The Future Of Cryptocurrency And Trends To Watch Out For In 2022 And Beyond

William Huston, AIF®, AIFA®

by in Published on May 08, 2022

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In many ways, 2021 was a revolutionary year for the crypto industry, with Bitcoin taking the lead with a current market cap of roughly $736 billion.

Over the past year, Bitcoin hit all time high prices which were followed by big drops. 2021 also saw Ethereum, the second biggest cryptocurrency, hit its highest price . Major companies and institutions have also expressed increased interest in buying and investing in some of these crypto assets.

2021 also saw El Salvador become the first country in the world to adopt Bitcoin as legal tender - to China banning all cryptocurrency transactions.

Dave Abner, the Head of Global Development at Gemini, a popular cryptocurrency exchange, cited that 2021 was a breakthrough year for crypto and that there's tremendous focus and attention being paid to the crypto industry.

But First, What Is Cryptocurrency?

Cryptocurrency is a digital or virtual currency that is secured by cryptography and is supported by blockchain technology.

Blockchain technology is a distributed ledger that maintains records of transactions that have been made, as well as keeps track of ownership of the cryptocurrencies. The records cannot be tampered with, thus making it nearly impossible to double spend or counterfeit cryptocurrency.

The cryptocurrency debate continues to happen globally. To embrace, regulate or ban crypto? This is a question that most authorities are yet to answer. Here are some trends as predicted by experts, that you should watch out for in 2022 and beyond.

Crypto Regulation

With the emergence of decentralized finance platforms, also known as DeFi, major financial institutions are concerned about the lack of consumer protection and the absence of anti-money laundering checks. This has in turn put the crypto market under increased scrutiny.

As the crypto industry continues to grow, it is anticipated that the lawmakers will come up with policies that ensure the safety of crypto investors and make it less appealing to cyber criminals.

But decentralized finance platforms will keep expanding into areas like lending, trading and derivatives, said David Yermack, a finance professor at New York University's Stern School of Business. "We have seen rapid rates of growth and innovation in this space throughout 2021, and regulators face clear challenges in integrating these platforms into traditional compliance frameworks," he said.

In November 2021, the U.S. President Joe Biden signed the 1.2 trillion bipartisan infrastructure bill. The legislation includes tax reporting provisions that apply to digital assets like cryptocurrency and non fungible tokens, also known as NFTs. This therefore means that it could be easier for the IRS to track crypto activity that is conducted by Americans. Prior to this new legislation, crypto experts had always advised crypto investors to keep records of any capital gains or losses on their crypto assets. Also with the new legislation, crypto investors will be able to easily report their crypto transactions in a more accurate manner.

With the new law, each broker/ exchange will have to issue 1099-B tax forms with cost basis information to investors. This will greatly help in reducing the headache that comes with tax filing for crypto.

With the volatile nature of the crypto market, experts advise crypto investors to make crypto investments to less than 5% of their investment portfolio and to just invest what they are okay losing, as loss is a possibility in the crypto space.

All in all, many experts believe that regulation of the crypto industry is a good thing as it gives people more confidence in investing in the industry.

As the different cryptocurrencies continue to gain popularity globally, some countries are ready to adopt their use while some are looking to completely ban the use of crypto.

Taking the lead, El Salvador became the first country in the world to adopt Bitcoin as a valid currency, alongside the nation's local currency, in 2021. "Inspired by the El Salvador experiment, more developing countries will embrace bitcoin as legal tender," said President Nayib Bukele.

The President said that the move to adopt Bitcoin as a valid currency would help the Salvadorans in the diaspora be able to send money back home with ease. He also cited that this would help boost investment in the country, increase financial inclusion as well as tourism and development.

The move generated a lot of media attention globally, but some major concerns that came up were that older people who were not tech savvy would be left out. Also, those living in rural areas with limited or no internet access would struggle getting proper financial services.

The International Monetary Fund wasn't for the decision citing the volatility, financial stability and lack of consumer protection measures that are associated with Bitcoin.

Crypto experts predict that other countries will eventually embrace Bitcoin as legal tender as a way to combat inflation, give people more payment options as well as enable people in the diaspora to make remittances more easily.

More Institutions To Adopt Cryptocurrency

In 2021, the crypto market blew up and a number of mainstream companies took a great interest in cryptocurrency and blockchain. Some companies even invested in crypto while others started accepting Bitcoin payments. It is reported that in 2021 investors, venture capitalists included poured in roughly $30 billion into the crypto industry.

