The year 2021 has seen cryptocurrencies like bitcoin and Ethereum explode in value, but what comes next remains unclear.
eToro analyst Simon Peters told InvestorDaily that 2021 was a remarkable year for crypto assets, with surges in the price of bitcoin and Ethereum bookending the year.
“Global adoption of crypto assets is accelerating at an extraordinary pace, and we can expect this trend to continue well into 2022,” he predicted.
Looking forward, he noted that rising concerns among institutions and governments around the level of inflation in the global economy has led many to label crypto assets like bitcoin as a hedge against inflation.
However, Mr Peters argued that many of these claims have yet to be put to the test.
“The crypto asset is still in its infancy, and hasn’t been tested during a recession, therefore can’t be considered as a hedge against inflation for now,” he said.
Whether or not inflation continues to rise, and whether or not crypto assets live up to their potential as a hedge may prove to be a deciding factor in whether or not the gains of this year endure into the next.
Mr Peters said that 2022 will also likely see decentralised finance (DeFi) play a more significant role within the broader crypto economy.
“Although some of these trends may take a while to reach their full potential, 2022 will certainly act as a sounding board for their acceleration,” he said.
While the real-world use cases and overall utility of crypto assets is likely to remain a point of contention in 2022, Mr Peters said that more practical applications of the technology are becoming clear.
“It’s becoming increasingly apparent that they are now hitting the mainstream by entering and gaining a solid foothold in multi-billion-dollar industries such as music, gaming, sports and art,” he said.
In time, Mr Peters anticipated that smart contracts could help to facilitate more innovative shipping and logistics processes, allowing merchants to sell to customers in more countries with less friction.
Given these trends, he said that it was little surprise that regulators and central banks were beginning to refer to crypto and DeFi as the future of financial services.
“I think it may take crypto many years to solidify its place in the overall financial industry, but it's already laying the foundations,” he predicted.
Noting the similarity between market activity in 2013, 2017 and 2021, Mr Peters said that investors should brace themselves for the possibility of another crypto winter in 2022.
“If history is anything to go by, this could mean that we haven’t quite seen the peak for crypto yet and 2022 could be a key year,” he said.
