After a stellar year for Bitcoin and record crypto prices, what to expect in 2022

There is no doubt that 2021 was a watershed moment for cryptocurrency. Between record prices, the rise of non-fungible tokens and increased global adoption, cryptocurrency awareness hit the mainstream. Total market capitalization more than tripled throughout the year to reach more than US$3 trillion in November, while market leader Bitcoin set its all-time high of US$67,826 after starting the year at US$30,000, according to data from CoinGecko.

At that point in time, predictions that Bitcoin’s price could hit US$100K by the end of the year looked like they were on track. Obviously, Bitcoin fell well short of that point as the market lost roughly 30% since hitting that all-time high as uncertainty surrounding new Covid variants and debt troubles with Chinese property giant Evergrande heavily impacted traditional stock markets, which crept into the crypto market as well.

But with a disappointing end to an otherwise stellar year for Bitcoin and crypto behind us, what does 2022 have in store for the market?

“The year end and the beginning of the year was marked by uncertainty,” said Justin d’Anethan, crypto markets analyst who will soon be joining Amber AI as institutional sales director. D’Anethan told bitcoinlinux.com this may be due to lighter holiday trading over the past few weeks, but more likely the crypto market has been range-bound in recent weeks due to two competing narratives.

“There was a positive outlook and sentiment for cryptocurrencies, the hope of a year-end rally and a strong Q1 for 2022 and the development of crypto-linked investment products,” he said. “On the other hand, the year-end rally very much did not happen and the global/macro sentiment might be more bearish than bullish, with inflation rearing its ugly head and potential rate hikes to come soon.”

Since the market-wide crash in early December where Bitcoin had more than US$1 billion knocked off its market cap, it has been trading steadily between US$46,000 and US$52,000 ever since. A slight increase of over 13% might have initially been seen as a late Christmas gift for investors last week, but those hopes were quickly dashed as it crashed again before the year was out. Bitcoin was trading at US$46,913 at press time, according to CoinGecko.

Last year also saw significant developments of Bitcoin and Ethereum exchange-traded funds (ETFs) being introduced in countries such as Canada and Brazil that gave the green light for spot traded ETFs. It was the news of the release of two Bitcoin futures ETFs in the U.S. in October, however, that helped spur its price into new territory. While not the spot traded fund investors had been hoping for, the futures ETFs — which track the price of futures contracts as opposed to the price of the underlying asset itself — were initially seen as a positive sign the U.S. Securities and Exchange Commission would soon grant the same approval to a spot traded fund.

This has not turned out to be the case, however, as the SEC rejected a long-awaited proposal for such a fund from global ETF investment management firm Van Eck in November, citing the possibility of fraud. Less than a month later, the SEC rejected another spot traded fund, this time by New York-based sponsor WisdomTree, citing the lack of “surveillance-sharing agreements” and concerns over the possibility of market manipulation.

While d’Anethan recognizes it was a disappointing end to the year, his outlook moving into 2022 is more optimistic. “Personally, I have a somewhat bullish bias for January, thinking that a lot of the new year activity and the interest of institutions in the asset class will at least support BTC, and probably help the whole space revisit higher levels,” he said.

Another industry watcher told bitcoinlinux.com that Bitcoin and Ethereum are poised for new growth in the coming year, even if that doesn’t immediately translate to higher prices. Ethereum’s price has followed a similar path to Bitcoin, setting an all-time high in early November, only to lose roughly 20% of that in the weeks since. It was trading at US$3,805, according to CoinGecko.

“With respect to Bitcoin but also DeFi [decentralized finance],” said Ben Caselin, head of research and strategy at cryptocurrency exchange AAX, “we’re paying extra close attention to emerging markets in Latin America and the African continent. While prices may not reflect growth, in terms of crypto adoption there is no reason to be concerned at this stage.”

One of the biggest stories to emerge out of 2021 was El Salvador’s adoption of Bitcoin as legal tender in September. In a world-first, president Nayib Bukele said the move would help address the nation’s high unbanked population as well as reduce remittance costs in a country of 6.5 million, where roughly 20% of the GDP is comprised of international transfers.

Ever since the adoption, the natural question has been which — if any — country might follow suit. Bukele entered into this discussion by making his own predictions for the new year on Jan. 1 that two more countries will adopt Bitcoin as legal tender in 2022, though he did not specify which countries. Making the claim via his official Twitter account, Bukele also predicted Bitcoin will reach US$100K throughout the year and will become a major electoral issue in U.S. elections.

While it is yet to become a major electoral issue in the U.S., regulation from bodies such as the SEC as well as attention from Congress has been heating up of late, and Caselin believes this trend could continue to impact crypto prices into the new year.

“Regulation could put pressure on the stablecoin markets as well as a range of tokens that may be at risk of being deemed securities,” he said. SEC chair Gary Gensler has said in the past few months he regards most stablecoins — cryptocurrencies whose value is pegged to the value of a particular currency — as securities, and should be subject to the same securities laws as the assets that back their value. Gensler has also called stablecoins “poker chips” on multiple occasions and has requested additional powers to regulate them.

“It’s impossible to foresee the impact [of regulation] at this stage,” Caselin continued, “and diversification might be helpful. However, the opportunity cost of not participating simply out of fear of regulation is too great. If anything, this is a good moment for investors to pull back from highly speculative markets and focus on quality assets with solid foundations.”

But just as the recent price decline in recent months has shown, the crypto market is becoming increasingly entwined in traditional markets, and external factors will continue to play a role in crypto’s fortunes in 2022.

“The biggest issue will be the withdrawal of liquidity by central banks and the rise in interest rates,” Andrew Sullivan, founder and writer for Asianmarketsense.com, told bitcoinlinux.com. “As that happens, there will be more competition for cash and hence better opportunities for investors and a more realistic risk-reward environment.”

In early November, the U.S. Federal Reserve announced it will begin tapering the US$120 billion a month it spends on bond purchases in order to address concerns over rising inflation. The program had been put in place to counteract the negative impacts of the Covid-19 recession in the economy, and is now expected to end in the middle of this year as the Fed reduces spending on bonds by US$15 billion a month.

“I doubt that bonds will manage to regain their historic hedging status,” Sullivan added.

While at the time of that announcement the Fed had no plans to raise interest rates, it has since reversed course and has indicated it may do so to counteract further inflationary fears.

Another factor at play in traditional stock markets at the moment, Sullivan says, is that investors will still be faced with the currently rich valuations that some stocks are enjoying which will be difficult to justify in a rising interest rate environment. “Investors will have to look for good companies with little debt and that have pricing power,” he said. “A big problem is that whilst equity markets are at highs in most cases that is due to a few key stocks.”

China’s property sector will continue to have an impact on global markets, especially with the uncertainty surrounding the rolling debt crisis currently engulfing property giant developer Evergrande. Traditional and crypto markets take a tumble each time fears of a default on its interest repayments rise, and Sullivan believes this is simply part of a wider concern within the country’s property sector which will continue to plague markets into the new year.