Perhaps the most beautiful year in the history of cryptocurrencies. Exploding stock prices, records of investments in startups, big as the writing of this blog started, I couldn’t choose what I expect to happen in the coming year. I’m going to try it anyway in this 2022 trend blog about cryptocurrencies.

One day in crypto is equivalent to a year in a human life. Even though the technology is still very young; on October 31, it will be only 12 years since Bitcoin was established, the developments are moving at lightning speed, and it is almost impossible to keep up. Earlier I wrote about Decentralized Financing (DeFi), Non-Fungible Tokens (NFTs), Stablecoins, Central Bank Digital Currencies (CBDCs), and the Metaverse. Many gave developments, which are currently taking place in the sector. Meanwhile, the Bitcoin price has risen to an ‘all-time high’; a record high of $62,600, and the US government approved a so-called Bitcoin “ETF” in 2019.

Looking for the moonshot

This Bitcoin price has doubled this year, at the time of writing, and there are also all kinds of altcoins (alternative cryptocurrencies) that have increased in value by percentages such as 15000% and 10000%. The well-known ‘Stock to Flow’ model predicts that the Bitcoin price could even double again to $100,000 around Christmas, which will also have a positive catalytic effect on the altcoins.

The nice thing about this madness is that I suddenly get a lot of old acquaintances on the phone again, who are looking for advice when buying cryptocurrencies and especially; which altcoin I expect to “moon” (crypto terminology for strong rise). Many people seem to have gotten high because of the crazy price increases that many coins have gone through, the stories of acquaintances who have made a lot of money with them, influencers who promote one coin after another as a new moonshot and the endless stream of positive developments in the sector.

Waiting for the black swan

The world is flooded with liquidity by the endless printing of money by governments and the zero percent interest rates. Liquidity, which is partly returning to the cryptocurrency market. We saw in the United States that 7% of the stimulus checks that the government sent out to its citizens were used to buy crypto, and in the Netherlands, 5% of people already had crypto, and 25% are planning to buy it.

In my view, the madness will continue for a while, now that the economy has recovered so quickly after the corona dip and the stock markets are reaching record highs. However, we have to wait for an unexpected ‘black swan event;’ totally unexpected but with great impact.

At the beginning of June, we saw how one tweet from Tesla CEO Elon Musk caused the entire crypto market to collapse.

What did I expect in the past year?

Also, last year I was allowed to make predictions about what trends I expected around cryptocurrencies this year. No pressure for next year’s predictions, but this year has all come true. The large institutional parties have entered with insane amounts, and according to this nice overview, new investments are regularly added. The bull market has started very clearly, with a big dip here and there, but if you zoom out, you see an unprecedented rise in all coins.

Will something be done with the money that all these projects collect and earn from this increase? Certainly! Many large projects are constantly working on major new updates to the platforms, forging new partnerships, and unveiling new technological advances. Bitcoin has published the major ‘Taproot’ update, Ethereum has made a big step forward in its transition with the launch to ‘2.0’, Cardano now comes with an update every month, Binance has just launched a $1 billion fund, and Solana is also hammering hard on the highway.

Unfortunately, we also see the less positive predictions come true; cryptocrime has also taken off. Hacks, scams, pump & dumps, and many other criminal activities are the order of the day and are increasing rapidly. Governments have started to look at their own role at an accelerated pace, with regard to legislation and regulations. Now I very much welcome this, to make the sector mature and ready for the entry of many more (large) investors. Unfortunately, however, several exaggerated and unhelpful responses from governments have actually done damage. More about this in my predictions for the coming year.

1) Bitcoin for the groceries

From a nine-page document, Bitcoin has grown in 12 years into a global ‘reserve asset’ with social impact. In the west, most developments are ‘underground’; the underlying blockchain technology is already used by 81 out of 100 companies but is often not visible to the consumer. In many developing countries, cryptocurrencies have become part of everyday life. If we look at where cryptos are used the most, you will see some interesting countries in the top list; Nigeria, the Philippines, Turkey, and Venezuela. Countries that, not coincidentally, also have problems with their current currency.

