The year 2021 was marked by several major advances for cryptocurrencies.
On the one hand, new crypto applications such as non-fungible tokens (NFT) have gained ground, with the establishment of the sale of these digital assets. new records in the big auction houses. Second, Bitcoin has made strides towards mainstream acceptance, with major websites like Expedia and Microsoft accepting the coin as a medium of exchange. Third, in September, El Salvador became the first country in the world to accept bitcoin as legal tender.
There are many more examples of the expansion of the cryptocurrency market over the past year. With this resumption of activity, what awaits us in 2022 for cryptocurrencies?
We believe there are three main areas where cryptocurrencies will gain traction over the next year: greater acceptance of Bitcoin as a means of payment, increased regulatory oversight, and increased NFT activity.
Understanding what motivates individuals to adopt Bitcoin has been a challenge for researchers. A recent study suggests that five main factors contribute to the likelihood of a person using Bitcoin:
- Trust the system
- word of mouth online
- Quality of web platforms available for the transaction
- Perceived risk of the investment
- Expectations regarding Bitcoin’s performance
Conditions in the crypto space have made it increasingly likely that Bitcoin will become mainstream in the near future.
First, there is an increase in activity in online communities like Twitter and Reddit, where even crypto newbies can exchange information with seasoned investors for word of mouth advice on price predictions and trading strategies.
Second, there was an explosion of new crypto-exchanges – or trading platforms where you can trade Fiat money for crypto – and major investments in the technology infrastructure of existing exchanges. These infrastructure investments have broadened access to crypto markets and have also aroused the interest of institutional investors.
Institutional involvement, regulatory control
The past year has seen institutional actors like the European Investment Bank (EIB) – the lending branch of the European Union – take a stand on cryptography.
In April, the EIB issued a € 100 million digital bond on the Blockchain Ethereum. Goldman Sachs, Banco Santander and Société Générale also participated in the issue. Research has shown institutional adoption as a turning point for the widespread adoption of crypto, and it looks like we’re heading there quickly.
All in all, the increased availability of outlets that accept Bitcoin as a medium of exchange and institutional investment in the space will likely lead to greater acceptance of Bitcoin as a payment method in 2022.
After crypto-currencies, decentralized finance (DeFi) is widely regarded as the next frontier in fintech. DeFi provides the ability to create decentralized systems that leverage distributed ledger technology to facilitate peer-to-peer loans, create new financial securities like stable pieces or even propose new models of corporate governance.
Regulators also appear to be increasingly vigilant. In November, the European Council – the body which defines the political priorities of the European Union – announced his position on the Crypto Asset Markets Framework (MiCA), which will provide increased regulatory clarity on cryptoassets and DeFi.
In the same month, the Board of Governors of the Federal Reserve, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the United States Currency issued a joint statement announcing that they would produce a set of policy guidelines on crypto.
The researchers pointed out a lack of regulation as a major obstacle to the general acceptance of crypto. Increased government surveillance, coupled with the decision of several countries to consider digital versions of their national currencies, are likely to result in much more regulatory activity in 2022.
NFT activity on the rise
The year 2021 brought a new wave of NFT sales. An NFT can offer proof of ownership, for example, digital art similarly, a physical canvas can offer proof of ownership of a Vincent Van Gogh painting.
NFT sales set new records – a recent one was noted US $ 17.1 million at Sotheby’s. Accordingly, the auction house started the metaverse, an exclusively NFT marketplace to facilitate the sale of digital works.
As new NFT applications emerge, this space will likely continue to grow in 2022.
Despite these investment opportunities, we urge crypto investors to be skeptical of the claims they read in online communities. At a minimum, crypto enthusiasts should do their due diligence before investing.
What is sure to emerge in 2022 are new frauds and new schemes. Take, for example, the Crypto SquidGame which capitalized on the popular Netflix show but was a fraud. Where the fake Banksy NFT which sold for £ 244,000.
Research on the behavior of retail investors found that some people are very sensitive to the “fear of missing out”.
Therefore, it can be difficult to turn down a tip from your barber or your best friend’s cousin on the next hot crypto opportunity. However, crypto investors should educate themselves about the technology and the basics of the financial markets if they are to become cautiously involved.
Crypto, after all, is still speculative and not for everyone.
Erica Pimentel, Assistant Professor, Smith School of Business, Queen’s University, Ontario; Bertrand malsch, Associate Professor of Accounting, Smith School of Business, Queen’s University, Ontario, and Nathaniel Loh, Junior Fellow of the CPA Ontario Information and Professionalism Center, Queen’s University, Ontario