Crypto Volatility Endures, but Mainstream Adoption is Closer

By Duncan Ferris

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Our 'Key Themes For 2022' is designed to help you identify and capitalise on the areas to watch out for. Here we have cryptocurrency.

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Cryptocurrency investing is no longer the domain of a select few. A 2021 study from Survey Monkey found that at least 10% of Americans have sunk some of their savings into digital coins and tokens. 

However, these cryptocurrencies are still seen by many as the Wild West of retail investing. Volatility is intense, prices fluctuate this way and that from day to day. This will likely continue in 2022, but with wider adoption, there should be more stability among major coins.

For example, it no longer seems like a real possibility that the value of Bitcoin, Ethereum or other major players could suddenly plummet to zero. That’s not to say that these are not still high-risk investments.

But just how mainstream has cryptocurrency become?

Will cryptocurrency replace cash?

There are some signs that cryptocurrency adoption could become even more mainstream.

Perhaps the most notable step towards mainstream adoption is in El Salvador, where Bitcoin was made into legal tender from September. It will take time to establish how successful this is but, despite the fanfare, the move has not gone entirely smoothly.

Following the passing of the nation’s Bitcoin Law in June, most El Salvadorians said they opposed the legislation and nearly three quarters said they would not accept cryptocurrency as payment, according to polling from the country’s La Prensa Gráfica newspaper.

However, it’s still early days in this crypto experiment and more people may become open to the change over time.

There are further examples of mainstream use elsewhere. Some major businesses in North America accept cryptocurrency payments. These include Starbucks (NASDAQ: SBUX), PayPal (NASDAQ: PYPL) and AT&T (NYSE:T). Even so, we’re quite far from a world where relying solely on cryptocurrency is realistic.

So, we won’t see the death of fiat currency in 2022, but many analysts believe that crypto will take over eventually. A survey of cryptocurrency experts by Finder.com found that 54% thought Bitcoin would overtake fiat currency by 2050.

This might be a case of optimism, as crypto faces its fair share of hurdles.

What regulations does cryptocurrency face?

Cryptocurrency is becoming increasingly hampered by regulation and legal hurdles, with this being a trend that may well continue into 2022.

The biggest story along these lines from 2021 is came out of China back in September. The superpower, which had come to be one of the largest crypto-markets in the world, effectively banned cryptocurrencies after The People's Bank of China said all crypto transactions were illegal.

The nation’s ban on cryptocurrency mining actually led to a 38% drop in global mining, according to Cambridge Bitcoin Electricity Consumption Index (CBECI).

Another key example is India’s Cryptocurrency and Regulation of Official Digital Currency Bill 2021. This was announced in November and would see the banning of all private cryptocurrencies, with these being replaced by an official national digital currency which would be issued by the Reserve Bank of India.

Regulation is on the way in the US as well.

American financial regulators announced a roadmap of crypto-related work for the year ahead at the end of November. While the Fed doesn’t seem keen on banning cryptos, it is banging the drum for more consumer protection and anti-money laundering measures for institutions which participate in crypto-asset-related activities.

Another interesting central facet to the Fed’s plans is also its evaluation of whether it should release its own central bank digital currency, a digital dollar which would aim to go toe to toe with cryptocurrencies.

While it could be some time before Bitcoin has to watch out for a US-sanctioned digital currency, other competitors could still catch the top dog.

Will ‘the flippening’ happen in 2022?

‘The flippening’ is what crypto traders call the hypothetical event of Ethereum’s market cap becoming the greatest of all cryptocurrencies, stealing the top spot from Bitcoin.

Bitcoin’s market cap currently stands at around $925bn, while Ethereum’s is a little over half of that, sitting at just below $494bn.

So why do analysts think the flippening could happen in 2022? Putting things simply, Ethereum is more prepared for the future than Bitcoin. The blockchain is constantly evolving and is more well-suited to practical use by decentralized finance applications.

Bitcoin is rigid, while Ethereum’s programmable blockchain has applications in areas such as NFTs and smart contracts.

Even so, for the flippening to happen in 2022 is a big ask. Ethereum may well be the crypto to topple Bitcoin, but we might have wait more than 12 months to find out the next big chapter in this story.

Cryptos to watch

Bitcoin and Ethereum are far from the only digital currencies to look out for in 2022:

Solana (SOL)

Solana is a unique cryptocurrency which claims to be powered by the fastest blockchain in the world. Though some aspects of Solana are similar to Ethereum, Solana can outmatch its competitor when it comes to transactions per second.

While Ethereum can handle somewhere around 13 per second and Bitcoin can handle seven or so, Solana says it can churn through an almighty 710,000 on a standard gigabit network.

This makes the platform incredibly attractive to decentralised finance applications and investors looking for the next hot cryptocurrency.

2021 has been an enormous year for the coin. Solana’s price sat at around $1.50 at the start of the year, but has climbed to over $190 by early December, with the currency having hit a high of $260 in the first week of November. With impressive technology behind it and rapid growth, 2022 looks to be a huge year for SOL.

Shiba Inu (SHIB)

Shiba Inu is a meme coin through and through. Unlike with SOL, there’s little case for the currency having any real-world use, but that hasn’t hampered its success.

The coin apes its precursor, the once famed Dogecoin (DOGE). While its price is still far lower, the two coins have enjoyed opposing trajectories in recent months.

The coin’s price has also exploded in 2021. Shiba’s value currently stands at a fraction of a cent, coming in at $0.000035 at the time of writing. While this is obviously miniscule, the price has still grown by 376.3% in the last six months and a whopping 60,000,000% in the last year.

Before going for a memecoin it is worth bearing in mind what happened to DOGE. The currency spiked in value in May but has fallen in price by 51.21% over the last six months. Just like memes eventually stop being funny, it seems that memecoins can very quickly lose their appeal.

Cardano (ADA)

The Cardano platform is another one to watch for the coming year. The smart contract platform’s ADA coin has strong community backing and there is speculation that it could compete with Ethereum.

This speculation has intensified after upgrades to the platform earlier this year which mean that it can support stablecoins and the creation of NFTs.

ADA’s price has increased by 676.80% across the year to date, with its value currently sitting at $1.36.

Cardano also claims to be the most environmentally friendly major cryptocurrency. Producing the coin is far less energy intensive than for competitors like Bitcoin. Indeed, founder Charles Hoskinson has estimated that the system uses less energy than 0.01% of Bitcoin’s network.

With more and more investors looking for environmentally friendly solutions, ADA could be a key cryptocurrency for a greener world.

Polkadot (DOT)

Finally, let’s take a look at Polkadot. The platform is seen as another big rival for Ethereum and was actually founded by Ethereum co-founder Gavin Wood.

One of the reasons Polkadot is attracting a lot of attention is the way the Web 3.0 blockchain enables collaboration and cooperation. Individual blockchain projects can easily interact with each other using the platform.

Additionally, DOT has benefited from the boom in NFTs, with the platform offering a cheaper alternative to Ethereum for those looking to mint, sell or trade NFTs.

As such, DOT’s price has leapt by over 400% over the past 12 months, with its value currently sat at around $27.

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Topics:
Cryptocurrency
Blockchain
Industries:
Financials

Author: Duncan Ferris

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.

Duncan Ferris does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the above article.

Duncan Ferris has not been paid to produce this piece by the company or companies mentioned above.

Digitonic Ltd, the owner of ValueTheMarkets.com, does not hold a position or positions in the stock(s) and/or financial instrument(s) mentioned in the above article.

Digitonic Ltd, the owner of ValueTheMarkets.com, has not been paid for the production of this piece by the company or companies mentioned above.

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