Bitcoin and Ethereum have both hit record high prices, and more companies are recognizing crypto as a legitimate payment option. In September 2021, El Salvador became the first country to recognize cryptocurrency as legal tender.
The first Bitcoin ETF (exchange-traded fund) was approved in October, making it the first cryptocurrency that can be traded on the stock market through traditional investment channels. This is a big breakthrough as it makes crypto a more mainstream investment option.
As cryptocurrency becomes more mainstream, there has also been talked of more regulation. Though many in the industry are against this, as regulation often comes with restrictions.
Predicting the future of cryptocurrency is difficult, which is why it remains so volatile and the highs are often followed by plummeting lows. However, there are some common trends that can give some insight into what the future holds. So, what’s on the horizon for cryptocurrency in 2022?
New Regulation
In most cases, governing bodies regulate what is traded and taxed. This applies to cryptocurrency as well, but regulating a decentralized network is not easy. In fact, it’s almost impossible. However, the industry is growing and this means that more countries will likely attempt to impose some sort of regulation on crypto in 2022.
In the US, the SEC has begun to address cryptocurrency, and there is a lot of discussion about how to treat it. There seems to be a certain amount of acceptance among regulators, but also a desire for factors such as transparency and accountability. This often comes with increased regulations. The recent infrastructure bill signed in November 2021 included crypto tax reporting provisions and it is likely that more regulation is coming in the future.
However, there are challenges because there is no clear jurisdiction and the rules surrounding crypto can vary from state to state. If managed correctly, regulation can create more trust in crypto and benefit the industry as a whole. But it needs to be approached carefully so the benefits of cryptocurrencies remain intact.
More Institutional Adoption
A lack of institutional adoption has long been one of the things holding crypto back. If you can’t spend it, what’s the point in having it? However, even though there has been a lot of progress, the year 2022 is likely to be significant in terms of crypto moving into institutional spaces.
2021 saw the first cryptocurrency ETF become available, and this was a good start for wider institutional adoption. In February 2021, Fidelity opened its ‘Fidelity Digital Assets’ infrastructure for storing cryptocurrency, which opens the door to more institutional interest in crypto.
This is significant not only because big names are beginning to recognize cryptocurrencies but also because it shows that cryptocurrency can be recognized as a form of wealth. It may take some time, but if this trend continues then key players are likely to begin moving into crypto in 2022 now that the infrastructure is there.
The Decline of Meme Coins
Meme coins like Shiba Inu and Dogecoin really took off last year, with Dogecoin hitting over $2billion in market capitalization. This year has seen the quality of coins decrease, with more low-effort meme coins popping up.
Many of these coins are built on the Ethereum blockchain, so they suffer from high transaction fees and slow processing. As crypto becomes more mainstream and institutional adoption increases, these meme coins are likely to fall out of fashion as people invest in better crypto products.
A Crypto Crash?
2018 and 2019 saw some big highs for cryptocurrencies but also huge drops. 2020 was better than 2018 or 2019 with some highs and lows. Will 2022 be the year that crypto crashes again because of new regulations? A change in legislation may bring some uncertainty with it and this could lead to a dip in value. But that said, this unpredictability is likely to be short-term. And as cryptocurrencies see more widespread adoption, they will bounce back and we should see long-term growth, which is good news for investors.
Cryptocurrency is still an incredibly unpredictable industry, but these are the trends that are likely to drive its future in the coming year.
