It has been another rollercoaster year for cryptocurrency investors, with rallies and routs magnifying the potential rewards and risks involved.
There is still fervent excitement, with former Twitter boss Jack Dorsey earlier this month claiming he thinks bitcoin could replace the US dollar in the future.
But, governments and central banks are still getting to grips with cryptoassets and next year will be pivotal in terms of future regulatory interventions or crackdowns, as well as opportunities for growth.
Here, This is Money looks at what has happened in the crypto space this year, and what could be in store for crypto investors in 2022.
What a year: It has been another rollercoaster year for cryptocurrency investors, with rallies and routs in abundance
What’s happened to bitcoin this year?
Bitcoin, the original cryptocurrency, is still the biggest and most popular crypto coin, with a market capitalisation larger than all the other coins combined.
Having surged to a record high of over $68,000 in November, bitcoin is currently trading at $48,674.60.
Year-to-date, the price has risen by over 65 per cent, while bitcoin has jumped by around 4,900 per cent over the last five years.
According to Finder’s Investment Tracker, someone who invested £1,000 in bitcoin at the beginning of the year would have seen their pot grow by around 62 per cent to date.
It said: ‘If you had invested £1,000 into bitcoin at the beginning of January, it would currently be worth £1,622, despite a spectacular fall in value of 27 per cent over the past 6 weeks – it reached a high of £2,231 back in mid-November.
‘This follows on from 2020, where an initial £1,000 investment into bitcoin finished the year at £3,919.’
Meanwhile, the price of ethereum has risen by over 400 per cent in the past year, while solana has also grown substantially in the last 12 months.
‘Some altcoins have had incredible moves since the lows on Monday, particularly LUNA, as well as CRV (Curve) – both seeing gains of over 30 per cent in the past two days’, Marcus Sotiriou, an analyst at GlobalBlock, said.
Shifts: A chart showing what has happened to the price of bitcoin over the past year
How many people hold bitcoin wealth?
Fewer than 0.01 per cent of bitcoin investors hold more than a quarter of the cryptocurrency in circulation, recent research has revealed.
Investment in the digital currency is ‘highly concentrated’, with 10,000 investors owning around five million of the 19million bitcoins in circulation, worth $230billion, academics at the National Bureau of Economic Research have found.
In the United States the top 1 per cent of households hold about a third of all wealth, according to the US Federal Reserve.
This level of concentration brings, according to the findings, ‘systemic risk’ in part because a small number of people could trigger a price collapse if they sold their holdings all at once.
What’s in store for next year?
Within the crypto space, volatility remains an issue and that looks set to continue into next year.
Some bulls expect higher prices for bitcoin but others forecast a fall.
Kate Waltman, a New York-based public accountant who specialises in crypto, said: ‘The most knowledgeable educators in the space are predicting $100,000 Bitcoin in Q1 2022 or sooner.’
Kiana Danial, author of ‘Cryptocurrency investing for dummies’, said: ‘What I expect from bitcoin is volatility short-term and growth long-term.’
Uncertainty remains at the forefront of many experts’ minds, however.
What will happen? Within the crypto space, volatility remains an issue and that looks set to continue into next year
Ollie Leech, a learn director at Coindesk, said: ‘It’s usually expected that whenever bitcoin achieves a new all-time high, prices tend to reverse shortly after. We saw it earlier this year and this seems to be the case again right now.
‘Bitcoin hasn’t printed a new higher high in over 40 days, leading some analysts to believe 2022 could turn into a repeat of 2018’s crypto winter.’
‘Obviously, it’s impossible to know for sure, but there are a number of upcoming regulatory measures due in 2022 which may impact bitcoin’s performance, namely new stablecoin regulations in the US.
‘Not to mention, prices are dangerously close to crossing below the daily 200 moving average; an indicator which many traders use to gauge whether bitcoin is in a bullish or bearish market.’
Laith Khalaf, head of investment analysis at AJ Bell, said: ‘Rolling a dice on a spinning roulette wheel is probably as good a tool as any for predicting the course of the crypto markets over the course of 2022.
‘There are however five key things to watch out for in this nascent market which can be expected to exert some influence on prices; business adoption, new investment products, regulatory activity, environmental progress and central bank competition.
‘If crypto starts to be used as a means of exchange between businesses and consumers, then that strengthens the bull case.
‘Such adoption needs to take place in a meaningful way though, rather than as a marketing gimmick, whereby companies accept payment in crypto and then immediately convert it into traditional currencies.’
