• With Gary Gensler helming the SEC, there will be greater regulatory clarity in 2022
  • 2022 could see a shift in the narrative around bitcoin mining and energy usage

2021 turned the tide for cryptocurrencies; a major influx of investment including household names such as Apple’s Tim Cook and Tesla’s Elon Musk, plus former Twitter CEO Jack Dorsey leaving the multi-billion-dollar company he founded to become a ‘missionary’ for Bitcoin with his new brainchild Block (formerly Square).

Bitcoin, ethereum and many other cryptocurrencies hit all-time highs during the year, enticing even risk-averse institutional money-managers to invest, and fuelling the crypto buzz amongst retail investors. November 2021 alone saw $4 billion entering the market.

As an exciting 2022 looms, here are the major questions, issues and likely developments in BKCoin Capital’s crystal ball.

ETFs 

In October 2021, the first bitcoin futures ETF went live in the US after winning regulatory approval from the SEC. The ProShares Bitcoin Strategy ETF (BITO) listed on the NYSE, giving the crypto industry its long-awaited wish. It launched with stunning success, surpassing $1 billion in trading volumes on its first day of trading and becoming the second biggest ETF launch ever, by volume.

A physical bitcoin ETF has long been an asset class watershed. It provides a more conventional means of investment, enabling investors to buy directly from traditional investment brokerages.

In November, the SEC rejected global investment manager VanEck’s filing for a first-of-its-kind bitcoin ETF, which could have supercharged bitcoin’s price. The SEC cited risks of manipulation and fraud within the market. However, with more regulation expected next year, don’t be surprised to see the SEC’s thinking shift. 2022 could be the year we finally see physical bitcoin ETF approval and Ethereum ETFs. 

More regulatory dialog

With Gary Gensler helming the US Securities and Exchange Commission (SEC), there will be greater regulatory clarity in 2022. The IRS is also naturally motivated to introduce regulation — for US citizens to file taxes correctly — so the conversation is moving in a promising direction. Gensler also understands the importance of cryptocurrency as an innovative, new technology — one to be embraced, not shut down — having previously warned about risks to investors without sufficient regulation. 

As a rapidly maturing asset class, cryptocurrencies need clear and pro-innovation regulatory guidelines for companies and investors. Regulatory fog does not benefit the industry. Eliminating these points of friction by sensible regulation is a prerequisite to becoming an integral part of economies worldwide and facilitating cryptocurrencies’ promises of transparency and free exchange.

Sustainable mining

The environmental impact of the cryptocurrency industry has been a hot topic in 2021, specifically energy usage in mining bitcoin. 2022 could see a shift in the narrative.

China’s ban on cryptocurrency mining in May triggered a mass exodus of miners, and a race to acquire the associated machinery. The radical decision was motivated by other factors and the former home to 75% of global bitcoin mining capacity is clearly conscious of its carbon footprint and under pressure to reduce it.

While much remains to be done to mitigate the environmental impact, companies such as Riot Blockchain have been identifying eco-friendly projects with large energy capacities and a cost-efficient rate for crypto mining. There is an ongoing effort within the industry and it will be interesting to see how this develops in 2022. 

Bitcoin’s hash rate has fully recovered post its short-term retreat after China’s mining ban. US miners have taken advantage and the country now has the world’s highest hash rate. With ESG investment front of mind, more investment will be made in North American miners.

The domino effect

After El Salvador made Bitcoin legal tender, 2022 will see more countries follow suit. 

President Bukele’s decision to make El Salvador the world’s first country to officially recognize bitcoin as legal tender was powerful. It has the potential to empower people who are either under-banked or living in nations experiencing (hyper)inflation.

The pioneering move has already had — and will continue to have — implications in the emerging economies of Latin and Central America. Brazil, Panama, Paraguay and Argentina are four countries worth tracking in 2022. If they follow El Salvador’s lead, it could send major ripples through the financial markets and catalyze more institutional adoption.

Myanmar’s shadow government, the National Unity Government (NUG), has also declared tether as its official currency. While the NUG’s formal control in the country is still in flux given its exile after this year’s military coup, the European Union still recognizes the NUG as the country’s sole government. 

A positive direction

With cryptocurrencies running from one all-time high to the next, 2021 also saw the cryptocurrency industry and market mature considerably.

While obstacles remain, the asset class has become more sophisticated, widely accepted and accessible. Prepare for more institutional investment, regulatory dialogue and the first-of-its-kind bitcoin ETF. 

In a world of uncertainty, one thing is for sure — 2022 will be another exciting year with interest and the influx of capital only heading in one (positive) direction.

  • BKCoin Capital
    Founding Principal
    Kevin Kang is the Founding Principal of BKCoin Capital. BKCoin Capital is a digital asset quantitative hedge fund, dedicated to delivering consistent, uncorrelated absolute returns through its Market Neutral - Long/Short, Arbitrage strategies. BKCoin was up 71.8% in 2020 as a market neutral strategy vs. an average public equity market neutral performance of -1.12%, according to BarclayHedge. BKCoin is $65mm in AUM.