The Future of Digital Assets: How 2022 Will Shape The Crypto Industry?

Nikita Rudenya, Member of the Board at the asset management operator 8848 Invest

The past year has been an excellent one for the cryptocurrency market, largely due to the situation in the global economy, which is still under pressure from new waves of COVID-19.

Risks of new lockdowns, low-interest rate policies and QE, and rising commodity asset prices worldwide force investors to look for alternative investment instruments to protect their assets from depreciation. Cryptocurrency has been serving this role in some situations for three years now. And, as the market grows and matures, this function will only get stronger.

But what were the most significant trends and events that shaped the crypto industry in 2021, and where will the market be heading next year?

As the Market Reaches New Highs, Regulators' Role Becomes More Significant

One of the most obvious crypto trends this year was the significant growth of digital asset prices.

While BTC and ETH achieved new all-time highs this year at $69,000 and $4,865, respectively, cryptocurrencies maintained 2020's upward trend throughout 2021, with their combined market capitalization reaching $3 trillion.

Institutional players, who entered the digital asset market in large numbers this year, played a significant role in the growth of cryptocurrency prices. However, retail investors also remained bullish during the year and bought assets at every considerable decline.

And this shouldn't come as a surprise. The large amounts of liquidity that global financial authorities have poured into the markets by launching printing presses have greatly accelerated inflation.

The low-rate policy pursued by major central banks, coupled with the volume of quantitative easing and financial support, has led to a drop in fiat’s purchasing power. As a consequence of global central bank fiscal policies, investors have realized the significant risk reduction of classic financial assets. This has increased the demand for cryptocurrency as an alternative investment instrument.

At the same time, regulators were more active than ever, sometimes even stealing the show from the rising digital asset prices.

The latter scenario occurred in May when the Chinese government advocated a complete ban on crypto mining. While it was a significant event with a great impact on miners, it didn't cause any major damage to the industry.

While the hashrate of BTC and other cryptocurrencies sagged amid the shutdown, it recovered a few months later, as businesses were able to find new regions with acceptable conditions to resume their mining operations. 

Despite the  event's lack of significant impact on the crypto industry, it was a sign that the role of financial regulators worldwide is becoming increasingly important in crypto. Therefore, one cannot ignore regulatory risks when investing or doing business in the industry.

New Catalysts for Adoption: NFTs, Metaverses, Coinbase Listing, and ETF Launches

In 2021, new trends appeared in the industry that served as catalysts for crypto adoption among the mainstream audience.

One notable industry trend in this field was the rise in popularity of NFT assets and metaverse projects, which positively impacted the entire cryptocurrency market.

The digitalization trend in multinational companies like Facebook (Meta after rebranding), the high popularity of digital art, and the hype around NFTs brought new participants to the market.

As a result, established blockchain projects have rushed to create the technological conditions for this new market segment. Projects such as Avalanche, Solana, and Ethereum are now actively used as the basis for NFT products and crypto metaverses.

At the same time, the crypto market achieved long-awaited milestones that could pave the way for mass adoption.

For one, major US exchange Coinbase IPOed and started trading on NASDAQ this year. As a result, it became the first cryptocurrency trading platform to be listed on a US stock exchange. This important step allows crypto-oriented companies to be treated as a real business, regulated and transparent, which undoubtedly benefits the industry.

In addition, the launch of the first Bitcoin-based ETFs in Canada and the United States has enabled classic investment companies, hedge funds, and money managers to gain exposure to the cryptocurrency market through a regulated and trustworthy asset.

While NFTs made crypto "cool" for the public (as a Visa executive stated), the last two developments underscore the gradual connection between the digital asset and traditional finance markets. 

Going Forward: What I Expect to See on 2022's Crypto Market

Next year, along with further technological development, I expect the digital asset market capitalization to grow to $4-$4.5 trillion. More investors, including from classic markets, will invest in crypto portfolios and specific sectors, such as DeFi. And, the new metaverse paradigm will force industry players to rethink, which will skyrocket existing market segments, primarily NFT and GameFi.

Also, the rising worldwide inflation will force businesses and managers to look for alternative investments to save and multiply capital. And, the cryptocurrency market is seriously beginning to be seen as an available investment that fits this purpose.

As investment in the sector grows, blockchain project teams will receive new funding to develop their crypto solutions, improving their scalability, security, and resilience, and enter the competition phase. As a result, weak teams and solutions will depart from the industry, while current players will offer users the best conditions.

Despite the local risks associated with crypto bans in some countries, financial authorities and national regulators will positively impact the market. The emergence of a transparent legal framework will acquire more institutional investors and increase market capitalization.