2021 was an historic year for the cryptocurrency industry.
While growth in the Metaverse, DAOs, and NFTs looks likely for the year ahead, regulatory intervention is a major concern for the industry.
After interest in Layer 1 exploded in 2021, Layer 0 and Layer 2 could follow suit in 2022.
Regulatory intervention, Ethereum’s merge to Proof-of-Stake, the growth of DAOs, and—yes—the Metaverse look set to have a big impact on crypto next year.
Reflections on 2021 in Crypto and the Path Ahead2021. Who could have predicted how that turned out? While Bitcoin’s fierce rally in December 2020 told us that a bull market had arrived, it’s fair to say that we didn’t have dog coin mania, nation state Bitcoin adoption, and a mainstream NFT boom down as key trends for 2021. This year proved that crypto often goes the way no one expects, but there are certain developments that we think are likely to characterize 2022 nonetheless. The Metaverse, for instance, is probably here to stay—at least if Mark Zuckerberg has his way. Although anything beyond that is harder to forecast, we did our best to share our thoughts on how the space will look in 2022. Read on for insights from our editorial and research teams on how cryptocurrencies will move on from a year that defied all expectations.
Anton Tarasov (Head of Research at SIMETRI) Looking at the crypto space today, it’s clear that GameFi is heating up, but its success will depend on the quality of the final products. If we don’t get at least a couple of AAA titles that nail NFTs or play-to-earn dynamics with real playability rather than just gimmicks (looking at you, Ubisoft), the niche could struggle to maintain its momentum.
High stakes are on whether or not Ethereum will complete its scheduled merge to Proof-of-Stake in 2022. I bet that it will, but another delay is likely. In software development, you spend 10% of the time doing 90% of the work and 90% of the time finishing the remaining 10%. If the merge happens, the narrative for so-called “monolithic” blockchains like Solana will take a hit.
No, Ethereum won’t become as cheap as Solana, but even some relief on the throughput and transaction prices will be enough to spark a huge wave of optimism in the community. Still, Ethereum’s move to Proof-of-Stake won’t kill the multi-chain narrative. Ethereum transactions will still be expensive, so users will flock to Layer 2s. Moreover, cross-chain composability solutions like Celestia should reduce the need to move funds to Ethereum mainnet for those who are less concerned about decentralization and security.
To conclude, the Ethereum Virtual Machine should thrive and become the hub of the multi-chain future. Ethereum developers will continue to push the innovation forward, but the network could lose a substantial chunk of on-chain usage if cross-chain composability emerges.
Oh, I almost forgot to discuss the Metaverse, but everyone knows that’s taking crypto and the real world by storm without my input. I would urge those following the space to be wary of NFT projects that look like they could become blue chips because of their cult-like communities then fall on their feet. That’s how you flip the MekaVerses and Brotchains of the world for 10 ETH rather than bag holding them down to a 0.5 ETH floor.
P.S. I bet OpenSea won’t launch a token.
Brooks Butler (Reporter) A big question for 2022 is whether the major trends that defined 2021—NFTs, the Metaverse, and Ethereum killers—will continue to grow. Either way, I predict the arrival of another big trend next year. It’s one that many have written off: digital cash solutions.
When Satoshi Nakamoto wrote the Bitcoin Whitepaper, their vision was for the invention to become the world’s ultimate digital cash solution. In fact, the header for the paper was “Bitcoin: A Peer-to-Peer Electronic Cash System.” Satoshi imagined a pure, uncontrolled cryptocurrency, yet Bitcoin’s narrative has shifted to a store-of-value or “digital gold.” Next year, I foresee people buying into the OG cryptocurrency narrative. The success of Dogecoin in 2021 proves that there is an appetite for fast, low-cost crypto payments. Digital cash solutions are not dead—they’re asleep.
Switching gears, I see DAOs becoming a key focus in crypto next year. As fascinating as ConstitutionDAO’s attempt to buy a rare copy of the U.S. Constitution was, and not to deny its impact, I think DAOs will start to form for increasingly important causes in 2022. Political campaigns, for example, could be transformed by DAOs.
