- More institutions are expected to adopt BTC as an investment vehicle and inflation hedge.
- Future adoption of bitcoin as legal tender depends quite heavily on El Salvador.
- Many governments may move more towards CBDCs in 2022.
- The use of crypto for payments is expected to gain further momentum in 2022.
The crypto market is having a strong end to 2021, with various cryptoassets — including bitcoin (BTC) — hitting new all-time highs. The question is: will we continue seeing increasing adoption of cryptocurrencies among investors, institutions, and even governments next year?
According to the majority of analysts and observers, 2022 will definitely be another year of growing cryptocurrency adoption, both in terms of its potential as an investment vehicle and inflation hedge, as well as its utility for payments.
Of course, 2022 will not be a cakewalk for bitcoin acceptance, with government rejection of cryptocurrency still as probable (if not more likely) in some countries as adoption. That so, with the market displaying renewed bullishness as we write this, the general trend is likely to be toward increased adoption rather than decreased adoption.
2021: How accurate were predictions last year?
In 2020, industry participants projected that institutional investors would take a greater interest in bitcoin. This is precisely what occurred, with institutional investors driving the current bull market.
They forecasted growth in Ethereum (ETH) and decentralized finance (DeFi), with the latter (in terms of total value locked in) increasing from about USD 21 billion at the start of the year to USD 241 billion at the time of writing, according to DefiLlama data. Similarly, Ethereum accounts for 67% of this value, demonstrating how critical it has become.
Another prediction made by commentators in our previous year’s post on ‘adoption patterns’ was the emergence of interoperability platforms and protocols, which would enable chains to pool resources and value. This was especially true for the introduction of the many cross-chain bridges that took place this year, including Wormhole, Avalanche Bridge, and Harmony.
Expect more institutions to come
Given that a new bull market driven by institutions appears to be emerging, it may come as no surprise to learn that analysts are predicting even more institutional adoption of BTC and other cryptocurrencies in 2022. In part, this should be driven by growing inflationary fears, as well as by the increasing normalization of crypto, something helped by new exchange-traded funds (ETFs).
“After the successful launch of [the ProShares] BITO ETF, regulators in the US and elsewhere will be less resistant to more bitcoin and other crypto ETFs. As a result, I expect we’ll see increased institutional adoption of bitcoin and crypto as an investment vehicle going forward,” said Fawad Razaqzada, an analyst at ThinkMarkets.
For OKEx’s director Lennix Lai, the approval of ETFs really does open the door to significantly increased institutional adoption of cryptocurrencies in 2022.
“We definitely believe with the launch of the Bitcoin ETF, it will attract higher adoption across the spectrum. Reason being more traditional retirement plans, pension funds, brokerage accounts will not accept crypto investments, which is where the bitcoin ETF comes into place,” he told Cryptonews.com.
Other analysts generally concur with this assessment, albeit they add that it is contingent on a variety of conditions. According to Simon Peters, an analyst at eToro, institutional investors have been driving increased inflows into bitcoin for several weeks, and this trend is likely to continue as more institutions adopt BTC as an investment vehicle and inflation hedge.
Bitcoin had USD 95 million in inflows last week, the most of any digital currency, according to CoinShares data. While inflows slowed slightly this week, they now number USD 2.8 billion, bringing the year-to-date total to a record USD 6.4 billion.
Peters adds that if the US Securities and Exchange Commission (SEC) authorizes a bitcoin spot ETF, the possibility of institutional investment in bitcoin will grow (i.e. one where the fund actually holds BTC).
“Investors (both institutional and retail) who are interested in bitcoin and cryptoassets more broadly but are hesitant to purchase the underlying asset owing to concerns about regulation/insurance, etc., may feel more at ease gaining exposure through an ETF,” he explained.
According to Ben Caselin, AAX’s head of research and strategy, approval of a spot-based Bitcoin ETF is critical if institutional adoption of cryptocurrencies is to take off next year.
“Before we see larger players come into the market, we would need to see more ETFs pass the bar, including physically-backed ETFs. As the pressure continues to build on the Federal Reserve and central banks in general, we can expect more capital to flow from traditional inflation hedges to bitcoin,” he told Cryptonews.com.
Others argue that, while SEC clearance is desirable, institutions will embrace bitcoin anyway in 2022, given to the market’s growth.
“As the ecosystem expands in size, their participation is inescapable. At the margin, the SEC’s latest action puts that inevitability a little closer,” said Lou Kerner, Quantum Economics‘ chief cryptocurrency analyst.
More legal adoption?
With El Salvador officially adopting bitcoin as legal tender in September, there’s also a distinct possibility that other nations will follow its example in 2022. However, this depends on just how successful El Salvador’s embrace of BTC ends up being, with many nations in similar situations mostly observing from a distance for now. As reported, the CEO of the crypto exchange giant BitMEX Alexander Höptner estimates that “at least five countries” will “accept bitcoin as legal tender” before next year is out.
