Kevin Kang

<div id="highlights-block_61cbc0b360174" class="highlights">
 <ul>
 <li>With Gary Gensler helming the SEC, there will be greater regulatory clarity in 2022</li>
 <li>2022 could see a shift in the narrative around bitcoin mining and energy usage</li>
 </ul>
 
</div>



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 <a href="https://cms.blockworks.co/jack-dorseys-square-to-change-its-name-to-block/" target="_blank" rel="noreferrer noopener">Block</a> (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.



<h3 class="wp-block-heading">ETFs&nbsp;</h3>



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 (<a href="https://cms.blockworks.co/bito-on-track-to-be-first-fund-in-history-to-hit-1b-in-aum-in-two-days/" target="_blank" rel="noreferrer noopener">BITO</a>) 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.&nbsp;



<h3 class="wp-block-heading">More regulatory dialog</h3>



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.&nbsp;



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.



<h3 class="wp-block-heading">Sustainable mining</h3>



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 <a href="https://cms.blockworks.co/china-mining-exodus-seen-as-positive-for-bitcoin/" target="_blank" rel="noreferrer noopener">ban</a> 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.&nbsp;



Bitcoin&#8217;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.



<h3 class="wp-block-heading">The domino effect</h3>



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



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 <a href="https://cms.blockworks.co/el-salvador-went-all-in-on-bitcoin-will-other-countries-follow/" target="_blank" rel="noreferrer noopener">El Salvador’s lead</a>, 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.&nbsp;



<h3 class="wp-block-heading">A positive direction</h3>



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.&nbsp;



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.

2022: The Year Crypto Comes of Age

Ben Strack

<div id="highlights-block_61b3cc207a750" class="highlights">
 <ul>
 <li>“The US government is not going to be dumb enough to mess up something this good for the country,” Mike McGlone, senior commodity strategist for Bloomberg Intelligence, said about crypto regulation</li>
 <li>ARK36 Executive Director Loukas Lagoudis said he expects Ethereum to continue gaining ground against bitcoin in the medium-term</li>
 </ul>
 
</div>



The US government will likely recognize the opportunity that crypto offers for the country and regulate it properly, a Bloomberg Intelligence strategist said, noting that the most significant regulation that the industry can expect could be around stablecoins.&nbsp;&nbsp;



“Increasing dollar dominance through digital tokens, jobs, votes, plenty of revenue (tax) and risks of falling behind are the top reasons we expect the US will embrace crypto assets with proper regulation,” Mike McGlone, senior commodity strategist for Bloomberg Intelligence, said in a research note published on Friday.&nbsp;



<blockquote class="wp-block-quote">McGlone refers to stablecoins — coins pegged to the US dollar, such as Tether (USDT) — as crypto dollars. Though he told Blockworks he is unsure exactly how the US will choose to regulate stablecoins, he expects them to properly incorporate them into the US financial system.</blockquote>



<a href="https://bitfury.com" target="_blank" rel="noreferrer noopener">Bitfury</a> CEO Brian Brooks testified <a href="https://cms.blockworks.co/crypto-industry-will-move-offshore-if-congress-doesnt-act-executives-warn/" target="_blank" rel="noreferrer noopener">during a hearing</a> of the House Committee on Financial Services on Wednesday that the US’s regulatory decisions around crypto could drive businesses offshore, affecting the country’s competitiveness in the technology and capital markets sectors.



He noted that crypto exchanges and stablecoin issuers, for example, can receive [electronic] money licenses to access the payment system in the United Kingdom, but are not able to in the US.&nbsp;



“Is it consistent to take the position that only banks should be allowed to issue stablecoins, but then fail to grant bank charters to the largest issuers of stablecoins?” Brooks argued. “That would after all bring stablecoin activity within the ambit of an existing national bank supervision system of which we’re all familiar.”&nbsp;



The largest stablecoin, USDT, had a market capitalization of $78 billion, as of 2 pm ET on Friday, according to CoinGecko.&nbsp;



A 2021 trend that McGlone expects to accelerate in 2022 is the proliferation of stablecoins, he said in a Dec. 6 research note, adding that the segment’s market capitalization could rise to more than $130 billion.



