Here is Our Crypto Market Outlook for 2022 - Mitchell Dong

Image from Unsplash by Pierre Borthiry

In a few words: cautious optimism.

Any prognosticator can not underestimate the unknowns in the crypto market. There are so many ifs, whens, buts in this fast-paced, volatile, and crazy market.

I think it’s a 50- 50 bet as to whether bitcoin and crypto prices will be higher or lower in 2022. Who would have thought, in 2013 when bitcoin went from $100 to $1000, that the price would flat line for 3 years until 2017?

Who would have thought in 2017 when bitcoin went from $1000 to nearly $20,000, that crypto winter would follow for 3 years before it would hit another all-time high in late 2020?

My question: will 2021 all-time highs be followed by another crypto winter or a new all-time high in 2022?

I see the following positives and negatives for 2022.

First, the reasons to feel optimistic:

The SEC started a positive regulatory trend by approving the BTC futures ETFs. I see the SEC continuing to advocate regulatory reform for crypto, some positive, some negative for the industry. The Fed and CFTC seem to be on the same page and deferring to Gary Gensler, the blockchain expert

  • Continued amazing growth of defi, which has grown from $ 100 m to nearly $ 100 b in the past 1.5 years. I see the continued growth of assets, products, talent, and innovation in defi. Everything that traditional finance does; can be decentralized. Many things that traditional finance cant do, can be done via defi.
  • The continued staggering growth of NFTs, Metaverse, Socialfi, Gamefi, etc. Blockchain applications seem to be taking these areas by storm and it seems unstoppable in this early stage
  • Continued consumer adoption as evidenced by retail activity with Robinhood, Paypal, Coinbase, and other retail outlets where consumers can buy or sell bitcoin. Robinhood disclosed that in the second quarter, trading fees from crypto amounted to 40% of their revenues. FTX and Crypto.com are making big waves by buying the naming rights to the Miami Heat and LA Lakers basketball arenas.
  • Continued institutional adoption as evidenced by big financial houses like Goldman Sachs, JPM Chase, Citibank all offering to their clients the ability to buy and sell crypto. Large insurance companies are investing in cryptos like Mass Mutual, NY Life, and Liberty Mutual. University Endowments such as Harvard, Stanford, Yale, Princeton, Brown are rumored to have invested in bitcoin. Custodians such as Northern Trust, State Street, and Standard & Chartered are said to be evaluating custodian services to crypto.
  • Continued sovereign adoption of crypto. Witness China’s early rollout of its government-backed digital currency. There are over 50 governments evaluating digitalizing their local currency. Also, witness El Salvador adopting bitcoin as a national currency with many other Latin American and African countries following this movement
  • Massive adoption of blockchain technology in every industry. Like the early days of the internet, executives are asking: what is your internet (blockchain) strategy?
  • Mayors of major cities like New York and Miami are using crypto to fund municipal projects and saying that they will accept their salaries in bitcoin
  • More and more crypto companies, particularly crypto mining companies are going public. There are now over a dozen bitcoin mining companies listed on NASDAQ, the Toronto Stock Exchange, the London Stock Exchange, and Euronext.
  • Rising inflation rates and interest rates are positive for bitcoin, and bitcoins outperformance over gold is another big plus as investors are switching gold allocations to bitcoin. Stanley Druckenmiller is one big investor announcing this move
  • Bitcoin halving in 2024 is around the corner. In the past, the halving event has boosted bitcoin prices given limiting supplies

Negatives:

  • Continued bitcoin bans by China. The first ban of bitcoin as a payment system was in 2013 when bitcoin hit $ 1000. The Second China ban of bitcoin exchanges was in 2017 when bitcoin hit $20,000. Third China ban of bitcoin mining in 2021 when bitcoin hit $60,000. Every time China makes a banning announcement, bitcoin prices have plummeted. I expect China to continue the trend of further restrictions.
  • Further bitcoin or bitcoin mining bans by India, Russia, Kazakhstan, Iraq, and other countries
  • Regulatory pronouncements on limiting money laundering and illicit uses of cryptocurrencies from Janet Yellen, European and other regulators typically sends a chilling effect on the crypto market
  • The increasing use of crypto as ransomware is a dangerous trend
  • The increasing sophistication of hackers to steal crypto is alarming. Witness the use of flash loans and other sophisticated techniques that take advantage of the vulnerabilities of smart contracts used in defi.
  • Covid effect: bitcoin prices dropped when the Delta and Omnicron variants were announced. As the virus outsmarts humans, bitcoin prices fall
  • As the coronavirus affects the US economy and the US stock market, so does it affect the crypto market in negative ways
  • ESG concerns: bitcoin mining is too energy-intensive. When Elon Musk said that Tesla would not accept bitcoin as payment for their cars because bitcoin mining was not sustainable, bitcoin prices dropped.

Overall there are many more unknowns that there is certainty in the market. But we remain cautiously optimistic. That’s why we at Pythagoras are launching a VC fund to invest in early-stage blockchain companies.

I close with one quote. I interviewed an HF manager once and asked him, “what is your biggest drawdown?” He replied, “I don’t know because its in the future!”

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