2021 has been a defining year for cryptocurrencies in many ways. From surpassing $3 trillion in market cap to the adoption of Bitcoin as legal tender by a country (El Salvador), the year was nothing short of a dream run for this new asset class. It was a year that helped cryptocurrencies become mainstream. The last month was not as favourable, with the crypto market mostly trading in the red. Some top cryptocurrencies took severe blows following the uncertainty associated with the Omicron variant of COVID-19. But experts are optimistic about adopting crypto as several blockchains offer valuable solutions that bolster throughput, processing speed and security.
As the world preps up for Web 3.0, the third version of the internet, it is just a matter of time that crypto dominates and automates all transactions over the internet. To put things in perspective, let us look at some key trends headed this way for 2022: 1. Next phase of Decentralised Finance or DeFi 2.0:
The decentralised finance or DeFi space is expected to witness robust growth in the new year. Innovations in liquidity solutions and automated market makers would generate lucrative yields on crypto investments. Experts believe that decentralised autonomous organisations (DAOs) – algorithms that autonomously make intelligent decisions, will carry the momentum and steer the crypto bandwagon. With the emergence of platforms like Olympus and forks like Wonderland backing their performance, the era of DeFi 2.0 is just around the corner. Decentralised finance, which grew to an $80 billion industry in 2021, is poised to explode 10-fold, veteran crypto investor and co-founder of DeFi platform Matthew Roszak told Business Insider.
“Right now, we’re sitting at a DeFi market cap of about $80 billion. My sense is that a year from now, it will add a zero,” said Roszak, who believes a “perfect storm” is underway for DeFi.
2. Adoption of Web 3.0:
The evolution of the metaverse is expected to gather steam, and its relationship with Web 3.0 will continue to strengthen. This is because Web 3.0 is focused on transferring the control and ownership of digital assets to the users of the respective platforms. From sports gear to clothing line brands and even electronics and other consumer goods makers have already made a foray into the virtual space offering immersive shopping experiences to their customers.
Investors have been pumping in funds to gain ownership of virtual real estate on platforms like Decentraland and the Sandbox, making it the next big thing for 2022. For example, Republic Realm, a digital real estate developer, purchased virtual land on the Sandbox metaverse in a $4.3 million deal. In comparison, Canadian crypto leader Tokens.com bought a digital land plot for $2.4 million on Decentraland virtual reality platform. Bigger land deals are expected to line up in the metaverse as the technology develops.
3. Mobilisation of crypto exchange-traded funds (ETFs):
Lower interest rates cajoled investors into redirecting their money into riskier assets like cryptocurrencies. The year 2021 saw the launch of several bitcoin-linked exchange-traded funds. By the time 2021 came to an end, there was an influx of over $900 billion into the ETF market. According to Bloomberg Intelligence data, the number of crypto-tracking investment vehicles worldwide more than doubled to 80 in 2021 from just 35 at the end of 2020. Assets soared to $63 billion, compared to $24 billion at the start of the year.
As Rodrigo Vicuna, Chief Financial Officer at Prime Trust, pointed out to Yahoo Finance, additional ETFs would help expand retail exposure as an investment, potentially increasing market adoption by orders of magnitude.
This year, the Yahoo article pointed out, investors and investment managers will also await a decision from the US SEC on Bitcoin ETFs, which would have to be traded on the “exchange” — in other words, on the stock market (and therefore, only during the hours the stock market is open).
ETFs act as a reliable vehicle to create a portfolio across asset classes. Their breadth covers investors of all appetites – cash-rich as well as small investors. ETFs are also a safer bet for dabbling in the crypto markets without much knowledge or exposure.
4. Development of Central bank digital currency (CBDC):
Several countries are working on CBDCs – the digital form of a country’s sovereign currency. While CBDCs may not be completely decentralised, they will resolve certain concerns raised by experts, such as crypto terror financing and the need for oversight by a powerful governing body to ensure control over liquidity and monetary policy. Blockchain technology is a robust protocol that has diverse applications across sectors. Its strong security protocols, decentralised structure, and respect for user privacy have made it the frontrunner in the financial sector. In other areas, organisations optimise throughput by moving the complexity from business processes to the underlying blockchain technologies.
Based on the trends we have seen so far in the cryptocurrency space, more and more businesses are likely to begin accepting popular cryptocurrencies like Bitcoin as legal tender, thus increasing the viability of the digital currency.
(Edited by : Yashi Gupta)
