The cryptocurrency markets have seen a volatile 2021, starting the year with a strong rally that took some prices to all-time highs over the spring before they crashed in May and attempted a recovery over the summer.Bitcoin jumped to a new high in November but took a bearish turn in December, defying predictions that it would continue to make gains.
While decentralised finance (DeFi) emerged during 2020, it began to take off in 2021 as new apps and services allowed crypto users to borrow and earn yield using their coins.And non-fungible tokens (NFTs) exploded onto the scene with high-profile sales of digital art collections through online marketplaces as well as traditional auction houses.
The total crypto market cap hit $3trn in November when bitcoin and ether reached their highs, then slipped back towards $2.5trn in December.Cryptocurrencies remain at a fraction of the value of other asset classes such as gold, stocks and treasury bonds.
What are the key trends that are likely to prevail in the new year? Read on for our roundup of 2022 crypto predictions.
Crypto predictions for 2022: 10 trends for the year ahead
High volatility makes predicting cryptocurrency prices difficult, but there are clear trends that will affect the adoption of crypto coins and tokens, which in turn will drive the direction of prices.
Here are ten key themes that might dominate the cryptocurrency markets in 2022, building on the developments of 2021.
1.Web3 to decentralise the Internet
Web3 refers to the ecosystem of next-generation Internet applications that will run on blockchains .The first version of the Internet focused on static content and the current, second version of the World Wide Web is dominated by large corporations that leverage their users’ personal data for tailored advertising.But Web3 promises to return control of personal data to the individual through the use of decentralised applications that will reward users for their attention with cryptocurrency tokens.
Staking cryptocurrency tokens will give users the right to vote on governance issues and participate in decentralised autonomous organisations (DAOs).
Users around the world with access to the Internet will be able to access Web3 applications, unlike the banking system, which remains inaccessible to many.
2.Financial services to adopt blockchain
DeFi is one of the first decentralised applications to take off, as blockchain infrastructure lends itself well to processing financial transactions.More cross-border payments providers, particularly in developing countries, started to shift their remittance services to blockchain platforms in 2021, a trend that is set to accelerate in 2022.
[PwC] : “The entire infrastructure of payments is being reshaped, with new business models emerging…[including] a revolution involving huge structural changes to the payment mix and ecosystem (emergence of so-called “buy now, pay later” offerings; cryptocurrencies; and work underway on central bank digital currencies)”.
3.
NFTs and tokenisation of real-world assets
Collectible NFTs became a hot topic in 2021, with digital artwork collections like CryptoPunks and Bored Ape Yacht Club selling for increasingly high prices.In early December, a 48-hour sale of the Merge Collection by artist Pak brought in over $91m for more than 266,000 units on the Nifty Gateway NFT marketplace.
Some of the most popular NFT collections are adding unique features through airdrops and additional token sales that enable users to enhance their artworks and develop communities around them through meetups.
With the value of some NFT collections skyrocketing on the secondary resale markets, they have become popular among investors looking to profit from future sales, a trend that is expected to continue in 2022.
There is also the potential for NFTs to be used to tokenise real-world assets – such as real estate or physical artwork – for sales, purchases or use as collateral for loans.
4.Multi-chain scaling
Multi-chain scaling will also drive the widespread adoption of NFTs.Most blockchains are independent networks that aim to address specific network uses.
But as blockchain adoption grows, there is an increasing need for different chains to interoperate.
There are several blockchain interoperability projects such as Matic/Polygon , Polkadot and Cosmos , that are working on ways for different chains to communicate.Cross-chain functionality will allow users to transfer assets across chains.
With transaction fees on the Ethereum blockchain remaining high, some applications and NFT developers are shifting to alternative blockchains, such as Solana and Avalanche .
But with the emergence of Layer 2 solutions on the Ethereum blockchain, Ethereum is set to remain the dominant platform for smart contracts .
5.Play-to-earn to expand crypto gaming
Gaming cryptocurrencies such as AXS and SLP in Axie Infinity , Sandbox’s SAND and Illuvium’s ILV token skyrocketed in value in 2021 as their developers looked to build liquidity.Play-to-earn NFT games enable players to use NFT-based characters to earn cryptocurrency tokens as rewards for their gameplay, which they can convert on exchanges to fiat currencies.
Games such as Alien Worlds, Axie Infinity, Sandbox and Splinterlands became popular in 2021, and games like Illuvium, MicroPets and Star Atlas are due to launch in 2022.
As the number of players for these games grows, demand for the tokens used for buying, selling and earning NFT characters is set to increase, supporting prices on exchanges.The buildout of the metaverse in 2022 is also set to drive the popularity of in-game metaverses .
6.Emergence of the metaverse
Could the next cryptocurrency to explode in 2022 be a metaverse coin? Technology companies and brands have run with the concept of the metaverse in 2021, with Facebook changing its corporate name to Meta Platforms in October.
In November, the Government of Barbados became the first country to establish a metaverse embassy in virtual world Decentraland , and Metaverse Group, a subsidiary of Tokens.com, bought $2.4m of real estate in Decentraland, the largest metaverse land purchase to date, to develop digital fashion shows and commerce.
The metaverse trend could take off in 2022, with Microsoft planning a workplace service, Mesh , as part of its Teams software and Meta beta testing its professional applications.Virtual reality headsets will allow users to control their avatars and the way they interact in the metaverse, while games like Fortnite and Roblox have developed into virtual worlds where users can interact.This creates opportunities for brands to expand their advertising – for example Nike has acquired virtual fashion platform RTFKT and Ralph Lauren has launched a digital collection on Roblox.