Tesla, Coinbase Global Inc. and MicroStrategy Inc. are among the public companies with the biggest bitcoin portfolios. Some fintech companies like Paypal, Twitch and Square have adopted Bitcoin payments and allow users to transact using Bitcoin on their platforms.

With the increased interest in crypto, Experts predict that more global corporations will adopt the use of Bitcoin and other forms of cryptocurrencies as a mode of payment.

David Abner, the Global Head of Business Development at Gemini says that, “We’ve seen a tremendous amount of inflow of attention, and that’s going to continue to drive the growth of the industry for a while now."

The NFT Market Likely To Experience Growth

An NFT (non-fungible token) in simple terms refers to a digital asset that represents real life objects like art and music. Generally, they are encoded with the same software as most cryptocurrencies in the market today. NFTs - non fungible tokens are usually bought and sold online, mostly using cryptocurrency.

NFTs have been around since 2014 but they gained a lot of popularity in 2021 as an efficient way of buying and selling digital assets. They have helped artists and creators get access to decentralized funding options. NFTs are based on blockchain technology and that means that they are secure and help to authenticate ownership of digital assets.

In 2021, the NFT market was worth $41 billion and this number is set to rise with the increasing popularity of the digital assets.

Approval of Crypto ETF

An ETF (exchange-traded fund) is a basket of securities, stocks, bonds, commodities or a combination that you buy or sell through a brokerage firm on a stock exchange.

Crypto experts foresee Bitcoin ETFs becoming a mainstream investment plan. In October 2021, there was a major breakthrough whereby the first Bitcoin ETF made its debut on the New York Stock Exchange. What this means is that people will now be able to invest in crypto in a more conventional way. The BITO Bitcoin ETF allows crypto investors to buy in on cryptocurrency directly from traditional investment brokerages they may already have accounts with, like Fidelity or Vanguard.

On the flip side, some people say that the BITO ETF isn't enough because in as much as the fund is linked to Bitcoin, it doesn't hold the crypto directly. The fund instead holds Bitcoin futures contracts . The only disadvantage with Bitcoin futures according to experts is that, as much as they follow the general trend of actual cryptocurrency, they may not actually track the price of Bitcoin directly.

Generally, the crypto market is a very volatile one. So, if you're looking to invest in a crypto ETF, it is important that you be cognizant of the risks involved and only invest money that you're willing to lose.

Conclusion

As DeFi continues to grow and evolve, it is expected that the use of crypto will become more widespread and more individuals, companies and financial institutions will adopt its use. If you're in the financial world or are a crypto enthusiast, the earlier you get acquainted with cryptocurrency and how it works, the better for you.

For sure, digital currencies are here to stay.

Bay Street Capital Holdings

Bay Street Capital Holdings is an independent investment advisory, wealth management, and financial planning firm headquartered in Palo Alto, CA. They manage portfolios with the goal of maintaining and increasing total assets and income with a high priority on managing total risk and volatility. Although many advisors may focus on maximizing returns, they place a higher priority on managing total risk and volatility.

Our founder, William Huston founded Bay Street after 13 years of supporting the United States' largest retirement plan ($650B) Thrift Savings Plan. He is recognized as Investopedia’s Top 100 Financial Advisors for 2021. In California, only two black-owned firms out of nineteen firms received this recognition. In Scottsdale Arizona, Ekenna Anya-Gafu CFP, AAMS is recognized among the Best Financial Advisors for his responsiveness, friendliness, helpfulness, and detail. Bay Street was founded to advocate for diverse and emerging fund managers and entrepreneurs. In 2021, Bay Street was selected as a finalist out of over 900 firms across the US in the category of Asset Manager for Corporate Social Responsibility (CSR).

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Sources

https://time.com/nextadvisor/investing/cryptocurrency/future-of-cryptocurrency/

https://www.weforum.org/agenda/2022/01/cryptocurrencies-2022-bitcoin-predictions/

https://www.cnbctv18.com/cryptocurrency/top-cryptocurrency-trends-to-watch-out-for-in-2022-11951072.htm

https://www.vanguardngr.com/2022/04/what-does-the-future-of-blockchain-look-like-in-2022-and-beyond/

https://www.investopedia.com/articles/forex/091013/future-cryptocurrency.asp

William Huston, AIF®, AIFA®
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