LONDON: If 2021 was the year cryptos went mainstream, what’s next for digital assets?
There are as many predictions for the price of bitcoin and other major cryptocurrencies as there are days of the year, so we won’t even be going there but, if previous years are to pass. , expect more volatility.
The price of Bitcoin more than doubled from January to early November, reaching a record high of $ 67,554, but has had a scorching period since then and was trading on the last day of the year at $ 48,276, but still 66% higher in 2021.
One trend that has been predicted by many industry watchers is crypto decoupling, which is the idea that not all coins will follow bitcoin up and down but will trade independently based on their own value.
“Different sectors of crypto have different value drivers”, says Messari Crypto theses for 2022. âWe’ve gone from ‘everything is cryptocurrency’ to ‘actually there are currencies, big protocols, DeFi applications, distributed computing platforms, NFTs, labor markets to earnâ¦’ Savvy investors are increasingly examining the actual use and underlying microeconomics of various networks and trading around their unique growth drivers. “
Bitcoin mining becomes more concentrated
Arcane research predicted more bans on bitcoin mining in 2022, especially in countries with weak grids or low power generation capacity, meaning more mining will be pushed to countries with robust networks and abundant energy supply.
One upside is that bitcoin production is likely to become less of an environmental drain as countries with cleaner networks take over. The downsides could include a less well distributed mining network.
Stablecoins facing regulation
Regulatory attention to cryptos in general and stablecoins in particular has intensified in 2021 and 2022 will likely be a year of action on this front.
Stable coins, such as Tether and USD Coin, hold a one-to-one value with fiat currencies, such as the dollar, and are backed by low-risk assets in those currencies. At least that’s what investors had assumed. In October, Tether agreed to pay the Commodity Futures Trading Commission a fine of $ 41 million for falsely claiming that its tokens were fully backed by US dollars.
Later in the month, an important Tether client, Alex Mashinsky, told the Financial Times that the company is lending new stablecoins in exchange for cryptocurrencies, questioning Tether’s founding promise that it only uses real dollars to issue its tokens.
In June, Eric Rosengren, chairman of the Federal Reserve Bank of Boston, singled out Tether as a possible challenge to financial stability. Earlier in 2021, New York Attorney General Letitia James said Tether had lied in the past about his reservations and called its founder and colleagues “unlicensed and unregulated people.” . . dealing in the darkest corners of the financial system.
More and more countries are adopting cryptocurrencies
El Salvador became the first country in the world in 2021 to recognize bitcoin as legal tender. Already more Salvadorans have bitcoin wallets than bank accounts, according to the country’s president, allowing them to send and receive remittances cheaply.
While the International Monetary Fund and the World Bank have warned against such measures, citing a risk to financial stability, many other countries are reportedly considering similar measures, especially in South America, such as Panama and Paraguay. They might not specifically adopt bitcoin, but rather introduce a stablecoin or central bank digital currency, known as CBDC.
China to launch digital currency
China plans to launch its CBDC, e-CNY, in time for the Beijing Winter Olympics in February, and more than 140 million Chinese residents already have e-CNY wallets, while $ 97 billion were exchanged into digital currency through various pilot programs.
Major central banks around the world will be watching closely. While US Treasury Secretary Janet Yellen and the Federal Reserve have expressed no immediate need for a digital dollar, expect a sudden change in direction if the e-CNY appears to give China greater influence. in global capital markets.