Crypto in 2022: What Can We Expect?
A Fact-Based Assessment of Next Year's Outlook
Introduction
The last few weeks in the crypto markets haven’t been particularly fun – unless you were prepared for this correction and enjoy the arduous task of seeing through the noise and “embrace the chop.”
Whether the recent price moves have you stressed or you can sit back and enjoy the holidays, today, we try to gather reasons why one can (or should) still be bullish on the crypto space going into next year.
A short disclaimer: While we always try to stick to the data and our best estimations, it’s nonetheless essential to take all charts, fractals, models, and forecasts with a grain of salt. After all, any information should only serve as pieces of a larger puzzle to form your own investing framework!
2021 Has Been a Crazy Year
2021 has truly been an astonishing year for the crypto space! It started with Bitcoin blasting off to new all-time highs at the beginning of the year. We then witnessed an altcoin explosion of biblical proportions.
Many people’s lives were transformed in the weeks and months of raging bullishness, especially in the early but also in the later bullish stages of the year. Just look at the exponential growth the total crypto market cap has experienced this year and compare it to the – now tiny looking – peak in 2017…
Alongside the explosive price growth, we have seen amazing new technologies emerge, and crypto has finally begun to deliver more utility thanks to DeFi and NFTs. While many of these use cases are still in their infancy and only scratch the surface of their potential, the world has now witnessed the transformative potential of blockchain technology.
While at some point, prices always overshoot fundamentals – creating the typical boom and bust cycles of an adoption S-curve – and technology needs more time to develop than the crypto enthusiasts would like, we have to acknowledge how far the space has come this year.
Where Is the Crypto Market at Right Now?
So, where is the crypto market standing right now? After the nerve-wracking summer correction, we experienced renewed bullishness and altcoin mania in October and November, followed by another abrupt correction that caught many investors off guard.
When this recent correction began, the consensus remained for quite a while that this was only going to be a correction before continuation of the bull market. However, as of late, the voices calling for a bear market have become more prevalent. Now that we are a couple of weeks into this correction, the question is: Where are we going from here?
Since there is a lot to elaborate on to answer this question, let’s summarize the most important points for both the bullish and bearish case. Let’s start with the bears:
The recent price drawdown has “broken” Plan B’s Stock-to-Flow prediction – at least temporarily. At the same time, we can no longer refer back to the bull markets of 2013 and 2017 to justify the intactness of the current bull market structure.
With the Fed reversing its “easy money policy” of the last two years, a significant catalyst for the current global asset bull market is fading away. Although we do not need to paint doomsday scenarios, we can agree that the next few months will bring some levels of uncertainty.
Another “bear market argument” is that many altcoins have experienced price gains that exceed their fundamental achievements by a long shot. On top of that, speculation has become so rampant that VCs and retail investors are throwing money at everything that hits certain narratives (often without doing their due diligence). This is typical for the later stages of a mania phase (aka bubble).
Now it's the bulls' turn:
From a technical analysis perspective, Bitcoin and several altcoins have not yet broken their bullish structure on the weekly time frame. If critical price levels don’t break (e.g., $40k for BTC), we can argue that we are currently experiencing a standard 30 % bull market correction.
Another sign that makes it rather unlikely that we have entered a prolonged bear market is that we see many fundamentally strong projects perform very strongly in this current uncertain market environment – some have even printed new all-time highs (e.g., LUNA, MATIC). This indicates that the market is still hungry for fundamentally driven growth...
Looking at on-chain signals, we can spot signs that differ strongly from the typical early stages of a bear market: Long-term holders are NOT looking for the exit as they did in 2013 and 2017. Also, we can observe the continuous growth of illiquid supply, meaning that a supply squeeze like we experienced this summer is becoming a likely outcome.
The fact that Bitcoin has clearly broken prior bull market structures can also be interpreted positively: The theory of lengthening cycles is now clearly in the cards!
Looking a bit further ahead, we can state that fundamentally, there still seems to be a lot of gas in the tank for continued crypto adoption and growth in the months and years ahead. In contrast to the bear market of 2018 and 2019, we now have many working products and compelling use cases (e.g., DeFi, NFTs, gaming, etc.). Innovation and project releases will not slow down but will accelerate in 2022.
Narratives to Watch in 2022
So, looking ahead to 2022, what will likely be the narratives and sectors that will experience growth – irrespective of whether the crypto market more broadly remains in an explosive bull market or not? Well, here are our best guesses:
The ETH Merge: It’s clearly one of the most anticipated stepping stones for the entire crypto space, seeing Ethereum finally move from Proof of Work to Proof of Stake. This step is not just critical to pave the way for increased scalability of Ethereum, but we can also assume that the “ESG-narrative” of Ethereum innovating and becoming more climate-friendly (than Bitcoin) will generate a lot of hype, especially among mainstream and institutional investors.
L2: As we have expressed many times recently, a major trend of 2022 will be Ethereum L2s. While we have started to see some of them rolling out in recent months, we still haven’t reached the tipping point of L2 adoption. Having a close eye on emerging L2 solutions and their adoption will be crucial for crypto investors going into the new year.
Gaming & the Metaverse: What we have witnessed in the summer and fall of this year was nothing less than the spectacular rise of NFTs, gaming, and the Metaverse, with massive price appreciation catapulting this sector into the center of attention. While the fast rise naturally led to a substantial correction in recent weeks, this trend is far from being over. With many games and Metaverse projects only really starting to deliver on their promises in 2022, we can expect fireworks in the projects that actually ship amazing things.
Cardano & Polkadot Ecosystems: While it has become relatively quiet around Cardano and Polkadot in recent weeks, investors shouldn’t turn away from these ecosystems – especially not now that they are close to actually entering production. Both Polkadot and Cardano are rolling out their first applications in the weeks and months ahead, and it might be wise to have an eye on these two ecosystems before they blow up.
What about Bitcoin and its “digital gold” narrative going into 2022? Well, there are several considerations to be made:
In contrast to Ethereum and many altcoins, which incorporate the innovative aspect of crypto, Bitcoin is highly reliant on its monetary use case as a store of value. Consequentially, Bitcoin is – more than any other crypto asset – reliant on the macro environment.
Here comes the catch: 2022 could bring quite some headwinds from a macro perspective with central bank liquidity drying up, at least until something “breaks” in asset markets or the economy and central banks are forced to reverse again.
It will depend on whether central banks achieve the balancing act of removing monetary stimulus without upsetting asset markets. So, the mid-term outlook (let’s say the next 3-6 months) could entail quite some uncertainty for Bitcoin’s digital gold narrative.
Some Tips To Navigate the Market in 2022
We have laid out a solid case for remaining generally bullish on the crypto space in 2022. However, with 2020 and 2021 already having delivered massive price gains, we have to be more prudent and selective when investing going into the next year.
It really boils down to whether you believe that we are still in the midst of a massive bull market, we have just entered a bear market, or whether we have to throw the cycle theories overboard altogether, assessing the market on a rolling basis – looking at fundamental catalysts, on-chain analysis, and macro drivers.
Here are a few more tips to think about before we soon conclude this year:
