Cryptocurrencies have become quite mainstream 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 crypto world in 2022.
The search for wealth has brought many people to the world of crypto. A world where automation, trading by algorithms and automated rebalancing of a portfolio all occur to ensure a proportionate risk profile. But it takes in-depth knowledge to make the right choices.
Cryptoland is increasingly becoming a stock market, or similar to the S&P500 and S&P10. Indeed, 80% to 90% currently goes to portfolio index bots.
Fund indexes are becoming a thing. People are getting a preference for certain coins, for example, durable coins andproof-of-stake rather than proof-of-work. Categories can vary by division or sector, just like in the regular markets. Think of categories such as the Top 10 coins, Top 20, Top 30, DeFi, Oracles, Metaverse, Made to earn and Layer 2. In these, each investor can make their own choice.
According to Chainalysis' Global Crypto Adoption Index, global acceptance of cryptocurrencies is set to increase by staggering numbers by 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 have lowered transaction costs. In short, crypto has become a cheap, safe and fast way to trade money across borders.
Crypto 3.0 emphasizes scalability, sustainability, governance and blockchain interoperability. The criticism of Crypto 1.0 and 2.0 regarding scalability and environmental sustainability has diminished quite a bit with Crypto 3.0, as environmental sustainability has increased by 99.99% and transaction scalability by almost 100 times.
Newer blockchains consume much less energy and can process more transactions per second than the old models.
Meanwhile, more and more established companies are accepting cryptocurrencies. And more and more countries are deploying it as legal tender. El Salvador, for example, accepted Bitcoin in September 2021. Fintech companies like PayPal and Square allow users to buy various cryptocurrencies on their platforms and make direct investments in crypto.
Square bought some $170 million dollars worth of Bitcoin in 2021, on top of the $240 million dollars the company already had. Tesla continues to go back and forth with accepting Bitcoin payments, despite owning $2.6 billion dollars in crypto assets.
The total market capitalization of crypto reached a record $2.6 trillion dollars in the fourth quarter of 2021. The value has since fallen but the long-term outlook remains positive.
Meanwhile, some $200 billion worth of cryptocurrency changes hands every day. That number is rising. That means it will likely surpass the $225 billion in S&P500 shares traded every day. Possibly as early as later in 2022.
There has also been cryptoization of emerging markets. That growth has been particularly rapid because of the recent scaling up of Crypto 3.0 that has lowered transaction costs. Crypto has become a cheap, safe and fast way to send money across borders.
Digital assets such as stablecoins, usually linked to the U.S. dollar, help protect savings from high inflation and fluctuations in local currencies. Nine of the 10 countries with the highest acceptance of cryptocurrency, that is, the percentage of people who own crypto, are in emerging markets.
Much of Central Europe and the Middle East own surprisingly little cryptocurrency. Much of the Americas, Eastern Europe and Asia/Pacific own the most.
The main criticisms of Crypto 1.0 and 2.0 are scalability and environmental sustainability. The proof-of-work blockchains of Bitcoin and Ethereum are enormously energy-intensive because they must intentionally solve difficult computational puzzles to validate transactions and reach consensus. Energy acts as a referee to secure these blockchains.
Bitcoin currently uses more energy each year than Sweden - a whopping 184 Terawatt hours - and processes five transactions per second. By comparison, Visa handles about 1,700 transactions per second. Ethereum is more efficient, requiring 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.
Bitcoin's market capitalization has fallen from 73% at the beginning of 2021 to its current level of 44%. Ethereum has nearly doubled its market share, from 11% to 19%. Six of the ten largest cryptocurrencies are built on top of the Ethereum blockchain
Ethereum 2.0 is expected soon. Ethereum is predicted to take over from Bitcoin in 2023, also known as the flipping.
A decentralized autonomous organization (DAO) is a decentralized corporate governance structure around a cryptocurrency, where ownership of a certain number of tokens or NFTs gives 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 organizational resources are spent.
DAO tokens are similar to traditional publicly traded stocks. Investors' interests are aligned with the success of the organization. The 20 largest DAOs have $6 billion dollars worth of digital assets. These include decentralized finance projects (DeFi) such as Compound (loans), Uniswap (decentralized exchange), Bankless (banking) and government finance entities such as Gitcoin, which pays users to contribute to open-source software such as the Python programming language.
Decentralized finance (DeFi) aims to replace traditional, financial services. DeFi is an emerging ecosystem of financial applications that use smart contracts to execute transactions without intermediaries. The sector has grown from $28 billion to $101 billion by 2021. There is still explosive growth to come.
The two most dominant areas in DeFi are decentralized exchanges (DEX), aka the future of trading and decentralized banking and lending. Collectively, these account for 80% of the sector.
With DEX, there is a reliable, non-custodial, transparent and peer-to-peer settlement process using smart contacts on the blockchain. However, centralized exchanges act as custodians for their clients. Most transactions are conducted off-chain. There is little transparency.
The largest DEX is Uniswap, which is built on the Ethereum blockchain. It has an average daily trading volume of $2.6 billion, which has increased >50% since its launch in November 2018.
Decentralized banking and lending is an alternative financial ecosystem where consumers transfer, trade, borrow and lend cryptocurrencies, theoretically independent of traditional, financial institutions and the regulatory structures built around traditional banking.
It has enabled millions of people around the world who do not have access to regular banks or financial services to use financial services. Maker, Aave and InstaDApp are the largest lending platforms, with a combined $42 billion under their management.
Non-fungible tokens (NFTs) are distinctive digital assets, usually in the form of digital artwork. NFTs can be bought and sold like any other piece of property stored on the Ethereum blockchain. The digital tokens can be thought of as certificates of ownership.
The highest price for an NFT was achieved by Beeple's Everydays at Christie's. In March 2021, it raised $69 million. For now, OpenSea remains the largest marketplace for NFTs and has more than 600,000 active users, growing >25% per month.
Royality tokens are crypto tokens with the purpose of representing a form of digital equity. Just as traditional shares represent equity in 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 called an ERC20 token) and is often traded on a decentralized exchange such as Uniswap.
Royality tokens, for example, offer artists, musicians, writers, social media influencers and sports professionals a new way to make money. Celebrities are often huge revenue sources for media companies, but they are often not adequately rewarded for their efforts. Tokens directly reward creators for their work and could fundamentally disrupt existing and outdated media models.
