In the cryptocurrency markets, 2021 has been a volatile year. The year started with a rally that took some prices to all-time highs over the spring, before they plunged in May and attempted to recover over the summer. There are various Trends of the Crypto Market which you might want to know.
In November, Bitcoin reached a new high, but it took a bearish turn in December, defying predictions that it would continue to gain.
Despite the emergence of decentralised finance (DeFi) in 2020, it really began to take off in 2021 with new apps and services enabling crypto users to borrow and earn yield with their coins.
In addition, non-fungible tokens (NFTs) were used in high-profile sales of digital art collections through online marketplaces and traditional auction houses.
When bitcoin and ether hit their highs in November, the crypto market cap hit $3trn, then fell back to $2.5trn in December. Gold, stocks, and treasury bonds still have much greater value than cryptocurrencies.
1. Attention will be paid to crypto regulations
Over the course of 2021, regulators around the world assessed the economic impact of cryptocurrency. A number of central banks, including India, have warned that cryptos could threaten financial stability. The year 2021 saw a lot of regulatory action from El Salvador’s adoption of bitcoin as legal tender to China’s ban on crypto-related activities and India’s announcement of a crypto regulation bill soon that includes a ban on all private cryptocurrencies. In 2022, the trend is expected to continue. In addition, central bank digital currency (CBDC) may be introduced.
2. Decentralizing the Internet with Web3
A blockchain is used to run next-generation Internet applications in Web3. The World Wide Web’s second version, the World Wide Web 2.0, is dominated by large corporations using their users’ personal data for tailored advertising. Web3, on the other hand, promises to return control of personal data to the individual through the use of decentralized applications that will reward users for their attention with cryptocurrency tokens.
3. The financial sector will adopt blockchain technology
As blockchain infrastructure lends itself well to processing financial transactions, DeFi was one of the first decentralised applications to take off. In 2021, more cross-border payments providers, particularly in developing countries, began using blockchain platforms to facilitate remittances, a trend that will likely accelerate in 2022.
4. Tokenization of real-world assets and NFTs
With digital artwork collections like the CryptoPunks and Bored Ape Yacht Club selling for increasing prices, collectible NFTs became a hot topic in 2021. On Nifty Gateway NFT, a 48-hour sale of Pak’s Merge Collection netted over $91m for more than 266,000 units in early December.
With the help of airdrops and additional token sales, some of the most popular NFT collections are providing unique features that allow users to enhance their artworks and develop communities around them.
5. Scaling across multiple chains
The widespread adoption of NFTs will also be driven by multichain scaling. The majority of blockchains are independent networks for specific applications.
But as blockchain adoption grows, different chains will need to interoperate more and more.
There are a number of blockchain interoperability projects, including Matic/Polygon, Polkadot, and Cosmos, that are striving to create ways for different chains to communicate.
Users will be able to transfer assets across chains using cross-chain functionality.
6. Expanding crypto gaming with play-to-earn
As their developers looked to build liquidity, gaming cryptocurrencies such as the AXS and SLP tokens in Axie Infinity, Sandbox’s SAND and Illuvium’s ILV token soared in value in 2021.
Players can use NFT-based characters to earn cryptocurrency tokens for their gameplay, which they can then exchange for fiat currencies on exchanges.
Popular games in 2021 included Alien Worlds, Axie Infinity, Sandbox, and Splinterlands, and games such as Illuvium, MicroPets, and Star Atlas will launch in 2022.
7. Cryptomarkets are likely to see an increase in institutional investments
A number of well-known companies and financial institutions have invested heavily in the crypto industry this year. About $30 billion invested in the industry by investors including venture capital funds in 2021, according to reports. In the year 2022, institutional investors will increasingly enter the crypto market. It is likely that the crypto space will see many more investments in the coming year with Microsoft and Facebook investing heavily in their metaverse plans and Nike and Adidas investing in it as well. There also expected to be a lot of activity in the decentralised finance (DeFi) space.
8. Upgrade to Ethereum 2.0
With Ethereum 2.0, among other features in 2022, proof-of-stake will replace energy-intensive proof-of-work consensus.
During the expansion of DeFi apps and NFTs, the blockchain has slowed down due to transaction fees. These changes expected to speed up processing times and reduce transaction fees.
In 2022, Ethereum might maintain its position as the largest smart contract platform due to increased scalability. Statista reports that Ethereum’s dominance has increased over the course of 2021. According to DeFi Llama, Ethereum had a total value locked (TLV) of $157.87bn as of 28 December 2021.
9. Speeding up Layer 1 with Layer 2 networks
Platforms such as Ethereum, Solana, and Algorand build on Layer 1 blockchain networks. Layer 1 networks use native cryptocurrencies for transactions, increasing liquidity as their use increases. The consensus mechanisms used by Layer 1 networks differ in terms of security, speed, and decentralization.
Increasing speed, reducing fees, improving security, and so forth, are all features of Layer 2 networks. On the Ethereum network, using Layer 2 networks like Polygon can help developers reduce fees and latency.
Scaling solutions for Layer 2 networks include zero-knowledge (ZK) rollups.
10. Adoption by institutions
It was clear that institutional investors were seeking cryptocurrencies-based financial instruments to gain exposure to the markets. With the emergence of the first bitcoin ETF, ProShares Bitcoin Strategy. As of the week ended 17 December, digital asset funds had $63.02bn in assets under management (AUM) and $9.35bn in year-to-date flows.
For a longer timeframe, it’s difficult to accurately predict the future price of individual coins. Because the cryptocurrency markets remain extremely volatile. As such, analysts make mistakes from time to time.
Whenever you make an investment decision, we recommend that you do your own research. Take into account the latest market news, technical and fundamental analysis, and expert opinion. The past is not a predictor of the future. Be careful not to invest more than you can afford to lose.