What awaits cryptocurrencies in 2022? Experts bet more on 'DeFi' than on bitcoin

In the midst of the “rally of everything” that has driven stocks and all types of assets, cryptocurrencies have had a positive year, with increases in the price of their main banner, bitcoin, the IPO of the first house of changes in ‘crypto’, Coinbase, and the emergence of a new investment ecosystem, the so-called “decentralized finance” or DeFi. But what will await them in 2022? This is what the analysts are saying.

The DeFi opportunity

One of the big changes that experts are betting on is the loss of relevance of bitcoin in favor of other smaller cryptocurrencies that allow doing something that bitcoin has not yet been able to master: smart contracts and investment funds 100% cryptographic without intermediaries, that is, DeFi.

For Carol Alexander, a finance professor at the University of Sussex, the future is in smaller currencies with greater potential for these operations, such as ethereum, solana, polkadot and cardano. “As retail investors begin to realize the dangers of trading bitcoins, especially in unregulated ‘crypto banks,’ they will turn to other currencies that play an essential and pivotal role in decentralized finance,” Alexander said in remarks to the CNBC network. “By the end of 2022, I predict that bitcoin’s market capitalization will be half that of these other currencies,” he added, “or even less.”

The total money deposited in DeFi services exceeded $ 200 billion for this year, and experts project that demand will grow even more in 2022. DeFi is part of a technology trend known as Web3. The Web3 movement wants to develop a decentralized and free internet that includes various types of cryptocurrencies, such as non-fungible tokens. However, he has already encountered skeptics like Elon Musk and Jack Dorsey.

The fall of bitcoin

The rise of the rest of the currencies of the ecosystem, however, will be reflected in falls in bitcoin, according to the experts. “If I were an investor, I would think about exiting bitcoin soon because its price will probably collapse to about $ 10,000 next year,” Alexander said. His reasoning is that it “has no fundamental value” and serves more as a “toy” than an investment, whereas other currencies it competes against do have this kind of utility.

“Without question, the bitcoin price chart looks a lot like other historical bubbles and has a ‘this time is different’ narrative, just like other bubbles in the past,” said Todd Lowenstein, chief equity strategist at the Union Bank’s private banking branch.

Added to this is the risk that the end of stimulus and rate hikes to contain inflation will reduce the available liquidity of many investors and make bitcoin less attractive as a safe haven. “The Goldilocks moment is ending and the liquidity tide is receding, which will disproportionately hit overvalued asset classes and speculative areas of the market, including cryptocurrencies,” Lowestein said.

And more regulation

But if there is one thing that seems very clear, it is that central banks and financial regulators are going to launch a regulatory blow. For Vijay Ayyar, vice president of corporate development and global expansion at the ‘crypto’ Luno exchange, “2022 will be a great year on the regulatory front, without a doubt. The interest of various governments, and especially the US, to regulate this market has never been greater. ” Among other things, he hopes to see a clarification on the “gray territory” in which cryptocurrencies move, and an answer to the million dollar question: are they money, securities or assets?

To this is added an element that is increasingly visible in the market: that of ‘stablecoins’, currencies whose value is tied, on paper, to that of real currencies, mainly the dollar, and that in practice act as monetary funds without regulate or guarantee. “There is undoubtedly increased scrutiny around stablecoins as regulators study the strength of the underlying collaterals they claim to have and the amount of leverage deployed,” Lowenstein said. “People remember all too well when the collateral that swelled the housing and mortgage crises became worthless and the appetite for risk reared aggressively.”

Meanwhile, regulators have also begun to scrutinize the DeFi space. Earlier this month, the Bank for International Settlements, which brings together the world’s central banks, called for regulation of this environment, saying it is concerned that these services will be marketed as “decentralized” when they may not be.