Stablecoins, alongside bitcoin and ethereum, will maintain dominance in the crypto space, he added. Ethereum has been advancing as a percentage of the total crypto market, to about 20% from roughly 10% a year ago, McGlone said, noting that most stablecoins operate on the Ethereum platform.



<blockquote class="wp-block-quote">“Speculation and things like Shiba Inu, you’re going to expect that, but this … technology and what Ethereum does for crypto dollars and NFTs is here to stay,” McGlone told Blockworks. “The US government is not going to be dumb enough to mess up something this good for the country.”</blockquote>



McGlone said he also expects more regulatory clarity around crypto ETFs next year, noting that an Ethereum futures-based offering will likely hit the US market. He described <a href="https://cms.blockworks.co/when-will-the-sec-approve-a-spot-bitcoin-etf/" target="_blank" rel="noreferrer noopener">spot bitcoin ETFs</a>, as well as ETFs that would physically invest in the crypto market more broadly, as “the end game,” noting that those types of products will come in “a matter of time.” 



For now though, issuers are launching physically backed crypto ETFs outside the US.&nbsp;



“Can anyone explain…why physically settled crypto ETFs are safe and legal in Germany, Brazil, Singapore, and elsewhere, but somehow not in the United States?” Brooks said during the Wednesday hearing.



A subsidiary of financial services goliath Fidelity Investments <a href="https://cms.blockworks.co/fidelity-set-to-launch-spot-bitcoin-etf-in-canada/" target="_blank" rel="noreferrer noopener">launched a spot bitcoin ETF</a> on the Toronto Stock Exchange in Canada earlier this month.



<h3 class="wp-block-heading">Bullish on price action</h3>



Bitcoin was priced at about $47,740, as of 2 p.m. ET, according to CoinGecko &#8211; down 15.5% from seven days ago. Ethereum’s price was at roughly $3,980 at that time, the data shows, down 12% over the past week.



Though the current “choppy” price action has introduced uncertainty to the digital asset market, <a href="https://urldefense.proofpoint.com/v2/url?u=https-3A__ark36.com_about-2Dus_-23our-5Fteam&amp;d=DwMF-g&amp;c=sWW_bEwW_mLyN3Kx2v57Q8e-CRbmiT9yOhqES_g_wVY&amp;r=FUTyxn_53i67ILzDMW5BFG24i77vq3UgLHm1MQBAppk&amp;m=F2xft-K7lbChauYoIcnSMDrgQHVZWAilDTCEYvi8Lnk&amp;s=4TvW1zxaA07sth7ycoEiAHuILYioqhRAnu0CpSFeqrU&amp;e=" target="_blank" rel="noreferrer noopener">ARK36</a> Executive Director Loukas Lagoudis said in an email, the crypto hedge fund believes the sustained adoption of digital assets by institutional investors and their further integration into the legacy financial systems will be the main drivers of growth of the crypto space in the next year.



“Over the past 12 months, we have seen institutions signal a change in their preferences and start favoring digital assets over gold as a reserve asset,” Lagoudis said. “We fully expect this trend to continue.”



Compared with broad equities, which have not had a 10% correction since last year, the crypto market may have a relative advantage in 2022, McGlone said previously in the Dec. 6 note. The Bloomberg Galaxy Crypto Index (BGCI) increased about 1,200% since the end of 2019 compared to a roughly 90% gain for the S&amp;P 500.



Lagoudis predicts that investors will see allocation to digital assets as a part of their risk management strategy, especially due to the increasingly inflationary economic environment and declining bond yields.



“We also expect that Ethereum will continue to gain ground against bitcoin, at least in the medium term, as its importance for institutional investors will continue to grow,” the ARK36 executive added.



Bitcoin appears to be on a trajectory for $100,000 due in part to its increasing demand and decreasing supply, McGlone said in a research note.&nbsp;



“The about 50% drawdown in 2Q should help firm the foundation, and we see greater potential for bitcoin to head toward $100,000 than sustain below $50,000,” he said.



Meanwhile, Ethereum enters 2022 with rising adoption and declining supply and also withstood a substantial correction this year.



“The correction helped establish $4,000 as key resistance and $2,000 as support; what was resistance is now support, and $4,000 may act as the key pivot for 2022,” McGlone wrote. “The primary denominator for non-fungible tokens and go-to platform token for crypto dollars, Ethereum has established its usefulness in 2021 and we see 2022 building on that.”