Are you a robot?
Why did this happen?
Please make sure your browser supports JavaScript and cookies and that you are not blocking them from loading. For more information you can review our Terms of Service and Cookie Policy.
From a bitcoin crash to regulatory crackdowns: Analysts give their top predictions for crypto in 2022
In this article BTC.CM=
Vertigo3d | iStock | Getty Images
Crypto crash
Some experts believe bitcoin is due for a sharp decline in the coming months. The cryptocurrency surged to a record high of almost $69,000 in November. It’s now sitting below $50,000, down almost 30% from its peak. Wall Street wisdom defines bear markets as a decline of 20% or more from recent highs, but it’s worth noting bitcoin is notorious for its volatility. Carol Alexander, professor of finance at Sussex University, said she expects bitcoin to tank to as low as $10,000 in 2022, virtually wiping out all of its gains in the past year and a half. “If I were an investor now I would think about coming out of bitcoin soon because its price will probably crash next year,” Alexander said. Her bearish call hinges on the notion that bitcoin “has no fundamental value” and serves as more of a “toy” than an investment.
Alexander warned of history repeating itself. In 2018, bitcoin tumbled close to $3,000 after climbing to a high of nearly $20,000 a few months earlier. The cryptocurrency’s backers often say that things are different this time, as more institutional investors are jumping into the market. “Without question, Bitcoin’s price chart appears to track many historical asset bubbles and busts and is carrying a ‘this time it’s different’ narrative just like other bubbles,” said Todd Lowenstein, chief equity strategist of Union Bank’s private banking arm. A common investment case for bitcoin is that it serves as a hedge against rising inflation caused by government stimulus. Lowenstein said there’s a risk that a more hawkish Federal Reserve may take the wind out of bitcoin’s sails.
“Goldilocks conditions are ending and the liquidity tide is receding which will disproportionately harm overvalued asset classes and speculative areas of the market including cryptocurrencies,” he said. Still, not everyone is convinced the crypto party will end in 2022. “The biggest risk factor, namely [quantitative tapering] by the Fed, has been decided and likely priced in already,” said Yuya Hasegawa, crypto market analyst at Japanese digital asset exchange Bitbank.
First spot bitcoin ETF
A big development crypto investors are on the lookout for in 2022 is approval of the first spot bitcoin exchange-traded fund in the United States. Although the Securities and Exchange Commission greenlighted the launch of ProShares' Bitcoin Strategy ETF this year, the product tracks bitcoin futures contracts rather than giving investors direct exposure to the cryptocurrency itself.
Futures are financial derivatives that oblige an investor to buy or sell an asset at a later date and for an agreed-upon price. By tracking futures prices instead of bitcoin itself, experts say, ProShares' ETF could be too risky for novice traders, many of whom are invested in crypto. “The Bitcoin Futures ETF that launched this year has been widely regarded as not very retail-friendly given the high costs involved of rolling over contracts which amounts to around 5-10%,” said Vijay Ayyar, vice president of corporate development and global expansion at crypto exchange Luno. “Increasing pressure/evidence… points to a Bitcoin Spot ETF being approved in 2022 mainly because the market is now large and mature enough to support one.” Grayscale Investments has filed to convert its bitcoin trust, which is the world’s biggest bitcoin fund, into a spot ETF. And there are plenty of other bitcoin ETF applications waiting in the wings.
Rotation into ‘DeFi’
As the crypto industry has evolved, bitcoin’s share of the market has waned, with other digital currencies like ethereum playing a much larger role. This is something analysts expect to continue into next year, as investors increasingly look to smaller pockets of crypto in the hope of big gains. Sussex University’s Alexander flagged ethereum, solana, polkadot and cardano as coins to watch in 2022. “As retail investors begin to realize the dangers of trading bitcoin, especially on unregulated venues, they will switch to … other coins belonging to blockchains which actually serve an essential and fundamental role in decentralized finance,” she said. “This time next year I predict that bitcoin’s market cap will be half the combined cap of smart contract coins” like ethereum and solana, Alexander added, “or even less.”
Emerging crypto developments such as decentralized finance and decentralized autonomous organizations are “likely to be the highest growth areas of crypto,” said Bryan Gross, network steward at crypto platform ICHI. DeFi aims to recreate traditional financial products without middlemen, while DAOs can be thought of as a new type of internet community. Total money deposited into DeFi services surpassed $200 billion for the first time this year, and experts project demand to grow further in 2022.
DeFi is part of a broader trend in tech known as Web3. The Web3 movement calls for a new, decentralized iteration of the internet encompassing blockchain and cryptocurrency technologies such as nonfungible tokens. It has already found skeptics in the likes of Elon Musk and Jack Dorsey, however.
