The year 2020 was a tumultuous year across the board and all over the globe. The pandemic played havoc in most industries that have been reeling from the effects of lockdowns. In the few sectors that have bucked the general downward trend, it was Bitcoin that stood apart with some commendable, even astonishing, performances.
In March 2019, when the COVID19 reality hit the world, Bitcoin was hovering around the $4000 mark. Since its launch in January 2009, the cryptocurrency has witnessed many stages in its evolution from a tentative theory to actual practice. The price band also has seen many fluctuations but, even after a sober start from $1 in April, 2011 to almost $24,000 in December, 2020, Bitcoin continues to press for a solid case for itself in the world of finance and investments.
So what does 2022 hold for Bitcoin and cryptocurrencies in general and what trends can we expect to see in the year? For starters, continuing with the buoyancy displayed even in a pandemic riddled 2020, Bitcoin opened 2021 with a surge to hit a high price of $41,528 on January 8th, 2021 which later outperformed in May and then topped to $68,789.63 in November.
Bitcoin trends 2022
The transformation from elitist to mainstream
This year, in the month of February, Bitcoin rose above $50,000 for the first time. So, how did the world's biggest cryptocurrency gain acceptance among mainstream investors and companies?
Tesla's move to buy $1.5 billion in Bitcoin and to also accept it as payment, has encouraged more corporations and publically traded companies like JP Morgan, Microstrategy, and Square Corp into purchasing this cryptocurrency. Moreover, increased adoption from payment applications like PayPal, Visa has given far more people easy access to Bitcoin.
Once there is more clarity on the regulations and major banks invest in a system where they permit Bitcoin purchases, transactions and agree to hold digital assets for clients, more people will adapt to this new-age digital currency and use it as a means of payment.
Tougher competition in the market
Bitcoin has not only been a trendsetter and the most traded cryptocurrency but has also inspired some of the major tech corporations that have a wider global reach to include cryptocurrencies in their future transactions. Some of the big techs are using blockchain technology to create their own virtual currencies. Cryptocurrencies from companies like Tesla, Apple, PayPal, Google, Samsung, Facebook, and Deutsche Bank could be a huge competition to Bitcoin in the year 2021.
Tougher competition from Central Banks
With the emergence of Bitcoins and other cryptocurrencies, the world’s central banks are working on some form of digital versions of their currencies. With China moving ahead with testing their digital currency, digital yuan, among corporate and individual citizens, central banks around the world are likely to accelerate in 2022 by conducting similar experiments and moving ahead.
The US Federal Reserve is going to take public opinion on whether to go ahead with cryptocurrency and digital cash.
Effects of improved processes and technology
With cryptocurrencies and Bitcoins evolving and expanding rapidly, the need for processes and infrastructure to keep pace with it is critical.
One such innovation is DeFi or Decentralised Finance which is fast emerging as an alternative to the traditional world of finance. It is a blockchain based system of applications that aims to remove the conventional layer of intermediaries in the process. Whether it is banks or exchanges or middlemen, DeFi can be the go-to solution for the safe storage of digital assets.
DeFi looks set to become a larger, more significant contributor for not just the world of Bitcoins but for other financial services providers too.
On technology too, Bitcoin is looking at new developments like 5G to prepare for the ever growing demands for faster and more efficient data transmission. Whether it is more effective mining or data management, 5G can ramp up processing speeds and make latency a thing of the past. It will be possible to place orders faster and even automate the task of making investment decisions. Network speeds need not be a constraint anymore or the proximity to the crypto exchange.
Better risk procedures and management
Bitcoins may not be for everyone and the unconventional nature of this investment tool is not without risks. While all forms of investments carry risks, the cryptocurrency world can be intimidating given it is not as regulated as conventional financial tools. Also, there is a staggering array of options that totals over 17,400 different cryptocurrencies on offer out of which only about 10% are genuine and established.
The bitcoin market currently operates without any regulations. This calls for standardised risk assessment processes and procedures to be spelt out and implemented across the entire industry to safeguard investors and the platform’s credibility.
The emergence of offshore crypto havens
The burden of taxes is something that eats into the returns of any investment. This is true of investments in cryptocurrency too and increased regulations can invite crypto taxes too. This can create an equivalent of tax havens that exist elsewhere.
So can we expect to see offshore crypto havens in the future? Possible, as lower or no taxes mean lesser costs and better returns. Already, there are countries that do not have taxes on cryptocurrencies. Switzerland, Germany, Portugal, Singapore, Malaysia and a few others including some of the Caribbean nations have set the trend on this. It is likely that this list can widen in 2022 or, at least, in a few years.
Living with increased volumes and volatility
Given the short but heady history of Bitcoin that has seen a meteoric rise with its fair share of volatility; we can expect to see price fluctuations in 2021 too. From a background of mostly individual investors, the market saw a significant interest being taken by institutional investors too. Besides, the pandemic has brought about an emergent need for businesses to embrace digitisation in a big way.
But with such a feverish pace of scale up of the market, the fact remains that bitcoins are not, fundamentally, tethered to the conventional monetary and fiscal universe. This could continue to make things difficult to predict which way the pricing of cryptocurrency will move. There is every possibility that the volatility of previous years could continue in 2022 too.
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