Within the Ethereum ecosystem, I believe that ETH will continue to outpace DeFi—whichever way the market moves. I also wonder if we’ll see an NFT sale that tops Beeple’s monumental $69 million Christie’s sale in the next few months.
Regulation sparked fears across the industry in 2021, but I’m somewhat optimistic for next year. I agree with Kevin O’Leary’s view that regulators favor innovation in capitalist environments. While there were many fears over regulators negatively impacting the space this year, there was at least some sort of dialogue taking place. While some countries will likely make efforts to crack down on the space, others will engage in healthy debate and move toward adoption. As a result, we could also see better protections for crypto users.
Chris Williams (Head Editor) Bitcoin hit new all-time highs in 2021, but it struggled to hold its momentum through most of the year. Almost every other leading digital asset outperformed it, and its market cap dominance has slid from over 70% to 40%. I wouldn’t be surprised if it declines further in 2022.
Traders have been calling for an ETH:BTC breakout for months, but a potential “flippening” isn’t the only thing that could hurt the King’s dominance. In 2021, the market signaled that it believes in a multi-chain future, and adoption on alternative Layer 1 chains like Avalanche and Solana is growing at a rapid rate. There is precious little doubt that smart contracts are set to transform our understanding of money forever. The question is whether Bitcoin’s “digital gold” narrative will truly gain traction, because it’s going to need more than MicroStrategy and El Salvador buying the dip to maintain its position as the King.
As for Ethereum, the rise of alternative Layer 1 networks means that 2022 is its most important year yet. It will need to ship the merge to Proof-of-Stake as soon as possible to hold its market share, but devotees should be aware that there’s a good chance it won’t arrive until the second half of the year. If all goes to plan, growing attention on Ethereum should bode well for ETH in the run-up to the merge, as should the growth of ZK-Rollups like StarkWare’s StarkNet. Such solutions could usher in a DeFi resurgence on Layer 2. Failing that, DeFi 2.0 will continue to steal the spotlight from the blue chips that emerged in 2020. Should the new wave of ZK-Rollups launch a token, at least one of them will rally like Polygon did in 2021.
Metaverse adoption should also increase as more major corporations rush to join the virtual gold rush; time will tell how that will pan out for them or if the news will be received like Facebook’s Meta play was. “Web3 social” will become one of the leading narratives of the year (though, similar to GameFi today, most of the products on the market will be underwhelming), and mainstream media outlets will start publishing articles that attempt to decipher what “Web3” means. Photography and music NFTs will have a big moment—and they won’t just be traded on OpenSea. The floor prices for many of the copypasta avatar projects that emerged in NFT summer will bleed to near zero if they haven’t already.
While newer Layer 1 crypto projects will thrive, Cardano will fail to build a usable DeFi and NFT ecosystem despite its ongoing promises. tbDEX, the Bitcoin-focused decentralized exchange developed by Jack Dorsey’s Block, will not see any meaningful adoption. U.S. regulators will continue to push to crush crypto innovation to protect the current system, and NFT skeptics will make their voices louder with misguided arguments about the environment and hypercapitalism—especially if ETH rallies to $10,000 or more.
2022 should also be a big year for DAOs. After PleasrDAO, FreeRossDAO, ConstitutionDAO, and BlockbusterDAO, we can be sure that we’ll see plenty more examples of humans gathering to coordinate at scale via the blockchain. As with this year, all of the notable DAOs that launch in 2022 will use Ethereum, too.
Jacob Oliver (U.S. Editor) All eyes are on the Metaverse going into 2022, and understandably so. 2021 was the year of the Metaverse narrative, or the year in which we collectively decided the notion of an immersive digital world accessible through AR and VR technology—a notion as old as the science fiction novels that inspired it—simply wasn’t fiction anymore. Far more than a simple game, the Metaverse is set to emerge as a fully-fledged world in which we can transact business, own property, go to work, attend events and concerts, and spend time with our friends and families. Indeed, in the minds of its proponents, the Metaverse will be nothing short of a full alternative to reality itself.
