The first half of 2022 has been very bad for the crypto market.
Bitcoin and Ethereum are down more than 50% from their all-time highs in late 2021. While there have been small surges in recent weeks, the crypto market as a whole is largely stalled. While no one knows for sure, some experts say crypto prices could fall even further before any sustained recovery.
Bitcoin hit multiple new all-time high prices in 2021 — followed by big drops — and more institutional buy-in from major companies. Ethereum, the second-biggest cryptocurrency, notched its own new all-time high late last year as well, and then crashed below $900 in June, its lowest level since the start of 2021. U.S. government officials and the Biden administration have increasingly expressed interest in new regulations for cryptocurrency.
All the while, people’s interest in crypto remains high: it’s a hot topic not only among investors but in popular culture too, thanks to everyone from long-standing investors like Elon Musk to that kid from your high school on Facebook.
In many ways, 2021 was a “breakthrough,” says Dave Abner, head of global development at Gemini, a popular cryptocurrency exchange. “There’s tremendous focus and attention being paid to [the crypto industry].”
But the industry is only in its infancy and constantly evolving. That’s a big part of why every new bitcoin high can be easily followed by big drops.
So, what’s next for the rest of 2022?
It’s difficult to predict where things are headed long-term, but in the coming months, experts are following things like regulation and institutional adoption of crypto payments to try and get a better sense of the market.
While exact predictions are impossible, we asked five experts about what they think about the future of crypto:
Cryptocurrency Regulation
Lawmakers in Washington, D.C. and across the world are trying to figure out how to establish laws and guidelines to make cryptocurrency safer for investors and less appealing to cybercriminals, so expect continued conversations about cryptocurrency regulation.
US officials have shown a particular interest in stablecoin regulation, especially following the recent Terra Luna crash. In May, crypto markets went into a free fall that led stablecoins Terra USD from the dollar, which in turn, caused its linked cryptocurrency Luna to crash as well. As of a result, many Terra and Luna investors saw their investments vanish in a matter of days. Within a few weeks of Terra’s downfall, the crypto market plunged again several crypto companies announced layoffs and froze withdrawals to slash costs due to the extreme market conditions. Some companies like Three Arrows Capital and Celsius have since filed for bankruptcy.
The domino effect of that has given federal regulators even more ammo recently to push for crypto regulation.
“After the catastrophic events that have unfolded in the crypto market over the past few weeks, it is clear that stringent regulation could arrive soon,” says Marcus Sotiriou, a market analyst at digital asset broker Global Block. “The collapse of DeFi lenders could be the reason that regulators have been looking for to implement Draconian controls over cryptocurrency.”
While there’s still a long way to go, 2022 has so far seen some progress on the regulatory front. President Joe Biden signed an executive order in March that called on government agencies to study the “responsible development” of digital assets, including stablecoins. The U.S. Treasury Department recently published the first framework to stem from President Biden’s executive order on digital assets, which outlines how the U.S. should engage with other countries in regard to digital assets.
In 2021, Federal Reserve Chair Jerome Powell said that he had “no intention” of banning cryptocurrency in the US, while Security and Exchange Commission Chairman Gary Gentler has consistently commented on both his own agency’s and the Commodity Futures Trading Commission’s role in policing the industry.
Gentler has said on several different occasions that investors are likely to get hurt if stricter regulation is not introduced. Plus, the IRS has an obvious interest in making sure investors know how to report virtual currency when they file their taxes. Powell’s and Gentler comments are consistent with an emerging view among the Biden administration and other U.S. lawmakers that more cryptocurrency regulation is needed.
“More broadly, the public right now would benefit from investor protection around these various service providers … the exchanges, the lending platforms, and the broker-dealers,” Gentler said in a recent interview. “So, we at the SEC, are working in each of those three fields — exchanges, lending, and the broker-dealers — and talking to industry participants about how to come into compliance, or modify some of that compliance.”
Like most things with cryptocurrency, regulation comes with hurdles. “There are different agencies that may or may not have jurisdiction to oversee everything,” says Jeffrey Wang, head of the Americas at Amber Group, a Canada-based crypto finance firm. “And it differs state by state.”
