by Raymond Hsu
The rapid development of blockchain technologies and the acceleration of the adoption of cryptocurrencies is one of the most exciting technology trends in our lifetimes. A blockchain is a digital distributed, decentralised, public ledger and the technology has the potential to solve many real-world problems online.
A lot of people are aware that blockchain technology underpins Bitcoin and other cryptocurrencies. But its potential is much broader – digital smart contracts can transform not only the finance sector, but also areas in insurance, supply chains, logistics and much more.
2021 has been one of the most instrumental and eventful years in the blockchain and cryptocurrency industry. The US government said it doesn’t have any plans to ban Bitcoin and crypto. US regulators have also discussed how to fairly regulate stablecoins and have approved a Bitcoin futures ETF. And, most importantly, El Salvador became the first country to make Bitcoin a legal tender.
2021 is just a preview of what we are going to see in 2022. Thanks to all the groundwork laid this year, I see five major trends that will play out next year that will further accelerate the adoption of cryptocurrencies in ways that we have never seen before.
More countries will integrate crypto into financial systems
In September 2021, El Salvador became the first country to adopt Bitcoin as legal tender. Based on what I am seeing across the world, it is highly likely that we will see more countries regulating crypto and incorporating it into their financial system.
Next year, we are likely to see the Eurozone roll out its own crypto regulations called the Markets in Crypto-Assets (MiCA) framework which defines digital assets as “digital representations of value or rights which may be transferred and stored electronically, using distributed ledger technology or similar technology”. Other jurisdictions across the planet will follow and likely regulate crypto in a similar fashion.
When more countries begin regulating crypto, it will create a domino effect that will compel other governments to also begin to explore how they can embed the emerging industry into their own financial system and economy.
Industry experts believe in general that crypto will become a norm in our lives. In one recent survey, 54% of a panel of crypto experts thinks ‘hyperbitcoinisation’ — the moment that bitcoin replaces fiat currency and overtakes global finance — will happen by 2050.
Traditional finance to play a larger role in crypto
2021 has seen a plethora of traditional institutional investors step in the crypto space in some meaningful way. In March, Morgan Stanley became the first large US bank to offer its wealth management clients access to Bitcoin funds.
Even the world’s largest asset manager – BlackRock – took its first steps into crypto exposure in two funds early in the year.
This is just the beginning of traditional financial institutions investing in the crypto space as they continue to research and learn more about the industry.
In 2022, we will see even more financial institutions stepping in, with WisdomTree already planning on launching more crypto offerings in 2022.
More use cases will come out of crypto
2021 was a banner year for non-fungible tokens (NFTs). As of September 2021, the aggregate sales value of NFTs in the art market totalled approximately a whopping $774 million.
Now that we have successfully used blockchain technologies to create art that can never be forged, as its ledger is maintained by thousands of computers around the world, we now know that we can find other use cases with crypto to build a more sustainable world.
In 2022, we could see blockchain technologies make our digital identities more safe, secure, and easier to manage, along with improving processes in healthcare, public policy and across the finance industry.
Aligned regulation across jurisdictions
2021 has been great for the cryptocurrency industry in terms of regulators creating clear legislation around the industry.
I expect next year that we will see more jurisdictions aligning on crypto regulation, which will allow crypto firms to safely innovate and create new products and services. This will also be important for crypto firms in making effective risk management strategies that protect consumers and the financial systems they operate in.
The United Kingdom and the Eurozone are also becoming leaders in creating fair and sustainable cryptocurrency regulations. London, New York, Miami, Vilnius, Singapore, and San Salvador may become global crypto hubs next year as they will further roll out clear and friendly regulatory regimes.
Crypto savings accounts will become the norm
With Bitcoin, Ethereum and stablecoins, you can deposit (staking) them on crypto savings accounts to generate high-yield passive income.
Two senior analysts at JPMorgan said this year that staking will gain traction as a source of revenue for both institutional and retail investors. According to a report from the analysts, staking currently generates an estimated $9 billion worth of revenue annually.
But once Ethereum 2.0 is rolled out, it will spur adoption of staking in the DeFi space. This could cause staking pay-outs to grow to $20 billion in the quarters following the launch and by 2025, this could reach as high as $40 billion.
This is a whole new asset class that I believe is a great way for people to use their idle digital assets to earn income and this trend will further build out in 2022.
In the backdrop of the rising participation of global investors, I expect in 2022, crypto platforms that maintain robust compliance and risk management programmes will be successful and prosper.
Sound risk management, compliance, and cybersecurity will no doubt be the hot topics next year as regulators continue to make cryptocurrency in their jurisdictions as safe and secure as possible.
2021 was a great year for crypto but I am excited for what is in store in 2022.
Raymond Hsu is the Co-Founder and CEO for Cabital, a leading cryptocurrency wealth management platform. Cabital’s mission is to help empower people from all walks of life to generate high-yield passive income from their digital assets and create a more sustainable financial industry. Prior to co-founding Cabital in 2020, Raymond worked for fintech and traditional banking institutions, including Citibank, Standard Chartered Bank, eBay, and Airwallex.