2021 was a big year for cryptocurrencies. But what after 2022?
We’ve seen bitcoin hit many all-time highs and more institutional buying from big companies. Ethereum, the second largest cryptocurrency, hit a new all-time high recently as well. US government officials and the Biden administration have increasingly expressed interest in the new regulations for cryptocurrency.
All the while, people’s interest in cryptocurrencies has skyrocketed: it’s a hot topic not only among investors but in popular culture as well, thanks to everyone from long-time investors like Elon Musk to that kid from your high school on Facebook.
In many ways, 2021 was a “breakthrough,” said Dave Abner, head of global development at Gemini, a popular cryptocurrency exchange. “There is a tremendous focus and interest being paid to [the crypto industry]. “
Related: This week’s top crypto news
But the industry is still in its infancy and is constantly evolving. This is a big part of the reason why every new bitcoin rally can be easily tracked with big drops. It’s hard to predict where things will go in the long-term, but in the coming months, experts are pursuing topics from regulation to institutional adoption of crypto payments to try to get a better understanding of the market.
While accurate predictions are impossible, we asked five experts what they pay attention to in the crypto space in the future:
Expect continued talks about cryptocurrency regulation. Lawmakers in Washington DC and around the world are trying to figure out how to put in place laws and guidelines to make cryptocurrencies safer for investors and less attractive to cybercriminals.
“Regulation is perhaps one of the biggest abuses in the crypto industry globally,” says Jeffrey Wang, president of the Americas at Amber Group, a Canada-based crypto finance company. “We very much welcome the clear regulation.”
China declared in September that all cryptocurrency transactions in the country are illegal, effectively limiting any crypto-related activities within Chinese borders. In the United States, things are less clear. Federal Reserve Chairman Jerome Powell recently said he has “no intention” of banning cryptocurrency in the United States, while Security and Exchange Commission Chairman Gary Gensler has consistently commented on the role of his agency and the CFTC in monitoring the industry.
Gensler recently went so far as to say that investors are “likely to get hurt” if stricter legislation is not introduced. Additionally, the IRS has a clear interest in making sure that investors know how to report virtual currency when filing their taxes. Gensler and Powell’s comments echo the emerging view among the Biden administration and other US lawmakers that more crypto regulation is needed.
Like most things related to cryptocurrency, regulations come with hurdles. “There are different agencies that may or may not have the jurisdiction to oversee everything,” Wang says. “This varies from state to state.”
Wang says that clear regulation could mean removing a “major hurdle for cryptocurrency,” given that US companies and investors are operating without clear guidelines at the moment.
What could the new regulation mean for investors
The bipartisan $1.2 trillion infrastructure bill the president signed in November includes provisions for crypto tax reporting that could make it easier for the IRS to track crypto activity among Americans. Even before the new legislation, which is why experts say investors should keep records of any capital gains or losses on their crypto assets. The new rules may also make it easier for investors to properly report crypto transactions.
“This will significantly reduce the tax filing burden for cryptocurrencies,” Sheehan Chandrasekera, CPA, head of tax strategy at CoinTracker.io, a digital tax software company, told Next.
Regulatory announcements can also affect the price of the cryptocurrency in already volatile markets. Market volatility is the reason why investment experts recommend keeping any cryptocurrency investments at less than 5% of your total portfolio and not investing anything you are not willing to lose.
Ultimately, many experts believe regulation is a good thing for the industry. “Reasonable regulation is a win-win for everyone,” says Ben Weiss, CEO and co-founder of CoinFlip, a crypto buying platform and crypto ATM network. “It gives people more confidence in cryptocurrencies, but I think it is something that we have to take our time with and we have to do right.”
ETF Cryptocurrency Approval
There has already been a major breakthrough on this front, as the first Bitcoin ETF appeared on the New York Stock Exchange in October. The development represents a new and more traditional way to invest in cryptocurrencies. The BITO Bitcoin ETF allows investors to buy cryptocurrency directly from traditional investment brokerages with which they may already have an account, such as Fidelity or Vanguard.
“We do it in the stock market, we do it in the bond markets, and people might like it here,” Gensler said at the Aspen Security Forum over the summer.
But some say the BITO ETF is not enough, because while the fund is linked to Bitcoin, it does not actually hold the cryptocurrency directly. The fund instead holds bitcoin futures. While bitcoin futures follow the general trends of the actual cryptocurrency, experts say they may not track the price of bitcoin directly. For now, investors should continue to wait for the ETF that holds the bitcoin directly.
