It might be risky to predict the future of any currency, not least during the depths of a crypto winter, but the overall patterns don’t lie. That’s why we’re following these 10 crypto trends with keen interest. If you’re looking for a hint of where crypto, DeFi and the regulatory landscape are headed in the near future, keep an eye on these shifts, themes and features.
1. DeFi Gains Momentum
The crypto markets have shrunk by 70% since 2021, yet decentralized finance (DeFi) applications are seeing historic growth. Why? It’s partly because investors are snapping up the opportunity to earn yields on digital assets using smart contracts. Moving traditional transactions to the blockchain eliminates the intermediary (and their fees). With monthly trading volumes steadily rising across Decentralized Exchanges (DEXs), the Total Locked Value (TLV) of assets could well go beyond the current figure of $229 billion. Now that Bitcoin offers sidechains that support smart contracts on top of the Bitcoin blockchain, DeFi is no longer confined to Ethereum.
2. Bitcoin Put to the Test
It may have endured a turbulent 2022, but Bitcoin is still perceived as the most secure blockchain currency. With inflation hitting 9.1% in the US in June 2022 and forecast to rise as high as 18% in the UK in 2023, investors are ready to put Bitcoin to the test as a hedge against inflation. That might be a lot to ask, however. While Bitcoin is attractive during periods of inflation due to monetary expansion, its impact is limited when (as of now) inflation is due to rising commodity and utility prices.
3. Interoperability Solutions
One of the recurring bugbears for investors is the need to maintain a range of wallets and exchanges to trade each cryptocurrency, with little support for moving assets between currencies or layers. Each platform uses its own standards and codebases and transaction fees are high. Enough is enough. New ventures such as Polkadot (from the founder or Ethereum) and ICON are intent on connecting blockchains through a centralized relay chain. In short, they’re allowing blockchains to talk to each other. For all the talk of an arms race in blockchain interoperability solutions, the bottom line is that improved interoperability benefits the community. Less friction allows more users to enter the arena.
4. Institutional Crypto Adoption
Not only are more companies adding crypto assets to their balance sheet, but asset managers too are looking at crypto with a fresh perspective. Skepticism is giving way to pragmatism for two reasons — the comparative fragility of conventional financial markets, and the ease of buying and selling assets through DeFi. Securities such as the Grayscale Bitcoin Trust, one of the first to focus solely on Bitcoin, already manage assets worth more than $13 billion. It’s still early days, though. Institutional investment in crypto is still a fraction of investment in conventional markets and the serious business won’t begin until the pension, hedge and sovereign wealth funds come calling in earnest.
5. Regulatory Landscape
Are the “Wild West” days of crypto coming to an end? The Securities and Exchange Commission (SEC) may still be debating whether crypto is a security or commodity, but regulatory clarity is coming. Certainly, the IRS is set to take a greater interest in crypto assets held by Americans, while the European Union is intent on establishing regulated Markets in Crypto Assets (MiCa) to protect consumers. Ultimately, greater regulation benefits investors and consumers alike and facilitates the launch of exchange-traded funds (ETF) like BITO Bitcoin — the first to debut on the New York Stock Exchange.
6. Across the Metaverse
You don’t have to embrace the vision of the metaverse to experience its effects. Virtual spaces and communities are poised to become very real indeed, and with that the rise of:
- Tokenization, not least non-fungible tokens (NFTs), whose market value is set to rise by 24% from 2022 to 2028 (hitting an estimated value of $70+ billion). Expect NFTs to consolidate their value as sources of decentralized funding for creators and artists, especially when it comes to building virtual properties and hosting virtual events in the metaverse.
- Decentralized Apps (DApps) that run on peer-to-peer networks will allow metaverse users to trade property without prohibitive transaction fees.
- Gaming and Finance (GameFi). The monetization of gaming could reach new heights with more opportunities to earn and trade assets between stores.
7. Expanding Markets
Is the tipping point approaching? PayPal and Venmo now allow Bitcoin trading on their platforms, while
Disney, Microsoft, Google and Apple are all exploring their own blockchain technology projects. Even national governments and treasuries are taking the leap of faith. El Salvador became the first of the nation states to make Bitcoin legal tender in 2021, and other Latin and Central American countries are looking to join them.
8. Central Bank Digital Currencies (CBDCs)
Central banks around the world are also investigating options for issuing their own digital currencies. So far, 105 countries are exploring digital currencies, 11 have launched (including Jamaica and Nigeria) and 14 are undergoing pilot projects. That includes China, which is pressing on with plans for a digital Yuan wallet despite banning cryptocurrencies. Should CBDCs gain traction, crypto interoperability will gain further momentum as countries seek to standardize transactions.
9. Going Green
Bitcoin mining accounts for 0.5% of global electricity consumption and the serious environmental impact is not likely to go unnoticed any longer. Even if 0.5% doesn’t sound like a lot, it’s more than the consumption of Sweden, which also happens to be one of the countries pioneering net-zero, renewable options for establishing Proof of Work. We’re a long way from eco-friendly crypto, but the footprint is now part of the debate. News that the world’s second most valuable cryptocurrency, Ethereum, has switched to a Proof of Stake mechanism instead of Proof of Work (cutting energy consumption by 99.95%) shows how much pressure the major currencies are to get a grip on their carbon footprint.
10. Cybersecurity Threats
The safest prediction one can make about cryptocurrency is that the danger from hackers will increase steadily. Cybercriminals stole $1.9 billion in 2022 and they’re unlikely to lose enthusiasm. There were 97 million cryptojacking attacks in 2021, targeting exchanges and wallets. It’s a reminder why any investor needs to carefully evaluate the merits of a hot/cold wallet or crypto vault for their assets.
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Sources
Imaginovation – 10 Promising Cryptocurrency Trends to Watch for in 2022
World Economic Forum – What’s next for bitcoin and crypto? The trends to watch in 2022