Cryptocurrencies have become quite popular in recent years. Demian Voorhagen (CEO DemaTrading) and Dina-Perla Portnaar (The Integrity Talks) share nine trends that will play a major role in the rapidly changing world of cryptocurrency in 2022.
Trend 1: Portfolio Index Bots and Insights
The search for wealth has attracted many people to the world of cryptocurrencies. A world where automation, algorithmic trading and automated portfolio rebalancing exist to ensure a proportionate risk profile. But deep knowledge is needed to make the right decisions.
Cryptoland is becoming more and more like a stock market, or comparable to the S&P500 and S&P10. In fact, between 80% and 90% currently use portfolio index bots.
Fund indices are becoming a thing. People prefer certain coins, for example sustainable coins with proof of stake instead of proof of work. Categories may vary by division or industry, just like regular markets. Think of categories like Top 10 Coins, Top 20 Coins, Top 30 Coins, DeFi, Oracles, Metaverse, Made to Win, and Layer 2. Each investor can make their own decision.
Trend 2: Crypto 3.0
According to the Chainalysis Global Cryptocurrency Adoption Index, global cryptocurrency adoption has increased by staggering numbers in 2021. The fastest adoption rate can be found in emerging markets. This is due in part to the economies of scale of Crypto 3.0, which lower transaction costs. In short, cryptocurrencies have become a cheap, safe and fast way to exchange money across borders.
Crypto 3.0 emphasizes the scalability, sustainability, governance, and interoperability of blockchain. Criticisms of Crypto 1.0 and 2.0 regarding scalability and environmental sustainability have greatly diminished with Crypto 3.0, as environmental sustainability has increased by 99.99% and transaction scalability by almost 100 times.
Newer blockchains consume much less power and can process more transactions per second than older models.
Trend 3: Crypto pales in value of gold
Meanwhile, more and more established businesses accept cryptocurrencies. And more and more countries use it as legal tender. For example, El Salvador accepted Bitcoin in September 2021. Fintech companies like PayPal and Square offer users the opportunity to buy various cryptocurrencies on their platforms and make direct investments in cryptocurrencies.
Square bought about $170 million worth of Bitcoin in 2021, on top of the $240 million the company already had. Tesla continues to go back and forth to accept Bitcoin payments, despite owning $2.6 billion in crypto assets.
The total market capitalization of cryptocurrencies hit an all-time high of $2.6 trillion in Q4 2021. The value has now dropped, but the long-term outlook remains positive.
Meanwhile, some $200 billion worth of cryptocurrency changes hands every day. That number is increasing. That means it will likely top the $225 billion worth of S&P500 stocks that trade each day. Possibly later in 2022.
Trend 4: Cryptoization of emerging markets
There is also talk of cryptoization of emerging markets. That growth has been particularly rapid, due to the recent scaling of Crypto 3.0 which has reduced transaction costs. Crypto has become a cheap, safe and fast way to send money across borders.
Digital assets such as stablecoins, usually pegged to the US dollar, help protect savings against high inflation and local currency fluctuations. Nine out of ten countries with the highest adoption of cryptocurrencies, so the percentage of people who own cryptocurrencies, are in emerging markets.
Much of Central Europe and the Middle East have surprisingly few cryptocurrencies. Much of the Americas, Eastern Europe, and Asia/Pacific have the most.
Trend 5: Energy as an arbiter to secure blockchains
The main criticisms of Crypto 1.0 and 2.0 are its scalability and environmental sustainability. The Bitcoin and Ethereum proof-of-work blockchains consume a lot of energy as they need to purposefully solve difficult math puzzles to validate transactions and reach consensus. Energy acts as an arbiter to secure these blockchains.
Bitcoin currently uses more energy than Sweden (a whopping 184 terawatt hours) each year, processing five transactions per second. By comparison, Visa handles around 1,700 transactions per second. Ethereum is more efficient and requires 84 TWh of energy to process 30 transactions per second. Cardano, a Crypto 3.0 blockchain, uses only 0.006 TWh of energy and processes 250 transactions per second.
Trend 6: Ethereum is taking over from Bitcoin
Bitcoin’s market capitalization has fallen from 73% at the beginning of 2021 to its current level of 44%. Ethereum has almost doubled its market share, from 11% to 19%. Six of the top ten cryptocurrencies are built on the Ethereum blockchain
Ethereum 2.0 is expected soon. The prediction is that Ethereum will replace Bitcoin in 2023, also known as flipping.
Trend 7: DAO and DeFi
A decentralized autonomous organization (DAO) is a decentralized corporate governance structure around a cryptocurrency, where ownership of a certain number of tokens or NFTs grants access to the organization and forms the basis of an active voting system. This ownership-based democracy allows a DAO to rally behind its own initiatives and decide how the organization’s resources are spent.
DAO tokens are similar to traditional publicly traded shares. The interests of the investors are aligned with the success of the organization. The top 20 DAOs hold $6 billion in digital assets. These include decentralized finance (DeFi) projects such as Compound (loans), Uniswap (decentralized exchange), Bankless (banking), and government funding entities such as Gitcoin, which pays users to contribute to open source software such as the scripting language. Python programming.
Decentralized finance (DeFi) aims to replace traditional financial services. DeFi is an emerging ecosystem of financial applications that use smart contracts to conduct transactions without intermediaries. The industry has grown from $28 billion to $101 billion in 2021. Explosive growth is coming.
Trend 8: DEX and transparency
The two most dominant areas in DeFi are decentralized exchanges (DEX), also known as the future of trading and banking, and decentralized lending. Together they are responsible for 80% of the sector.
With DEX, there is a trustworthy, non-custodial, transparent, peer-to-peer settlement process using smart contacts on the blockchain. However, centralized exchanges act as custodians for their clients. Most of the operations are executed off-chain. There is little transparency.
The largest DEX is Uniswap, which is based on the Ethereum blockchain. It has an average daily trading volume of $2.6 billion, which is >50% since its launch in November 2018.
Decentralized banking and lending is an alternative financial ecosystem in which consumers transfer, trade, borrow and lend cryptocurrencies, theoretically independent of traditional financial institutions and regulatory structures built around traditional banking.
It has enabled millions of people around the world who do not have access to major banks or financial services to use financial services. Maker, Aave, and InstaDApp are the largest lending platforms, with $42 billion under management.
Trend 9: NFTs and Royalty Tokens
Non-fungible tokens (NFTs) are digital assets with a distinctive character, usually in the form of digital works of art. NFTs can be bought and sold like any other property stored on the Ethereum blockchain. Digital tokens can be viewed as certificates of ownership.
The top prize for an NFT was won by Beeple’s Everydays at Christie’s. As of March 2021, it has grossed $69 million. OpenSea remains the largest marketplace for NFTs by far, with over 600,000 active users, growing at over 25% per month.
Royalty tokens are cryptographic tokens for the purpose of representing a form of digital equity. Just as traditional shares represent the capital of a company, tokens can be used to represent ownership of a personality on social media and the community. The token is built on top of the Ethereum blockchain (also known as the ERC20 token) and is often traded on a decentralized exchange like Uniswap.
For example, royalty tokens offer artists, musicians, writers, social media influencers, and sports professionals a new way to earn money. Celebrities are often great sources of income for media companies, but they are often not adequately rewarded for their efforts. The tokens directly reward creators for their work and can fundamentally alter existing and outdated media models.