However, it is my prediction that most day-to-day activity in 2022 and beyond will remain firmly rooted in the real world, and not simply because the idea of a fully immersive virtual reality owned and operated by Mark Zuckerberg is about as dystopian a scenario as one could possibly imagine. No, it is just that there are simply too many logistical problems associated with virtual worlds that the real world simply doesn’t have to contend with. The battery doesn’t die on real life. The wi-fi doesn’t go out on the real world. There are no 504 errors in face-to-face interaction.
Furthermore, if anything like a fully immersive Metaverse is going to exist, it will require extensive engagement with wearable technology that I don’t see as likely to catch on anytime soon. Immersing oneself in an alternative world means disconnecting from the real one to some extent, and I doubt that most people will be comfortable leaving their real worlds and bodies behind for indefinite periods of time. Leaving ourselves open to that kind of vulnerability is not the kind of behavior written into our DNA.
These realizations, I think, will be part of a larger overall cooling in cryptocurrency markets more generally. 2021 has been a year of intense excitement for the future and, arguably, a period of irrational exuberance. Money is about to get a lot more expensive thanks to the Federal Reserve’s tapering and the kinds of multi-million dollar investments we’ve seen across the blockchain industry should dry up, at least to some degree. With that, blind confidence in the space could also dry up. I think we’ll see a period in which robust projects prove their mettle while others fizzle out in the absence of new funding.
Finally, it is all but certain that we will see more stringent moves toward industry regulation, at least in the United States. In late 2021, the President’s Working Group on Financial Markets recommended that Congress exercise its authority to regulate stablecoins by legislation, and soon thereafter a joint team of regulators from the FDIC, Federal Reserve, and Office of the Comptroller of the Currency revealed plans to determine how banks would be allowed to interact with cryptocurrencies in the U.S. While I doubt that anything overtly draconian will result from these efforts, The Man eyeing the space could send shivers through the market as more rules are enforced.
Nathan Batchelor (Lead Bitcoin Analyst at SIMETRI) While it’s difficult to predict how things will pan out for Bitcoin and the rest of the market in the latter half of the year, I have some thoughts on Q1 based on the charts I’ve been studying over the last few weeks. I’m afraid to say that I’m not optimistic of how Bitcoin or the wider crypto market will perform in early 2022 whatsoever. In fact, I think it could head back to its summer lows based on some of the patterns I’ve seen emerge on higher time frames. I have a bearish scenario for at least the first quarter of the year.
The Market Live Global survey recently cited China’s macroeconomic environment, quantitative easing, and war as some of the biggest risks for markets in 2022. Crashes like Black Thursday prove that crypto often performs in tandem with global markets, so any major macro events like this could also hurt the space next year. I believe that there will be a big buying opportunity in 2022, but timing the turning point and holding patience to get a premium entry are key. I suspect we’ll see Bitcoin head back to the low $30,000 range at some point in the next year, which means Ethereum and the wider market is also likely to suffer. On the bigger picture, I’m bullish—but the market may experience some degree of pain before we return to new highs.
Stefan Stankovic (Reporter) We’re entering 2022 with record-high sovereign debts and central banks signaling potential tapering—two forces that do not mix well together. In 2022, we’ll see countries doing everything in their power to protect their monetary sovereignty. Many of them see stablecoins as the most imminent threat, so I think some countries will make big efforts to crush them by any means possible.
Centralized stablecoin issuers will come under increased regulatory scrutiny and will likely either be shut down or forced to acquire bank charters to continue operating. I think there’s a silver lining to this as it could set the stage for decentralized, scalable stablecoins like Terra’s UST to thrive. As a result, I predict that UST will become the world’s largest stablecoin in 2022. It might be a bold prediction, but this year has proven that anything can happen in crypto.
Speaking of threats to the establishment, that leads me to Bitcoin and my next prediction. Bitcoin has a serious public relations issue, and I think it will worsen over time. Amid the world’s ensuing energy crisis and growing ESG concerns, Bitcoin’s reliance on Proof-of-Work is shifting from its most valuable asset into its biggest liability, at least when it comes to public perception. As figures like Senator Elizabeth Warren concoct narratives about how Bitcoin miners are boiling the oceans, the general public’s fears of cryptocurrencies are growing. Because so few people understand the intricacies of consensus mechanisms and energy consumption, I think Bitcoin will continue to lose against this narrative.
