Year-to-date, Bitcoin’s price has risen by nearly 70%, pushing the total value of the entire crypto market to $2 trillion. However, recent heightened regulatory scrutiny and wild price volatility have dampened Bitcoin’s prospects. Experts warn that Bitcoin may be heading for a downturn.
Will Bitcoin Crash?
Some experts have warned that Bitcoin will fall sharply in the coming months.
In November, bitcoin prices surged to a record high of nearly $69,000. Currently, Bitcoin is below $50,000, down nearly 30% from its peak. Wall Street defines a bear market as a price drop of 20% or more from recent highs. But it’s worth noting that Bitcoin is notoriously volatile.
Carol Alexander, a professor of finance at the University of Sussex, expects bitcoin to hit a low of $10,000 in 2022, erasing almost all of the gains of the past year and a half. Alexander said:
“If I were a Bitcoin investor, I would consider getting out of Bitcoin as soon as possible because its price could plummet next year.”
The reason she is bearish on Bitcoin is that it is “basically worthless” and more of a “toy” than an investment.
Alexander warned that Bitcoin could plummet, as it has done in the past, after a sharp rise in price. In 2018, Bitcoin plummeted by nearly $3,000, after climbing to a high of nearly $20,000 a few months ago. Bitcoin proponents often say that this time is different because more and more institutional investors are entering the market.
Todd Lowenstein, chief equity strategist at Union Bank’s private banking division, said that Bitcoin’s price trend is similar to that of many asset bubbles in history, and people always think “this time is different.”
A common reason to invest in Bitcoin is that it can serve as a hedge against rising inflation caused by government stimulus. Lowenstein said the Fed’s hawkish stance could dampen the momentum of the high-valued asset and Bitcoin.
Not everyone thinks that the Bitcoin spree will end in 2022, though. Yuya Hasegawa, cryptocurrency market analyst at Japanese bitcoin exchange Bitbank, said:
“The biggest risk factor, which is that Fed quantitative easing has landed, may already be priced in.”
The First Spot Bitcoin ETF
A major development that cryptocurrency investors are watching is the approval of the first spot Bitcoin exchange-traded fund (ETF) in the United States in 2022.
Although the U.S. Securities and Exchange Commission (SEC) approved the launch of the ProShares Bitcoin Strategy ETF this year, the product tracks bitcoin futures contracts, not the cryptocurrency itself.
Vijay Ayyar, vice president of corporate development and global expansion at cryptocurrency exchange Luno, said:
“Bitcoin futures ETFs launched this year are generally seen as less retail friendly because of the high cost of rolling contracts, around 5-10%. There is growing evidence that Bitcoin spot ETFs will be approved in 2022 , mainly because the market is now large and mature enough.”
Asset manager Grayscale Investments has applied to convert its bitcoin trust fund into a spot ETF. Additionally, there are many other Bitcoin ETFs awaiting approval.
Shift to DeFi
As the crypto industry has grown, Bitcoin’s market share has declined, while other digital currencies such as Ethereum have played a larger role. Analysts expect that to continue into next year as investors increasingly look to smaller cryptocurrencies in hopes of big gains.
Alexander of the University of Sussex has included ethereum, solana, polkadot and cardano on the list of cryptocurrencies to watch in 2022. She stated:
“As retail investors start to realize the dangers of trading bitcoin, especially in unregulated venues, they will turn to other currencies in the blockchain space that actually play a major role in decentralized finance. By this time next year, I expect Bitcoin’s market cap to be half or less of the total market cap of smart contract coins like Ethereum and solana.”
Decentralized finance (DeFi) and decentralized autonomous organizations (DAOs) are “probably the fastest-growing segment of the crypto space,” said Bryan Gross, network director at crypto platform ICHI. The goal of DeFi is to recreate traditional financial products without middlemen, and DAO can be regarded as a new type of Internet community.
Data shows that this year, the total locked volume of DeFi protocols exceeded $200 billion for the first time, and experts predict that demand will grow further in 2022.
However, analysts generally expect regulation to be a key factor affecting the crypto industry in 2022. In addition to Bitcoin and Ethereum, regulators will also start scrutinizing stablecoins, the DeFi space, and more.