The central American country of El Salvador surprised friend and foe by making Bitcoin legal tender. As a result, companies are obliged to accept Bitcoin. I’m still not sure what to think about this step. If you have just converted your income into Bitcoin and an American billionaire has almost halved the price with a tweet, it is inexplicable. But on the other hand, 70% of residents simply don’t have a bank account, often because banks don’t offer it for a variety of reasons. In addition, a quarter(!) of the national income enters the country via a foreign money transfer, where often high percentages (up to 30% of the amount sent) are charged by parties such as Western Union. More than 70% of residents receive this type of payment, which is on average 50% of residents’ income. Cross-border money transfers via Bitcoin can therefore save $400 million in fees for residents on an annual basis. Money that the population can use hard.

The last word has not yet been said; the International Monetary Fund has put a planned loan to the country ‘on hold,’ and there is also domestic resistance. Even though there are already 2 million ‘Chivo’ wallets in use (on 6.5 million inhabitants), 70% of the residents voted against the introduction in a large survey, and 93% of the companies say they have not yet made a Bitcoin payment.

Ticket to freedom

The precedent has now been set. Countries such as Paraguay and Brazil are now also looking at the possibilities of making Bitcoin a legal tender. In countries such as Afghanistan, it is now called the ‘ticket to freedom.’ In the coming year, I expect more countries to use Bitcoin and possibly other currencies as legal tender. In the fight against high cross-border payments, in the fight against inflation, and to reduce the US dollar’s power grab.
Not only as payment but also as an investment. Countries like Bulgaria and Ukraine have already bought billions of euros worth of Bitcoin.

2) Flashes of light

Cryptocurrencies are not only actively used in developing countries; also, in western countries, there are all kinds of applications that are used on a daily basis. In several ways, it has been made possible to thank content creators for their work. Twitter has added the Tips feature to the platform, which allows you to give a Bitcoin tip to your favorite Tweeps. This is now also possible with podcasts, by Podcasting 2.0 from ‘podfather’ Adam Curry.

Both functionalities use the lightning network. This is a so-called ‘second layer solution,’ which is built on the Bitcoin network. It, therefore, offers a powerful response to Bitcoin’s critics that the number of transactions that are possible on the network and the speed thereof, lag behind current payment methods such as credit cards. Where Bitcoin can handle 7 transactions per second and VISA 65,000, Lightning can handle millions.

Just last month alone, the number of Lightning transactions doubled, and the number of users increased by 11164%. This is not only due to the Twitter Tips because it can process very small payments relatively cheaply, it is also widely used in the gaming world for the purchase of small in-game items and in developing countries such as El Salvador for payments. A cool development, because it really has a positive impact in developing countries. In the coming year, I expect the volume of transactions to increase very strongly, with positive effects for Bitcoin itself as well.

3) Art & Capital keep flying

The money that is now going around in the NFT market and Decentralized Financing (DeFi) continues to rise. Not only the smaller ‘retail’ investors but also existing institutions such as ING indicate that they find DeFI an incredibly interesting development. Crypto would make financial institutions, such as banks, completely obsolete. But now we see that many large banks are actually working with it themselves and offering products. The ‘total value locked’ (money that has been invested) in DeFi is now greater than $200 billion, and I see this amount doubling to $400 billion in the coming year. There are still some really big steps to take to make DeFI mature. Of all hacks in crypto land, 75% take place within DeFi. In addition, the US regulator, the SEC, recently indicated that it will introduce strict regulations for DeFi in the short term. Institutional DeFi will therefore have to wait for a while, the general DeFi world is growing fast in the meantime.

Interest in NFTs also continues to grow. In the past quarter alone, more than $10 billion was traded. That’s not just bored monkeys, the very first source code of the internet, and a spot on the arm of a famous tennis player. More and more larger parties are also entering the NFT market, such as Disney, Electronic Arts, and the WWF. There are also all kinds of new developments, such as ‘play to earn blockchain games.’ Earn money while playing a game; who doesn’t want that? Not entirely unexpectedly, almost 1 million people are already doing this, and the games are shooting out of the ground. Louis Vuitton very recently launched the game ‘Louis: The Game.’