Clear regulation would mean the removal of a “significant roadblock for cryptocurrency,” says Wang, since U.S. firms and investors are operating without clear guidelines at the moment.
What new regulation could mean for investors
Cryptocurrency regulation can be a hot button topic, but plenty of experts say it’s actually a good thing for investors and the industry.
More regulation could mean more stability in a notoriously volatile crypto market. It also has the potential to protect long-term investors, prevent fraudulent activity within the crypto ecosystem, and provide clear guidance to allow companies to innovate in the crypto economy — as long as it strikes the right balance.
“Sensible regulation is a win for everyone,” says Ben Weiss, CEO and cofounder of Coin Flip, a cryptocurrency buying platform crypto ATM network. “It gives people more confidence in crypto, but I think it’s something we have to take our time on, we have to get it right.”
Regulatory announcements can also affect the price of cryptocurrency in already volatile markets. Market volatility is why experts recommend keeping any cryptocurrency investments to less than 5% of your total portfolio and never investing anything you’re not OK with losing.
Broader Institutional Cryptocurrency Adoption
Mainstream companies across multiple industries took interest — and in some cases themselves invested in — cryptocurrency and blockchain in 2021. AMC, for example, announced last year it would accept Bitcoin payments. Fintech companies like PayPal and Square are also betting on crypto by allowing users to buy on their platforms. Tesla accepts Dogecoin payments and continues to go back and forth on its acceptance of bitcoin payments, though the company holds billions in crypto assets. Experts predict more and more of this buy-in.
“We’ve seen a tremendous amount of inflow of attention, and that’s going to continue to drive the growth of the industry for a while now,” says Abner.
Some experts predict bigger, global corporations could jumpstart this adoption even more in the latter half of this year. “What we’re looking at is institutions getting involved in crypto, whether it’s Amazon or the big banks,” says Weiss. A huge retailer like Amazon could “create a chain reaction of others accepting it,” and would “add a lot of credibility.”
Indeed, Amazon has recently sparked rumors that it’s making moves to that end by sharing a job posting for a “digital currency and blockchain product lead.”
What more institutional adoption means for investors
While paying for things in cryptocurrencies doesn’t make sense for most people right now, more retailers accepting payments might change that landscape in the future. We’re likely still a long way off before it’ll be a smart financial decision to spend bitcoin on goods or services, but further institutional adoption could bring about more use-cases for everyday users, and in turn, have an impact on crypto prices. Nothing is guaranteed, but if you buy cryptocurrency as a long-term store of value, the more “real world” uses it has, the more likely demand and value will increase.
Future of NFTs
NFTs, or non-fungible tokens, have been around since 2014, but it wasn’t until 2021 that this novel technology broke through into the mainstream.
NFTs represent digital ownership of a wide range of irreplaceable intangible items, and have drawn the attention of celebrities and big companies ranging from American Express to Gucci. Total NFT sales hit $25 billion in 2021, compared to $94.9 million the year before, according to data collected by DappRadar, an app store for decentralized applications.
But there continues to be debate about whether NFTs are here to stay or simply a fad. NFT sales in June fell under $1 billion for the first time in 12 months, according to data.
Experts remain split on it, with some screaming “bubble,” while others claim it’s the technology behind NFTs — the smart contracts on blockchain technology — that offer real value. Meanwhile, creators and artists are claiming this is the next form of monetization.
“I do think that right now they’re very trendy, especially the last four months,” says Humphrey Yang, personal finance expert behind Humphrey Talks.“In 10 or 20 years, I think they’ll still be around. How much we use them — that I don’t know. People will still always find some value in communities, but the broader applications of NFTs will be more interesting.”
Recent data shows the market may be finally cooling off. Almost a million accounts were actively buying or selling NFTs at the start of the year, but that number has since declined to about 491,000, a recent report by Chainalysis found. Some experts expect the NFT market to continue to suffer because of the declining price of cryptocurrencies, along with other macroeconomic conditions like inflation, rising interest rates, and Russia’s war in Ukraine.