He added: ‘The volatility of crypto is a major sticking point which makes it hard to see much progress being made, when companies have bills to pay in dollars, euros and pounds, and likewise big funds need to report back to their investors in traditional currencies.’
Environmental concerns mounting?
Following the COP26 summit in Glasgow earlier this year, environmental concerns will remain on the agenda for companies, industries and governments into 2022 and beyond.
Critics claim crypto mining is highly energy intensive, with the majority of bitcoin mining happening in the US.
Mr Khalaf of AJ Bell, said: ‘The environmental piece of the puzzle could swing either way, with the Tesla CEO, Elon Musk, being the somewhat unpredictable bellwether on this particular issue.
‘Tesla made some bold plans to facilitate crypto payments for cars at the beginning of 2021, but rowed back over concerns about the environmental impact of crypto mining.
‘Musk said Tesla would resume its plans once mining transitions to more sustainable energy, and already this is starting to happen. Watch this space, or more specifically, Elon Musk’s twitter feed.’
How will Governments and central banks respond?
Governments and central banks around the world are still in the early stages of getting to grips with crypto, people’s interest in it, and its ramifications for the future of global markets.
Here in Britain, Bank of England policymakers led by Andrew Bailey have warned of the dangers of investing in such assets.
In January, Britain’s Financial Conduct Authority, said: ‘Investing in cryptoassets, or investments and lending linked to them, generally involves taking very high risks with investors’ money.
‘If consumers invest in these types of product, they should be prepared to lose all their money.’
Be careful: Bank of England policymakers led by Andrew Bailey have warned of the dangers of investing in crypto
But central banks like the BoE and the Federal Reserve in the US are considering whether to launch their own digital coins. China, which has already done so, has cracked down on crypto trading and mining.
Mr Khalaf said: ‘Regulatory activity is likely to be negative for crypto.
‘It turns out regulators don’t like the idea of a financial system which can be used to launder money, scam consumers, and could ultimately lead to heavy losses amongst investors.
‘Crackdowns in India and China could be repeated elsewhere, and more broadly regulators and governments are going to turn their beady eyes on crypto, as it becomes more enmeshed in the traditional financial ecosystem.
‘Central banks, including in the UK, are also looking at launching their own digital currencies, which would be negative for crytpo as these could usurp some of the perceived benefits of Bitcoin et al, such as speed of payments and transaction costs, particularly across borders.’
Chris Dinga, payments analyst at GlobalData, added: ‘While the lack of regulation is driving the growth of cryptocurrencies, their decentralized nature means that growing investment and reliance on cryptocurrency sector could weaken governments’ control over the economy.
‘This is not a situation that some governments are prepared to tolerate, with India, one of the worlds largest economies already moving to squash cryptocurrencies before they can gain even greater popularity. To survive, the sector needs to quickly become “too big to fail” by overcoming its TPS limitations to continue its rapid growth.’
What does the future hold for crypto?
Irrespective of concerns over regulation and volatility, there is still major excitement brewing in the crypto world about what the future will bring.
This month, former Twitter boss Jack Dorsey caused a stir on the social networking site he helped to found by sharing his thoughts on crypto.
Mr Dorsey, who recently left his job as chief executive of Twitter to focus on a blockchain oriented Fintech company, tweeted that he thinks bitcoin will eventually replace the US dollar.
Companies like Visa are also becoming heavily involved in the crypto space.
Visa has partnered with 60 crypto platforms so that consumers will be able to spend crypto at 80million merchants worldwide.
It plans to launch crypto-linked cards to allow consumers to spend digital assets without requiring the merchant to accept crypto.
Visa’s head of crypto, said, ‘At Visa, the scale and scope of our work in crypto has grown dramatically.
‘The number of people cross-functionally at Visa working on crypto in some capacity is now in the hundreds — up from just a handful of employees.’
The group has also launched a global crypto advice service aimed at clients like banks and retailers keen to get into the world of crypto for their customers’ services.
Elsewhere, earlier this year it was revealed that a cryptocurrency company was on track to purchase the Gibraltar Stock Exchange.
Valereum Blockchain, a Gibraltar-based blockchain technology group, signed an option to snap up 80 per cent of the GSX in October.
Amid ongoing activity, excitement and – among some – fears, over the future of crypto, anyone thinking of taking the plunge and investing their cash must remember that they could end up losing all the money they put in.
Investing in crypto is unregulated, unprotected and highly volatile, so far from risk free, it pays to keep a cool head before parting with your cash, because as the FCA has warned, you could lose it all.
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