The past two years were a catalyst for crypto adoption, especially with the COVID-19 outbreak, which caused almost uncontrollable inflation.
The crypto sector, on the other hand, managed to stay afloat, and, despite some volatility issues, its pace has been in the green. Furthermore, NFTs, decentralized finance, and blockchain-backed securities provided investors and retail users with some exciting new features to choose from during the COVID-19 era.
The latest addon to the crypto sector is the Metaverse, which boomed in popularity amid the NFT interest surge.
However, the backbone of the crypto sector – cryptocurrencies, are also going to evolve, especially with the help of governmental regulations kicking in. Authorities around the globe are exploring the autocratic regulation concept for the crypto world with cryptocurrency regulation expected to be a focal point of several governments in 2022.
Cryptos, however, is a tough asset class to regulate, so many authorities may first try to put stablecoins like Tether (USDT) under some kind of legislation, as they are less prone to erratic price changes. This may push governments into prioritizing stablecoins over other cryptocurrencies in the regulatory process.
Another key trend, which may see a massive development is decentralized finance or DeFi. Decentralized finance deployed a trustless approach to transactions, mitigating the need for a central entity to oversee or control the transactions. Since the DeFi summer of 2020, the decentralized finance realm slowly expanded to a notable size, with projects like ApeSwap, Uniswap, SushiSwap, Polkadot, and AAVE, for example, moving vast trading volumes. The momentum in the DeFi space from 2021 is likely to translate into a booming industry over the coming months, as the sector may be a witness to another wave of growth.
Meanwhile, large corporations and even countries have adopted some form of cryptos as a payment method or a legal tender. The use of cryptos as a payment method is expected to grow this year, expanding further into the retailing environment, especially after Walmart’s indication of entering the NFT sector. However, the pace of growth will depend on people’s trust in digital currencies, as 2022 already saw a massive sell-off, which made the crypto sector’s market capitalization to plummet way below $2 trillion.
Adopting cryptos as legal tender pushed experts to believe many countries would opt-in to research and develop central bank digital currencies, or CBDCs. China already deployed several pilot programs for its DC-EP digital yuan. Many governments took into consideration the development of their own cryptocurrencies to also draw the public towards a safer alternative for their investments while retaining monetary stability.
Traditional finance would also see crypto-related products, as the world prepares for many crypto ETF proposals to be approved. Trading with ETFs enables the investors to indirectly invest in the crypto market. Indeed, many new Bitcoin-linked ETFs were launched in 2021 after passing a phase of great scrutiny and debilitation.
This momentum would most likely continue, as the crypto ETF space quickly grew into a large industry, partly because it offered some security to those seeking stability in a relatively volatile sector. Furthermore, U.S. regulators are pressured by investors to push out such ETFs, as traditional investors like banks and funds are finding it hard to enter the crypto space on a larger scale.
Nevertheless, there are some asset management companies, like Grayscale, which currently have over $23 billion in assets under its Bitcoin trust, as well as $8 billion in its Ethereum trust. Grayscale opened up 16 trusts, locking in almost $32 billion in investments.