Crypto predictions: Where next for the $2trn market?

The cryptocurrency markets have lived up to their reputation for volatility in the past year, rallying to all-time highs several times in the 2021 bull run and then defying expectations by crashing in early 2022.

Bitcoin (BTC/USD), which remains the leading cryptocurrency by market capitalisation, hit a peak above $68,700 in November 2021 but then collapsed to $33,000 in January and has since struggled to hold above the $40,000 level for an extended period.

As the dominant cryptocurrency,  bitcoin continues to drive sentiment on the alternative cryptocurrencies, known as “altcoins”. With bitcoin in its mature stage, many investors wonder what is the next cryptocurrency to explode in 2022. In this article we look at the industry’s key drivers and cryptocurrency future predictions.

Will the crypto market go up? Trends to watch

The number of cryptocurrencies has expanded exponentially in the past few years as adoption has increased and blockchain developers have launched new applications.

The emergence of decentralised finance (DeFi) has driven interest in blockchain-based financial services, which use cryptocurrency tokens to facilitate transactions.

DeFi

The amount of total value locked (TVL) in DeFi services on blockchains, soared from less than $19bn at the end of 2020 to $237b at the end of 2021, data from DeFi Llama shows.

DeFi enables users to trade cryptocurrencies on decentralised exchanges, earn high interest from staking and yield farming their tokens, borrow against their crypto holdings at low interest rates and trade tokenised assets such as stocks.

NFTs

Tokenisation has become increasingly popular with the explosion of non-fungible tokens (NFTs). The first NFTs were created in 2017 to be used as characters in blockchain-based games.

NFTs are increasingly gaining traction in the art world as a way to sell digital works to buyers worldwide. The artist Beeple sold an NFT artwork for $69m in March 2021 and digital artist Pak sold an NFT collection called The Merge to over 28,000 for a total of $91.8m in December 2021.

NFT profile picture (pfp) collections like Crypto Punks, Bored Ape Yacht Club and Cool Cats are considered “blue-chip” projects, in much the same way that blue-chip stocks are considered most likely to gain value over time with less risk of crashing.

Buyers use their pfps on social media networks to show their support for the projects. Collections like World of Women (WOW) and Boss Babe aim to use this to raise funding for real-world projects supporting social programmes.

Much like crypto prices, NFT prices are highly volatile and carry the risk that the hype over certain projects can fade quickly, leaving investors with an asset that has lost value.

Daily NFT sales volume peaked at $338m in August 2021, but dropped to $40m the following month, DeFi Llama data shows. Daily volume climbed to a high of $232m in February but totalled just $354,000 on 12 April.

Gaming

NFTs are central to the play-to-earn and move-to-earn models in blockchain gaming, which took off in 2021 with the popularity of games like Axie Infinity (AXS/USD).

Axie Infinity, in which players breed and battle NFT characters in a metaverse, has developed an in-game economy which enabled players in countries such as the Philippines to earn enough cryptocurrency to provide a real-world income.

The popularity of the play-to-earn model has encouraged the development of move-to-earn applications, in which users do not need to spend time playing online games, but instead upload data from mobile phones or fitness trackers to earn rewards for their activity in the real world, such as walking or playing sports.

Cryptocurrencies connected to NFT games and metaverse applications have seen extreme price volatility, with the Axie Infinity currency AXS soaring from $0.59 at the start of 2021 to a peak of $160 in November 2021, then dropping to the $45 level in March 2022.

Metaverse

Metaverse applications are a key driver for cryptocurrency expectations for the long term, as they will play an integral role in the development of the third generation Internet (Web3). US investment bank Fidelity has launched an exchange-traded fund (ETF) to provide investors with exposure to companies involved in the industry.

The spike in cryptocurrency prices in November was led by metaverse tokens, after Facebook’s parent company changed its name to Meta Platforms to denote the direction of its future development.

Crypto predictions 2022: Factors at play

While analysts are largely bullish about the long-term development of the cryptocurrency industry, the short-term outlook is more uncertain. What will define crypto in 2022: A prolonged bear market, or will prices turn higher later in the year?

“Because the broader market risk sentiment and the global uncertainties have arguably firmly impacted the crypto market lately, these topics should reasonably be top of mind for investors looking at short-term moves in the crypto market,” Mads Eberhardt, cryptocurrency analyst at Dutch Bank Saxo, said in a March note.

Arthur Hayes, co-founder of the BitMEX exchange, was bearish about the short-term cryptocurrency market forecast.

“The inconvenient truth that haunts crypto at this current juncture is that crypto moves in lockstep with the debt-based, un-free risk asset markets like global developed market equities,” he wrote in a blog post published on 11 April.

While predicting cryptocurrency prices, Hayes expected BTC to test the $30,000 and ETH the $2,500 level by the end of the second quarter.

“The annoying part is that there are a number of altcoins I have begun to accumulate because the prices are quite attractive,” Heys wrote.

“Even though some of these coins are already down 75% from their all-time high, I don’t believe even they can escape the coming crypto carnage. As such, I am buying crash June 2022 puts on both Bitcoin and Ether,” he added.

Crypto forecast: Bulls vs Bears

Looking at the top three cryptocurrencies by market capitalisation can give an indication of the direction of the overall markets, as smaller altcoin prices are strongly influenced by the largest coins.

Bitcoin (BTC/USD) leads the market with a total value of around $780b at the time of writing (14 April), followed by ether (ETH/USD) at $371.2bn and tether (USDT/USD) at $82.7bn, according to CoinMarketCap. The total crypto market cap was around $1.9bn, down from the all-time high of $2.9b during the November rally.

In their February outlook, Bloomberg analysts wrote that the market could be forming a bottom at $30,000, with $100,000 as “the next key Bitcoin threshold.” 

The report revealed bullish sentiment in its crypto projections despite the recent price drop, stating that “some purging of the speculative excesses of 2021 may mark much of 2022, but Bitcoin is poised to come out ahead”.

“Early adoption days and limited supply of the nascent technology/asset are prime advantages for price appreciation of the benchmark crypto, which is well on its way to becoming global digital collateral,” the report said.

“The proliferation of crypto dollars is an indication of the increasing dominance of digital assets, with bullish implications for the greenback, Bitcoin and Ethereum… Ethereum is the primary platform for crypto dollars and nonfungible tokens (NFTs), and a key support for Ether’s price,” it added.

US investment management firm Invesco, however, was bearish in its view of cryptocurrency markets. 

“The mass marketing of Bitcoin reminds us of the activity of stock brokers in the run up to the 1929 crash,” Paul Jackson, global head of Asset Allocation Research, wrote in January.

 “We know how that ended and Bitcoin has already fallen to around $42,000 (as of 7 January 2022), following closely the downward path of our mania template. That template suggests a loss of 45% is experienced in the 12…