5 crypto trends to watch in 2022

Macroeconomic conditions are shifting rapidly in the U.S., putting still relatively new assets like Bitcoin and Ether in uncharted territory. Washington, D.C., is ratcheting up talk of crypto regulations. And companies across Wall Street and corporate America are more open than ever before to dipping their toes into the digital asset waters.

“The exciting part of 2022 is that crypto is no longer at this point in time where it will have a single narrative,” says Mason Nystrom, a senior research analyst at crypto data company Messari.

Here’s a look at just a handful of the major questions swirling around the cryptoverse that are worth watching as the new year unfolds.

Volatility

Perhaps the most immediate story line already breaking through in 2022 is the volatility seen in crypto prices.

Granted, crypto assets like Bitcoin, Ether, and others are inherently prone to wild swings. But, in just a few short weeks, Bitcoin has already gone on quite a ride this year. After starting 2022 north of $46,000, the world’s largest crypto went on a 14% tumble over the next 10 days that led it below $40,000. Bitcoin has since posted a gradual comeback that has led it back above $43,000, for now.

Its gyrations are not the only ones, either. Altcoins including Ether, Solana, and Polkadot, as well as meme tokens like Dogecoin, have all seen dramatic bouts of volatility in their prices in recent weeks—as has everything from technology stocks to the share prices of newly public companies.

While pinning down the exact reasons behind such moves can be futile, the volatility has hit right as the Federal Reserve prepares to hike interest rates with inflation showing few signs of abating otherwise. And multiple rate hikes appear likely, which has historically spelled bad news for riskier assets.

How crypto behaves as a result is an unanswerable question at this point.

So far, Bitcoin has reacted to news of high inflation and the Fed’s resulting plans more like a tech stock than the digital gold that its adherents see it as. But investors and traders have little experience dealing with Bitcoin—as well as the broader crypto markets—while interest rates are high. Throughout the span of Bitcoin’s life, which dates back to its 2009 launch, the Fed has maintained a remarkably accommodative approach. All of which makes 2022 a potentially monumental year for determining what role crypto will play in investors’ portfolios going forward.

Institutional adoption

It’s a question that has loomed over the crypto markets effectively since their creation: When will Big Business buy in, if ever?

Well, it seems that time has come. 

Following previous spurts of intrigue that have followed the market’s biggest run-ups, the conversation across corporate America about whether to deal in the cryptoverse has taken on new life heading into 2022. For some, it’s still something to only toy with on the side through things like NFTs. Others, though, see the world of crypto as ripe for further exploration.

Take Walmart, for instance. The retail giant is moving to create its own crypto and collection of NFTs, Bloomberg News reported, citing paperwork filed with the U.S. Patent and Trademark Office. 

BTCS, meanwhile, recently moved to become the first Nasdaq-listed company to issue what it’s calling a Bividend, which is, as the name implies, a dividend payable in Bitcoin to shareholders. And others like Jack Dorsey’s Block, Elon Musk’s Tesla, and Michael Saylor’s MicroStrategy have taken crypto to the heart of their operations, adding Bitcoin onto their balance sheets. Unicorn financial technology company Ramp even allocated 5% of its balance sheet to stablecoins.

“Word is getting around,” Alex Song, Ramp’s head of finance, recently told Fortune. “There are more folks trying to learn more about this.”

VC money

Venture capitalists flooded crypto- and blockchain-related companies and projects with more cash in 2021 than any other year on record, combined, according to Galaxy Digital Research. 

They don’t seem to be slowing down.

Already in the few short weeks of 2022, there have been several instances of high-profile crypto (and crypto-adjacent) companies announcing massive fundraising. 

NFT market OpenSea, for one, raised $300 million in a Series C that was announced Jan. 4, putting its valuation at $13.3 billion. Lukka, a crypto data company, recently raised a $110 million Series E that values it at $1.3 billion. Even the $1.15 billion investment recently made in Citadel Securities has a crypto tilt, with digital assets–focused Paradigm involved as well as Sequoia.

