With three months of 2022 already under our belts, the cryptocurrency landscape has already shifted dramatically from where it sat on December 31st. Prices have ducked and climbed, breakthroughs have been announced and regulation is banging on the door louder than ever.
That’s why we have picked out the top blockchain stories to watch out for in Q2!
President Biden’s recently signed executive order has generated a good deal of excitement about where crypto is headed next. The order was essentially a direction for US government bodies to examine how cryptocurrency will fit into the future economy.
This push towards regulation was largely well received within the crypto community, as Biden’s desire for US leadership in the crypto space is likely to yield incentives and investment for businesses and professionals.
But it’s not just the US getting in on the act.
The UK is widely expected to follow Washington’s lead on cryptocurrency in the second quarter, with reports suggesting that Chancellor Rishi Sunak will announce a regulatory update in the period.
This update is expected to primarily focus on regulation in relation to stablecoins and sources quoted by CNBC suggest that the Treasury’s move is likely to benefit the crypto industry.
The European Union’s Markets in Crypto Assets (MiCA) legislation is also likely to progress in the period, providing further clarity on the future of cryptocurrency adoption.
While some investors favour keeping crypto as independent from government involvement as possible, others see regulation as a key part of the growth of crypto and anticipate an upsurge in popularity and more widespread adoption following regulation.
The second quarter will also see a big change for Ethereum, with the blockchain’s long fabled merge finally going ahead.
This merge essentially refers to a complete upgrade from a ‘proof of work’ to ‘proof of stake’ mechanism.
The most commonly touted benefit of switching from a proof of work to a proof of stake mechanism is the increased efficiency and eco-friendliness of the mechanism.
That’s because proof of work systems are energy intensive, as they require computer systems to work hard at solving complex problems in order to unlock new units of currency. This is not particularly green as, while the energy expended to power this might come from an eco-friendly source, it could also come from a fossil fuel source.
In short, removing the requirement to use such high amounts of energy to generate new units of currency reduces the environmental impact of the process.
There are other benefits too, with the switch being a step on the way to cheaper gas fees, higher transaction numbers and increased interest in the Ethereum network due to its eco-friendly improvements.
NFTs in Trouble?
If you regularly pay attention to blockchain news, you might have noticed a slowdown in NFT news over recent weeks. Following their explosion in popularity in 2021, these digital assets appear to have suffered a downturn in popularity and fortune.
According to NonFungible’s market tracker, sales numbers over recent weeks have been below a fifth of the level seen in September 2021, when NFT excitement was at fever pitch.
Indeed, data from CoinMarketCap shows that NFTs’ market cap has declined by just over 89% over the last 30 days alone, with sales volume down by 4.24% across the same period.
While this could represent a downturn in NFT interest that will continue over the coming months, it could be a blip amid the challenging investment environment that has followed Russia’s invasion of Ukraine.
Additionally, NFTs are facing an increasingly hostile environment in China, where cryptocurrency trading is already banned. NFTs can still be purchased with Chinese yuan, but secondary trades are heavily restricted and Tencent has banned some NFT profiles from its WeChat messaging app.
Of course, this could spell bad news for those who were swept up by NFT excitement last year. Even so, new NFT projects are continuing to emerge and some related businesses seem to be thriving.
For example, Yuga Labs, the company behind the Bored Ape Yacht Club NFT series, reported in late March that it had secured $450m in new funding, valuing it at $4bn.
As such, the next three months will offer real insight into whether NFTs are here to stay or have simply been a fad.
Bitcoin, the cryptocurrency mothership, has staged a steady recovery across the first three months of the year. The digital coin is still quite some way below the highs it reached in early November last year, but by the same token the depths it plumbed back in January seem like a distant memory now.
Bullish analysts suggest that Bitcoin could see its price, which sits at $45,581.90 at the time of writing, reach almost $60k in the second quarter.
GlobalBlock analyst, Marcus Sotiriou, has explained some of the hype behind Bitcoin at the moment, pointing out that “the current geopolitical crisis has meant that Russia is already considering different currencies, including Bitcoin, to transact for oil with their friendly partners - China and Turkey”.
However, in the short term Sotiriou added that it was critical that Bitcoin manages to hold above the $44,000 mark, arguing that a stumble beneath this line would panic investors into thinking that the currency’s overall recovery is stalling.
It’s always challenging to predict crypto trajectories, but Q2 is an undoubtedly key period for Bitcoin investors as continued recovery could see the currency approaching the highs it reached five months ago.
Crypto and Conflict
The start of this year has of course been marred by the tragic events in Ukraine following the invasion by Russian forces. However, these events have also highlighted the positive impact cryptocurrency can have.
Donations worth more than $60m have been received by Ukrainian government through crypto transactions of Bitcoin, Ether and Tether (USDT). Additionally, charities and Ukrainian citizens have also received high amounts of cryptocurrency from generous patrons or relatives and friends.
Ninepoint Partners managing director Alex Tapscott told CoinDesk:
“Crypto enables you to move assets person to person without intermediaries, which is a virtue when you are in a conflict zone and access to financial intermediaries is unreliable at best.”
This isn’t the only way we have seen crypto becoming entangled in the conflict. Russian citizens have reportedly flocked to cryptocurrency to escape the impact of Western sanctions on the ruble.
Essentially, cryptocurrency has become a hedge against geopolitical risk.
This rapid uptake in crypto adoption in Russia and Ukraine, along with the terrible circumstances surrounding it, could lead to some interesting crypto applications in the months ahead.