A year-end rally in cryptocurrencies appeared to run out of steam on Tuesday, with
both falling over 6%, trading around $ 48,400 and $ 3,840.
Cryptos had participated in a “Santa Claus rally” for risky assets with Bitcoin rising more than 13% since December 17 to around $ 52,000. However, it remains well below its all-time high of $ 68,790 on November 10.
What awaits us for 2022? The crypto economy is expected to continue to grow with more applications and uses for tokens and the underlying blockchain networks. “DeFi”, or decentralized finance, is expected to continue to expand, fueled by demand for crypto trading, lending and borrowing, all based on “smart contracts” that automatically set the terms of a trade or trade. loan criteria.
Other burgeoning uses of blockchain networks and their tokens include online gaming, supply chain management, distributed storage, and international money transfers or remittances.
NFTs, or non-fungible tokens, are also booming, digital collectibles that can be redeemed like other assets. The NFT market exploded in 2021 with a volume of over $ 23 billion, including rising market values for NFTs like Bored Ape Yacht Club and NBA TopShots.
Adidas recently sold nearly 30,000 NFT “Into the Metaverse”, granting owners the right to redeem their tokens for hoodies, tracksuits and a beanie featuring popular NFT images. The sale brought in over $ 22 million for Adidas, which priced each NFT at 0.2 ETH token, or around $ 780 each at recent prices.
Yet even some crypto advocates say prices look sparkling, after a 74% gain in 2021 for Bitcoin, a 424% return for Ether, and even bigger gains for many alt-coins.
“Growth investments are in high demand and I think crypto falls into that high multiple price / sell category,” Jan van Eck, CEO of fund firm VanEck, said in an interview with Barron. “The prices are more reasonable than they were six months ago, but the only answer is the average cost in dollars,” he said, referring to the continued investment of a fixed amount. .
With inflation being a major concern, Bitcoin is likely to be tested as a store of value or “digital gold,” as its supporters see it. Bitcoin did not pass this test as inflation numbers recently skyrocketed, prompting stocks and cryptos to sell off. Bitcoin trades similarly to high growth stocks and tech assets that come under pressure as investors opt for safer investments in a more challenging macroeconomic climate.
One compelling area of growth is in tokens used for DeFi and other smart contracts, Van Eck explains. “Exposure to smart contract protocols is the best thing investors need to focus on,” he says.
Ether is the giant in smart contract protocols. But the Ethereum network is now clogged and suffers from high transaction fees. Other networks and tokens are gaining ground, including Solana, Polkadot, Cardano, Avalanche and Algorand.
The MVIS CryptoCompare Smart Contract Leaders Index tracks a basket of these cryptos. It is 635% ahead in 2021. However, there is no way to invest directly in the index or through an exchange-traded fund – investors should buy the tokens individually or follow them through a private fund.
Another headwind for digital assets, of course, may be stricter regulation. The Biden administration and Congress are looking to set new rules for the industry, including stablecoins, tokens designed to maintain a fixed value.
But cryptography is a difficult legal area and Washington cannot agree on how to oversee it. Congress recently held hearings on cryptos, revealing a wide divide between Democrats and Republicans on how to set new rules.
“Washington is at a standstill in terms of crypto regulation,” Van Eck says. “I don’t see any movement in any direction. ”
The fund industry, of course, is pushing for an ETF that owns Bitcoin directly, rather than through futures, the type of Bitcoin ETF that the Securities and Exchange Commission has approved.
But Van Eck, for his part, does not seem optimistic that the SEC, under the leadership of Gary Gensler, will approve a spot ETF. “It is clear that the SEC wants to have jurisdiction over the cryptocurrency markets,” he said. “It doesn’t look like they’ll approve a Bitcoin ETF unless forced to do so by a federal court.”
The SEC rejected a VanEck request for a spot ETF in November. Van Eck says he is “not convinced” that such an ETF will be approved anytime soon.
ETFs such as
Global Chain X Blockchain
Invesco Alerian Galaxy Crypto Economy
ETF (SATO) or
Bitwise crypto industry innovators
ETFs (BITQ) provide exposure to the industry. the
VanEck Bitcoin Strategy
ETF (XBTF) and
Bitcoin ProShares Strategy
ETF (BITO) owns Bitcoin through futures contracts.
It can be unrealistic to expect another big year for investment gains, even though blockchains are the new digital railroads and tokens are making their way like the money of the future.
Write to Daren Fonda at [email protected]