There’s plenty of venture money to go around, too, thanks to the introduction of several new players. Former Andreessen Horowitz general partner Kathryn Haun is looking to raise at least $900 million for two crypto funds at her new firm, according to the Financial Times. And crypto exchange FTX recently launched its own venture division, FTX Ventures, which has $2 billion in assets to deploy and is being led by former Lightspeed Venture partner Amy Wu. 

Ethereum’s evolution

With Bitcoin having the same carbon footprint as the country of Kuwait, crypto’s environmental footprint has long been a point of concern for everyone from lawmakers to advocacy groups to chief executives. 

Now, the network behind the second largest crypto, Ethereum, is hoping to pivot to becoming Ethereum 2.0, or Eth2. 

In 2022, after years of anticipation, the Ethereum blockchain is gearing up to move to what’s known as a proof-of-stake model. It’s a shift that Ethereum’s followers say will make it more scalable and secure, as well as more environmentally friendly than the current proof-of-work, PoW, system it relies on just as Bitcoin does. The environmental concern around PoW is that the so-called miners expend massive amounts of energy to perform mathematical computations and, as a result, create new Bitcoin or Ether. Proof of stake, on the other hand, is built on the premise of a handful of individuals or groups staking the platform’s native currency (Ether, in this case) to validate transactions. 

The Ethereum Foundation has estimated that the network’s energy use will be cut by up to 99.95% as a result. 

But the “merge” that will finally move Ethereum off proof of work has been delayed before, prompting the question of how the final stretch will go from here. Currently, the Ethereum Foundation estimates this transition will take place in the second quarter. 

Crypto regulation

The nation’s capital is keeping a closer eye on the world of digital assets than ever before.

Following a year where consumers could not stop dabbling in crypto—whatever form that might take—lawmakers and financial regulators in Washington, D.C., seem primed to finally enact some form of guardrails around the crypto markets in 2022, considering the wealth of speeches, statements, warnings, and hearings being held on it.

Or at least from the outside they do. In reality, crypto is only one part—and a small one at that—of a whole slate of to-do items for President Joe Biden’s financial regulators. And that includes the Securities and Exchange Commission, whose leader, chairman Gary Gensler, has come to occupy more headspace among crypto followers than any other government official since equating the digital assets market to the “Wild West.”

While Gensler has asked Congress for more resources to explore the crypto markets with a deeper lens, as well as for clarity about the SEC’s role in doing so, the Wall Street watchdog is unlikely to enact a comprehensive regulatory regime around crypto, as many in the industry had hoped it would, says Isaac Boltansky, director of policy research at BTIG.

“Of course the SEC cares deeply about the digital assets sphere. But they also care about a myriad of other issues,” Boltansky says, adding that the SEC’s agenda under Gensler is “longer than a Leonard Cohen song. While I think that Gensler would like to be incredibly active in the digital assets sphere, I think we have to recognize that the SEC has a broad mandate and there are other areas of its jurisdiction where Gensler has a far clearer avenue” to pursue new rules.

The SEC, instead, is likely to maintain the approach it has taken so far by looking for instances of securities offerings masquerading as something else in the crypto ecosystem, Boltansky says. And for those that aren’t, Gensler has made it clear that the SEC is not going to let it slide. “If you are offering securities, we’re going to tell you,” Gensler told Fortune in 2021. “We’re not going to say that you’re okay just telling us about it. No, you’ve got to come within the investor laws that we have in this country.”

Granted, the SEC is not the only cop in town. The head of just about every banking and markets watchdog made it clear in 2021 that they believe their agency has a stake in overseeing the construction of a regulatory regime for crypto. “Crypto [has] a panoply of regulators,” says David Easthope, a senior analyst at Coalition Greenwich.

Lawmakers have looked to wade into the conversation as well, with members of Congress having introduced a wide range of crypto-related bills over the past year. But Boltansky is doubtful that lawmakers can do so in a way that appeals to both sides of the aisle, or at least enough to get passed. “Congress struggles to keep the lights on,” the BTIG managing director tells Fortune. “There is positively no reason whatsoever to expect this Congress to advance meaningful digital asset legislation.”

The caveat, Boltansky says, is some “external forcing mechanism.” Then D.C. is likely to push crypto right to the top of the agenda.