it in 2022. NFTs, DeFi projects, a revamped ethereum blockchain and intensifying bitcoin scarcity are making for an exciting year ahead. Additionally, with the help of mainstream brands adopting blockchain technology through NFTs, the line between cryptocurrency and traditional currency is increasingly blurred.
2022 will see more traditional investors cross over to crypto. And once they’ve danced with the devil, there’s no going back. Overall, we’re excited for crypto going into 2022… Just don’t ask us for a price target.