Prices for metaverse-related cryptocurrencies like Decentraland’s MANA , THETA , ENJ , as well as AXS and SAND, rallied strongly in late November, even as coins including bitcoin and ether retreated from their highs.
7.
Ethereum 2.0 upgrade
The Ethereum blockchain is in the process of upgrading to Ethereum 2.0 , which among other features will shift from energy-intensive proof of work (PoW) consensus to proof of stake (PoS) in 2022.The changes are expected to speed up processing times and reduce transaction fees, which have bogged down the blockchain as DeFi apps and NFTs have expanded.
Increased scalability might see Ethereum hold onto its position as the largest smart contract platform in 2022.According to Statista , the dominance of Ethereum increased over the course of 2021.DeFi Llama reported that Ethereum’s total value locked (TLV) accounted for $157.87bn as of 28 December 2021.
8.Layer 2 networks to speed up Layer 1
Layer 1 blockchain networks provide the infrastructure for other networks, protocols and applications to build on, such as Ethereum, Solana and Algorand .The native cryptocurrencies of Layer 1 networks are used for transactions, increasing liquidity as their usage grows.
The various consensus mechanisms that Layer 1 networks use have different levels of security, speed, and decentralisation.
Layer 2 networks enhance this functionality by increasing speeds, reducing fees, enhancing security, and so on.For example, using a Layer 2 network like Polygon helps developers reduce fees and latency on the Ethereum network.
Layer 2 networks like Polygon, Lightning network and Starknet use various scaling solutions, such as zero-knowledge (ZK) rollups, which use a side blockchain to order transactions and submit them to the main blockchain in batches to increase efficiency.In 2022, cryptocurrencies for Layer 2 networks using ZK rollups are expected to expand.
c) There were a number of competitors to ETH this year as Layer 1 alternatives – key ones being SOL, DOT, AVAX, COSMOS, LUNA.One way to think of this piece is that we’ve always seen a duopoly emerge (Windows/Mac, Android/iOS, Intel/AMD, etc).TBD what we’ll see with crypto L1.
— Vijay Ayyar (@vijayayyar) [December 12, 2021]
9.
Regulation
Cryptocurrencies are facing increased regulation by various governments, with China and South Korea restricting mining and use of cryptos and the US cracking down on the markets.The Securities and Exchange Commission (SEC) has filed a lawsuit against Ripple Labs challenging the use of its XRP coin as a security rather than a currency and has rejected applications for a spot exchange-traded fund (ETF).The Tether US dollar-pegged stablecoin has also attracted scrutiny into whether it is backed by sufficient collateral.
Regulators might try to codify crypto currency guidelines in 2022, requiring more detailed tax reporting and user identification.
[stated] that “there is an urgent need for cross-border collaboration and cooperation to address the technological, legal, regulatory, and supervisory challenges,” of cryptocurrency adoption, warning that “uncoordinated regulatory measures may facilitate potentially destabilising capital flows.”
India’s finance minister said the government plans to introduce a bill to prohibit all “private” cryptocurrencies in India, which some commentators have taken to mean those that have zero transparency, such as monero .However there is concern the bill may also prevent citizens from holding conventional cryptos such as bitcoin and ether.
10.
Institutional adoption
The launch of the first bitcoin ETF , ProShares Bitcoin Strategy, in October reflected growing institutional demand for cryptocurrency-based financial instruments to gain exposure to the markets.Digital asset funds had $63.02bn of assets under management (AUM) with year-to-date flows of $9.35bn in the week ended 17 December, according to data collated by digital asset management firm CoinShares.
While bitcoin has attracted the most interest, institutions are increasingly looking to gain exposure to ether as well as solana and polkadot as demand for Layer 1 coins rises with DeFi, NFTs and other apps.
Cryptocurrency outlook for 2022
The cryptocurrency predictions in 2022 might be driven by the adoption of new applications and the underlying blockchain infrastructure they use.
[recent] crypto forecast podcast.“Investors should keep an eye on the direction that regulators take in the face of this and the broad spectrum of outcomes those regulations might portend for crypto valuations, ranging anywhere from new highs to the old lows of bygone price cycles.”
Analyst and trader Michael van de Poppe is bullish in his cryptocurrency market forecast for early 2022, predicting “big runs everywhere” in prices, but he added that there is potential for “a big crash to flush everyone out’ later in the year.”
2022 will be absolutely massive.— Michaël van de Poppe (@CryptoMichNL)
Big runs everywhere, and potentially, later in the year, a big crash to flush everyone out.
Trade it wisely.
Have a plan.
Have targets.Hit those targets and start taking profits.
Execute it well.[December 27, 2021]
[telling] the Sohn Hearts and Minds Conference in Australia on 3 December, “I wish they’d never been invented,” adding, “I admire the Chinese, I think they made the correct decision, which was to simply ban them.”
It’s important to keep in mind the cryptocurrency markets remain extremely volatile, making it difficult to accurately define crypto market trends and the future price of individual coins for a longer timeframe.As such, analysts can and do get their predictions wrong.
We recommend that you always do your own research, and consider the latest market news, technical and fundamental analysis of the crypto market, and expert opinion before making any investment decision.Keep in mind that past performance is no guarantee of future returns.
And never invest more than you can afford to lose.
FAQ
Cryptocurrencies that are used in trending applications like DeFi, NFTs, gaming and metaverse have the potential to grow in 2022 depending on their adoption.However, the crypto markets are extremely volatile and any token’s price trend can reverse against you.
There is potential for the cryptocurrency markets to crash in 2022 after their bullish run to all-time highs in 2021.Keep in mind that the high volatility in cryptocurrency markets makes it difficult to make accurate price predictions, so it’s important that you do your own research.
Read more: Ripple price prediction for 2022 and beyond: what’s next for XRP?
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