Finally, one more prediction on the mainstream world and crypto for 2022: gamers and game studios will capitulate and embrace NFTs. In 2021, we saw crypto skeptics bully Discord out of integrating Ethereum. Some also tried it with Ubisoft, but they didn’t succeed. In 2022, Ethereum will become 99.9% more energy efficient as it moves to Proof-of-Stake. Companies will take advantage of that fact to jump into the space. As play-to-earn games take off, most gamers will drop their make-believe concerns for the dolphins and embrace tokenized JPEG versions of them instead.
Tim Craig (Reporter) Judging by the insane strength of Metaverse tokens like Decentraland and The Sandbox following Facebook’s rebrand to Meta, I expect 2022 to be the year of Metaverses, Web3, and GameFi.
So far, the only game to prove that play-to-earn tokenomics can be fun and successful is Axie Infinity. But don’t get distracted by the current excess of trash cash grabs riding on the back of Axie’s success—it is going to take time for real games to be developed. In 2022, I’ll be looking out for quality blockchain games launching on Ethereum Layer 2s or Solana, of which I expect there to be at least one that matches Axie’s level of success.
Elsewhere, I see a continuation of Layer 1s chipping away at Bitcoin’s market dominance. Once these alternative chains start establishing substantial network effects like Ethereum, we’ll see a major separation of the wheat from the chaff. This leads me to my next prediction: Cardano will drop from the top 10 crypto assets in 2022. The project is already so far behind competitors like Terra, Solana, and Avalanche that even if it does find a workaround for its UTXO transaction problem, I think it will be too little too late. Good vibes and a charismatic leader can only carry a project so far, and I believe Cardano’s time is running out fast.
NFTs will continue to grow; the commitment of NFT marketplaces from several major centralized exchanges almost guarantees this. Community building and providing holders with continuous value will become a larger consideration for current and future NFT projects. I also expect Bored Ape Yacht Club to continue gaining momentum, decisively overtaking the current premier collection, CryptoPunks, after the launch of its token and play-to-earn game scheduled in the first half of next year.
Vishal Chawla (Reporter) Although NFTs took the spotlight, DeFi held its place as the Wild West of crypto in 2021. This year, countless hacks, rug pulls, and smart contract exploits resulted in billions of dollars worth of losses. The biggest incident of the lot saw a hacker steal an enormous $611 million from Poly Network before returning it shortly after. Plenty of other hacks saw losses of $100 million or more. As cyber threats continue to evolve and the total value locked in DeFi increases, we could see the first $1 billion hack in 2022. As the ecosystem grows, now with over $200 billion locked, hackers are increasingly motivated to find and exploit vulnerabilities in smart contracts. The space will need a while to mature to prevent these large-scale attacks in the future.
2022 should also see some interesting developments in “PrivFi,” otherwise known as Privacy DeFi. Regardless of how innovative DeFi systems are, they suffer from a major drawback compared to traditional finance: the inability to shield transactions from prying eyes. But that is changing, so I expect to see PrivFi become a prominent trend. In the coming year, DeFi will integrate more privacy-focused systems, including zero-knowledge proofs and multi-party computation to offer users protection against growing on-chain surveillance. Layer 2 solutions like zkSync, Hermez, and StarkWare are already working on privacy-focused features for the Ethereum ecosystem.
This coming year could also see Layer 0s hit mainstream attention. A Layer 0 blockchain is an interoperability network that has the capacity to host individual Layer 1 blockchains, such as Polkadot and Cosmos. Both blockchains have been in development for several years, and their ecosystems have seen big developments in the last quarter of this year. In December, Polkadot launched its first five parachains after an initial round of slot auctions. Cosmos is further ahead of Polkadot in regards to cross-chain interoperability. It already lets notable networks such as Terra, Osmosis, Secret Network, Cronos, and Kava interact with one another. While both projects are still in their nascent stages of development, 2022 could be the year that they finally start to realize their full potential.
Disclosure: At the time of writing, the authors of this feature owned BTC, ETH, DOT, SOL, MATIC, ATOM, LUNA, and several other cryptocurrencies.
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