ETF approval has been considered by the Securities and Exchange Commission several times over the past few years, but BITO is the first to gain approval.
What does a crypto ETF mean for investors
It’s too early to tell how many investors will be participating in BITO – but the fund has seen a lot of trading action in its early weeks. In general, the more accessible crypto assets are within traditional investment products, the more Americans can buy and influence the cryptocurrency market. Instead of learning to navigate a cryptocurrency exchange to trade your digital assets, you can add crypto to your portfolio directly from the same brokerage that you already have a retirement account or another traditional investment account.
However, investing in a crypto ETF, such as BITO, still carries the same risks as any crypto investment. It is still a speculative and volatile investment. If you are not willing to lose the money you put into cryptocurrency by buying on an exchange, you should not put it in a crypto fund either. Consider carefully whether you are willing to take the risk of having cryptocurrency in your wallet at all.
Broader adoption of institutional cryptocurrencies
Major companies in many industries have taken an interest in — and in some cases invested themselves in — cryptocurrency and blockchain in 2021. For example, AMC recently announced that it will be able to accept Bitcoin payments by the end of this year. Fintech companies like PayPal and Square are also betting on cryptocurrency by allowing users to make purchases on their platforms. Tesla continues to go back and forth over its acceptance of Bitcoin payments, despite the company owning billions of crypto assets. Experts expect more and more from this purchase.
“We’ve seen a huge outpouring of interest, and that’s going to continue to drive industry growth for a while now,” Abner says.
Some experts predict that larger global companies could catalyze this adoption further in the latter half of this year. “What we are looking at is the participation of institutions in cryptocurrency, whether it is Amazon or the big banks,” Weiss says. A massive retailer like Amazon can “create a chain reaction by others who accept it,” and “adds a lot of credibility.”
In fact, Amazon recently sparked rumors that it is taking steps to this end by sharing a job opening for a “digital currency and blockchain product leadership.” Walmart is also hiring a crypto expert to oversee its blockchain strategy.
What does more institutional adoption mean for investors
While paying for things with cryptocurrency doesn’t make sense for most people right now, more and more retailers accepting payments may change this landscape in the future. It will likely take much longer before it is a smart financial decision to spend Bitcoin on goods or services, but more institutional adoption could lead to more use cases for everyday users, and thus have an impact on crypto prices. Nothing is guaranteed, but if you buy cryptocurrency as a long-term store of value, the more “real world” you use it for, the more demand and likely value will be.
Bitcoin future predictions
Bitcoin is a good indicator for the cryptocurrency market in general, as it is the largest cryptocurrency by market capitalization and the rest of the market tends to follow its trends.
The price of Bitcoin saw a massive rally in 2021, and in November, it set a new all-time high when it crossed $68,000. This latest record high follows previous highs above $60,000 in April and October, as well as a summer dip to less than $30,000 in July. This volatility is a big part of the reason why experts recommend keeping your crypto investment at less than 5% of your portfolio to begin with.
But how high will bitcoin go? A lot of experts say it’s only a matter of when bitcoin reaches $100,000, not whether. Bitcoin’s past may provide some clues about what to expect in the future, according to Kiana Daniel, author of Crypto Investing For Dummies.
Daniel says that there have been a lot of huge upsurges followed by pullbacks in the price of bitcoin since 2011. “What I expect from Bitcoin is short-term volatility and long-term growth.”
What does bitcoin price volatility mean for investors
Bitcoin’s volatility is one more reason for investors to play a steady long game. If you’re buying for long-term growth potential, don’t worry about short-term volatility. The best thing you can do is not to look at your cryptocurrency investment, or “set it and forget it.” As experts keep telling us every time there is a price swing — either up or down — an emotional response can cause investors to act recklessly and make decisions that lead to losses on their investments.
The future of cryptocurrency
We can speculate on the value that cryptocurrency might have for investors in the coming months and years (and many will), but the truth is that it is still a new and speculative investment, with no significant history on which to base predictions. No matter what an expert believes or says, no one really knows. That’s why it’s important to only invest what you’re willing to lose, and stick to more traditional investments to build long-term wealth.
“If you were to wake up one morning to find that encryption had been blocked by developed countries and rendered useless, would you be okay?” Frederic Stanild, CFP with Lifewater Wealth Management in Atlanta, Georgia, recently told NextAdvisor.
Keep your investments small, and never put your cryptocurrency investments above any other financial goals such as saving for retirement and paying off high interest debt.