“I think most would-be countries are just sitting back and watching to see how El Salvador’s economy will evolve with the adoption of BTC as legal tender. If successful, I am sure more countries will follow suit — if not fully like El Salvador, then at least in other ways — especially those with weak economies and where currency crises are prevalent,” said Fawad Razaqzada.
Ben Caselin also suggests that future adoption of bitcoin as legal tender depends quite heavily on El Salvador. Nonetheless, if things do go well, there are other countries that may similarly stand to gain from adoption.
“Unbanked communities account for more than half of the population in countries such as Mexico, Peru, and Colombia. Similar proportions are found in South East Asia, in nations such as the Philippines and Indonesia,” he explained.
While he does not anticipate increased formal adoption in 2022, he does anticipate “countries showing their interest” in coming closer to crypto next year.
On the other hand, some analysts believe it is almost certain that other nations will embrace bitcoin and other cryptocurrencies in some form, if not in 2022, then shortly thereafter.
“I believe there is a strong probability that other governments will follow El Salvador’s lead and legalize bitcoin. The majority of ‘the noise’ appears to be emanating from Latin America at the moment,” Simon Peters observed.
Lou Kerner is even more forthright about bitcoin and cryptocurrency’s prospects in this regard, stating that it is mostly an issue of ‘when, not if.’
“Just as the institutional adoption of crypto is inevitable, so is the adoption of crypto by governments around the world. Adopting bitcoin as legal tender will be increasingly attractive for smaller governments without strong currencies,” he said.
Central banks and their tokens
That said, Anndy Lian, the Chairman of crypto exchange BigONE and the Chief Digital Advisor to the Mongolian Productivity Organization, says that developed nations will be more interested in central bank digital currencies (CBDCs) in 2022 than bitcoin or any other public cryptocurrency.
“The real crypto push from governments will be more likely to come in the form of central bank digital currencies, most notably in China. There the central bank is looking to use blockchain at the issuance layer for its digital yuan system, which is centralized,” he told Cryptonews.com.
He adds that a drive towards CBDCs may be catalyzed by Facebook (now – Meta), with its Novi app launching as a limited pilot in the US and Guatemala in October.
“If the Facebook initiatives take off then this could spur governments to action, if not creating their own digital currency, in supporting the growth of private sector solutions with improved regulations and support. A good example of this approach is in Ukraine, which voted almost unanimously to legalize and regulate cryptocurrency just a day after El Salvador’s official bitcoin adoption,” he added.
Lou Kerner also thinks that many governments, particularly those fearful of bitcoin and other public and decentralized cryptocurrencies, may shift their focus to CBDCs in 2022.
“Central bank digital currencies will be attractive to other governments seeking to harness technology to improve internal or global financial infrastructure.
Some governments will oppose, as they did with the internet, out of fear of losing control,” he warned.
What about payments?
CBDCs lead us to the payment issue, because while it appears likely that investors will progressively use bitcoin and other cryptocurrencies as inflation hedges, it is unclear whether the general population would increasingly utilize such currencies for payment.
According to Fawad Razaqzada, greater payment use will follow more investment, with more holders and owners equaling more opportunity to purchase goods and services using cryptocurrencies.
“This trend will likely gather momentum as more institutions get involved. So there is little doubt in my mind that 2022 could set a new record for crypto transactions for payments of actual goods and services,” he said.
According to some observers, the usage of bitcoin for payments is already gaining traction and will continue to do so in 2022.
“The use of cryptocurrencies for ‘payments’ is already growing at a breakneck pace. Stablecoins worth more than USD 125 billion are in circulation and are used to make payments,” Lou Kerner explained.
He continues by stating that bitcoin is already being utilized to motivate community members to contribute value to the community, ranging from gaming (e.g. Axie Infinity) to talent networks (e.g. Braintrust).
“We anticipate that this activity will continue to scale in 2022 and beyond, just like e-commerce has done 27 years after Amazon began selling books,” he said.
Similarly, Anndy Lian is another analyst who believes that 2022 will just serve to solidify what has already occurred in 2021.
“The trend towards greater use of crypto for payments has already started, with the recent news in the US that cinema chain AMC will soon be accepting cryptocurrency payments. It comes just months after PayPal announced that US consumers would be able to use cryptocurrency to make purchases and Mastercard announced that it would support cryptocurrency payments across its network,” he said.
Despite these significant advancements, Ben Caselin urges caution, arguing that while bitcoin is being used in El Salvador, for example, we are still very much in a growth phase, with market volatility working against widespread adoption of many cryptos.
He says, “For Bitcoin to take hold as an everyday payment system and currency, more adoption is needed […] It may take a few more years before we can see Bitcoin being used more for everyday payments globally.”