“NFTs saw explosive growth in 2021, but this growth hasn’t been consistent and has leveled off so far in 2022,” Chainalysis wrote in the report.
What the decline in NFTs mean for investors
Over the past year, many people bought NFTs as either investments or simply because they are fun or bring them joy. Regardless of the reason, many of those digital assets are now worth a lot less because of the crypto market’s downfall in recent months.
From an investing perspective, buying an NFT is “even riskier” than buying crypto because it’s “almost like a leveraged bet on crypto,” according to Yang. “It’s essentially gambling people don’t really know the difference they buy them because they’re fun,” he says.
Knowing that NFTs are even more risky and speculative than crypto, you should likely stay away from them, especially while there’s a general decline in crypto prices. Experts say most long-term investors will be better served by allocating only a small portion of their portfolio (less than 5%, and never at the expense of meeting other financial goals) to bitcoin or Ethereum, two of the largest cryptocurrencies, rather than to an NFT.
Future of DeFi
If you’re invested in crypto, you’ve probably come across the term “DeFi.” It stands for “decentralized finance,” and refers to an online world of alternative financial services powered by cryptocurrencies and blockchain technology.
DeFi uses “smart contracts” to replace traditional intermediaries like banks and lenders. Essentially, the businesses that we interact with every day to manage our finances are replaced by software. Because of this, there’s no central authority to report to in the DeFi space.
But DeFi is still in its relative infancy — similar to how the early days of the internet had a “Wild West” feel of basic chat rooms, rudimentary websites, and early online service providers. With that in mind, there are going to be some bumps and bruises along the way with its development, experts say, but there could be an Amazon or Google of the future in the DeFi space in time.
Further refinement is the next important step for DeFi, according to Dr. Merak Ozark, blockchain expert and a fintech professor at Rutgers Business School. “The next step is figuring out how to make good code and kick everything up a notch,” he says.
What broader DeFi adoption means for investors
If you want full and total control over your assets, DeFi is where you’ll find it.
But that can come at a cost — there are fewer regulatory guardrails to keep your assets safe. DeFi is the “wild west” of banking and investing in many ways, where if you lose your assets to hackers or through other means, there may be no way to recover them.
It’s still early for DeFi, so if you’re comparing conventional financial products to DeFi products, it’s smart to weigh the risks against the potential rewards. You’ll take more risks with your money in the DeFi space since it’s unregulated, but you’ll also have more freedom and control. You’ll first need to buy crypto for access, and have a decent amount of crypto knowledge under your belt to get started.
Experts say it’s best to have no more than 5% of your overall portfolio tied up in crypto, and only to go that far after you’ve built up an emergency fund and paid off any high-interest debt.
Bitcoin’s Future Outlook
Bitcoin is a good indicator of the crypto market in general, because it’s the largest cryptocurrency by market cap and the rest of the market tends to follow its trends.
Bitcoin’s price had a wild ride in 2021, and last November set another new all-time high price when it went over $68,000. But then it came crashing down in 2022.
Bitcoin and the broader crypto market have been sinking this year amid ongoing macroeconomic uncertainty that’s mostly been driven by surging inflation, a shaky stock market, rising interest rates, and recession fears. Bitcoin has lost more than two-thirds of its value since last November, and dipped as low as $17,500 in recent weeks. Experts remain conflicted on whether bitcoin has bottomed out yet. Some say it already has, while others says bitcoin could fall as low as $10,000 in 2022.
This volatility is a big part of why experts recommend keeping your crypto investments to less than 5% of your portfolio to begin with.
But how high will bitcoin go in the long term? While it’s been a rocky start to the year for bitcoin, but experts still say it will hit $100,000 — and that it’s more a matter of when, not if. Bitcoin’s past may provide some clues as to what to expect looking forward, according to Kana Danial, author of “Cryptocurrency Investing for Dummies.”
Danial says there have been plenty of huge spikes followed by pullbacks in Bitcoin’s price since 2011. “What I expect from Bitcoin is volatility short-term and growth long-term.”
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