‘A big year on the regulatory front’
Regulators flexed their muscles on cryptocurrencies this year, with China completely banning all crypto-related activities and U.S. authorities cracking down on certain aspects of the market. Analysts widely expect regulation to be a key issue in 2022 for the sector. “2022 will be a big year on the regulatory front, no doubt,” Luno’s Ayyar said. “The interest from various governments, and especially the U.S., to bring regulation into the crypto space has not been higher.” Ayyar said he expects to see some clarification on the legal “gray zone” of cryptocurrencies other than bitcoin and ethereum, which the SEC has said are not securities. Blockchain company Ripple is locking horns with the U.S. watchdog over XRP, a cryptocurrency it is closely associated with. The SEC alleges XRP is an unregistered security and that $1.3 billion worth of the tokens were illegally sold by Ripple and two of its executives. For its part, Ripple says XRP should not be considered a security.
Are you a robot?
Why did this happen?
Please make sure your browser supports JavaScript and cookies and that you are not blocking them from loading. For more information you can review our Terms of Service and Cookie Policy.
Why This Billionaire Investor Says Bitcoin Is Crushing Gold
Billionaire investor and CEO of Galaxy Digital Mike Novogratz says Bitcoin (BTC) is a better store of value than gold. Speaking during the investment management firm’s Q3 earnings call, Novogratz said gold is getting crushed by Bitcoin.
During the earnings call, Novogratz said gold has not met people’s expectations in recent years. “If you’d asked gold bugs two years ago where the price of gold would be, given what’s happened in monetary and fiscal conditions around the world, they would have all answered far higher than here, $1,800,” he said.
Novogratz, a well-known crypto fan, thinks this is because there’s been a substitution of Bitcoin for gold. “I still think gold was probably an okay asset to own in this environment, but it’s just gotten crushed by Bitcoin,” he explained.
It seems as if people are buying one of the world’s newest currencies instead of one of its oldest. Indeed, according to the Financial Times, gold is among the worst performing assets of 2021. In contrast, Bitcoin is up over 60% since the start of the year, according to data from CoinMarketCap.
Why is Bitcoin replacing gold?
Many people see Bitcoin as a form of digital gold. The idea is that, like gold, Bitcoin acts as a good store of value. A store of value is any type of asset that isn’t going to lose its value or deteriorate over time. For example, gold should be worth the same – or more – in 15 years' time as it is today.
Some say Bitcoin does not work as a store of value, primarily because of its volatility. But Novogratz disagrees. In fact, he says the fact that over 200 million people participate in the Bitcoin ecosystem means the question isn’t even up for debate anymore.
“A store of value gets its worth from the social construct that people agree that it’s valuable – that I’m going to hold my hard-earned money, my labor, my savings in this form,” he explained.
It is true that Bitcoin has some big advantages over gold. It’s a lot easier to move around, and a lot cheaper to store. It isn’t perfect, but – unlike gold – it can be used as a form of payment.
Like gold, there is a limited supply of Bitcoin as only 21 million BTC will ever be produced. Against a backdrop of growing inflationary concerns, there’s an appeal to assets that might hold their value.
Why investors should still be cautious
Bitcoin certainly has some advantages over gold. But if you’re looking for a safe haven for your money, Bitcoin doesn’t yet check all the boxes.
For starters, Bitcoin is still a volatile asset – ideally a store of value should hold its worth even if there’s a financial crisis. And Bitcoin hasn’t been around long enough for us to know if that will happen.
Bitcoin is currently down 30% from its high of six weeks ago, and those kinds of swings are not unusual. It’s true that Bitcoin has gained in value this year, but it is still a risky investment.
One big risk is the potential impact of stringent cryptocurrency regulation around the world. We know that increased regulation is on the horizon, it’s just not clear what form it will take. It doesn’t look like the U.S. or European countries will ban Bitcoin as China did, but heavy restrictions could deal a big blow to the crypto market as a whole.
That said, some form of additional regulation would mean more investor protection and could build confidence in the long term. SEC Chair Gary Gensler called crypto the “Wild West” – and not without reason. There are a host of scams and other types of crypto fraud; for every article of a crypto millionaire you’ll find other stories of unwary investors who’ve lost their cash.
We mentioned that Bitcoin is cheaper to store and easier to move around than gold. But the other side to that argument is that cryptocurrency platforms can be hacked. Bitcoin is easier to steal than gold – and it’s very difficult to recover any stolen coins.
You can own Bitcoin and gold
You don’t have to choose between Bitcoin and gold, you can own both. Both assets can play a part in a diversified portfolio – as long as you understand the risks involved. Diversification is a great way to minimize overall risk, especially if you aren’t investing money you need for other financial goals.
If you want to include some Bitcoin in your portfolio, you can buy it from any top cryptocurrency exchange. Just don’t let talk of digital gold blind you to the potential risks.
Are you a robot?
Why did this happen?
Please make sure your browser supports JavaScript and cookies and that you are not blocking them from loading. For more information you can review our Terms of Service and Cookie Policy.