Trends to watch in 2022: institutions and corporations load up on the two apex cryptocurrencies, Bitcoin (BTC) and Ethereum (ETH); pressure grows for exchange-traded funds (ETFs) invested in BTC and ETH; central banks start issuing their own digital currencies; decentralised finance (DeFi) goes mainstream; and stablecoins become a fixture in the crypto sphere.
“I think we are going to see a lot more support for cryptocurrencies dedicated to DeFi and we expect the number of decentralised applications, or dApps, to grow exponentially in the coming year,” says OVEX CEO Jon Ovadia.
“DeFi is going to completely change our understanding of finance. You can lend, borrow, and earn far higher interest rates than you can from traditional financial service providers – and this is just the start. Non-fungible tokens [NFTs] are creating massive opportunities for digital content creators and this is going to really take off in 2022, along with the rise of tokenised investment products, fractional real estate and whole host of other products.”
The main cryptocurrencies to watch in the DeFi space are ETH, Solana (SOL), Cardano (ADA) and Polkadot (DOT).
Cryptos linked to DeFi – 12-month returns
|Solana (SOL)||11 921%|
“What we have seen in the last few weeks of 2021 is how ETH, DOT and SOL have performed relative to Bitcoin,” says Ovadia. “Bitcoin broke new all-time highs in November and then lost momentum, though the most recent pullback from over R1 million to around R820 000 is quite modest relative to previous pullbacks of 50% or more. This pullback has provided an opportunity for market participants to buy into the weakness, and the bulk of the trading action has been in BTC, ETH and SOL.”
While Ethereum has far greater levels of adoption and a longer track record than its peers, Solana grabbed the public’s attention in 2020 with some stunning technical accomplishments, notably an ability to process more than 65 000 transactions a second, which is multiples higher than either Bitcoin, Ethereum or even Visa card. This makes Solana a front-runner in the race for dominance of the DeFi space.
Central bank digital currencies could make an appearance in 2022
Another trend to watch in 2022 is central bank digital currencies (CBDCs), which are digital versions of fiat currencies like the rand and the US dollar. The jury is still out on whether CBDCs, with the ultimate aim of replacing cash, represent a forward stride or a lunge into even greater state control over the lives of citizens. The launch of Bitcoin and its blockchain technology was an act of rebellion against reckless central bank inflation of the monetary base, something Bitcoin’s founder Satoshi Nakamoto made clear in his writings, and there is no indication that CBDCs will bring an end to central bank-created inflation.
“There are clear advantages for central banks to be using CBDCs since this is a very inexpensive way of issuing money, especially to social grant recipients, but there are understandable fears that this will lead to greater control over the lives of citizens,” says Ovadia.
“It is inevitable that CBDCs will arrive, but they will have to coexist alongside private monies like Bitcoin, which has already demonstrated its anti-inflationary credentials. There will be room for both private and central bank-issued monies, which is a relatively new development, since the last time private monies were issued was nearly 100 years ago. Now we have seen El Salvador become the first country in the world to recognise Bitcoin as legal tender, so this is another trend to watch going forward: which will be the next country to recognise Bitcoin as legal tender?”
Stablecoins muscle in on the crypto space
Stablecoins have become a huge fixture in crypto markets since they provide refuge from volatile crypto assets like BTC and ETH, without having to incur the costs of converting their wealth into fiat currencies. The biggest of the stablecoins is USD Tether (USDT) with a market cap of $76 billion, followed by USD Coin, with a market cap of $41 billion, both of which are backed 1:1 by the US dollar or other near liquid assets. OVEX offers the largest range of stablecoins in SA, covering several US dollar-backed stablecoins, as well as the euro, sterling, Japanese yen, as well as several other currencies – including the rand.
“The support for stablecoins continues to grow, and is a feature of the volatility we have seen in crypto assets such as BTC and ETC,” says Ovadia. “Stablecoins are also a gateway to DeFi services where people can borrow, lend and earn great rates of interest on their coins, so we expect to see the popularity of stablecoins continue to grow in 2022.”
Bitcoin should continue to win support from corporate treasurers and institutions, a process that will gain momentum as BTC-linked ETFs continue to gain widespread acceptance. Institutional support for Bitcoin is currently channelled through the Grayscale Bitcoin Trust, which is traded over-the-counter and provides a vehicle for institutions to invest without having to worry about security or custody issues. Grayscale recently applied to become an ETF, and regulators will find themselves under intense pressure to sensibly regulate and to license ETFs in 2022, says Ovadia.
More than 50 cryptos to choose from
OVEX has more than 50 cryptos that can be purchased on its RFQ (Request for Quote) page. The selection includes the larger cryptos such as Bitcoin, Ether and Solana as well as some smaller ones that have outpaced the broader market in the course of 2021.
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