4) The big boys keep coming in

The great thing about blockchain, and especially Bitcoin, is that you can see and analyze all transactions since its inception. This allows parties such as Glassnode and Chainalysis to make the most interesting analyses. From identifying and tracking criminal transactions for secret services to mapping out what accounts hold Bitcoin.

Owners who own more than 1000 Bitcoin, also known as the “whales,” are often followed. Some whales are known to be who they are, but most are unknown. It creates a lot of speculation; are they wealthy individuals or the banks that anonymously buy and trade Bitcoin? There are all kinds of tools that monitor the movements of these ‘whales,’ such as the Twitter account ‘Whale Alert.’ Where Bloomberg wrote that 2% of Bitcoin wallets own 95% of all available Bitcoin, Glassnode shows in an in-depth analysis that this is distributed much better and that this distribution is also increasing.

Due to the reporting obligation that many public companies worldwide have around finances and large investments, large purchases of Bitcoin are often announced worldwide quickly. However, this information is not available from large institutional investors and the so-called ‘family offices’ (management companies of very wealthy families). In a recent event that I organized around the new European crypto legislation MICA, several experts indicated that they also expect that this type of investor will only buy cryptocurrencies on a large scale once this MICA legislation has been implemented.

5) Crackdown the cowboys

This legislation is now being drawn up worldwide at a rapid pace. Many governments realize that they cannot wait for years with legislation and regulations surrounding cryptocurrencies. The US government has woken up and, on the one hand, indicates that it does not want to ban cryptocurrencies but is very concerned about its transactions and stability. Like the European Central Bank, these two power blocs fear that the sudden collapse of the cryptocurrency market could endanger the stability of the global financial system. They refer here to the Bitcoin crash in 2017, where Bitcoin lost 2/3 of its value in a month, and the top 10 altcoins lost 80%.

As I wrote earlier this year, I am and will remain enthusiastic about regulation as long as the balance between regulation and innovation is not skewed. In the Netherlands, we see that too strict legislation, on the one hand driving unicorns out of the country, on the other hand giving Dutch companies a very unfair position vis-à-vis competitors from abroad, who do not have to comply with these strict rules. Governments worldwide are now taking strong action against the trading platform in cryptocurrencies, Binance, about which even the Dutch Central Bank has already publicly warned.

I, therefore, expect many developments worldwide in the field of regulation in the coming year. Stablecoins and DeFi will probably first be looked at closely, in addition to the crypto market in general. The US government already introduced 18 different laws last quarter, and the European Union is now also making major steps with its MiCa legislation, which will apply equally to all countries in the European Union. It is expected to enter into force at the end of next year, early 2023.

It continues to surprise, it continues to be careful

When the iPhone was introduced, nobody knew that we would navigate with Google Maps, edit photos with Instagram, and stream music with Spotify. It is also a surprise every day with cryptocurrencies what new developments are announced. We are working hard on challenges such as the excessive power consumption of certain blockchains, security, stability, and speed. It remains to be careful for investors in cryptocurrencies. TV Program Radar recently showed how easy it is to set up a ‘pump and dump’; a way of significantly manipulating the price, which puts many investors at a disadvantage. The scam ads with well-known Dutch people such as John de Mol and Humberto Tan have already caused dozens of victims in the Netherlands. Also, ‘fake projects’ that bring in money and then disappear from the face of the earth are still the order of the day. Check this blog I wrote earlier, how you can prevent this.

While I see an insane amount of potential in the possibilities of crypto, in the long run, 95–99% of projects will fall over at some point. We also saw this three years ago; Cryptocurrency projects also remain startups, with all the investment risks that entail. With all the cool developments I foresee in the coming year, my enthusiasm about cryptocurrencies remains insanely bullish!

Jan Scheele is active in the web3 (blockchain, crypto, NFTs, DeFi) industry since 2013. Besides (former) CEO of a web3 scaleup and founder of an advisory boutique (working for governments, family offices and several multinationals), he is Digital Leader at the World Economic Forum and Board Member at the Blockchain Netherlands Foundation (BCNL). He is writing, consulting, speaking and training regularly about everything web3, all over the world. Furthermore, he is currently finalizing his book about the rise and global impact of blockchain technology.