Welcome to Kitco News’ 2022 outlook series. The new year will be filled with uncertainty as the Federal Reserve looks to pivot and tighten its monetary policies. At the same time, the inflation threat continues to grow, which means real rates will remain in low to negative territory. Stay tuned to Kitco News to learn from the experts on how to navigate turbulent financial markets in 2022.
(Kitco News) The unprecedented record gains seen in crypto in 2021 will be followed by another bullish year, according to analysts. A new wave of money that is still sitting on the sidelines will pour into the space as regulation around crypto is clarified.
Bitcoin, the world’s largest cryptocurrency, hit many milestones in 2021: new record highs, wider adoption, El Salvador accepting it as legal tender, bitcoin’s first ETF, and the “Taproot update,” which expanded the number of transactions that could fit into a bitcoin block.
From a trading perspective, crypto’s overall market cap breached the $3 trillion mark this year as bitcoin reached new record highs of $69,000, and ethereum, the world’s second-largest cryptocurrency, rose to a new all-time high of $4,878 in November.
Even the U.S. Securities and Exchange Commission Chair Gary Gensler and Federal Reserve Chair Jerome Powell publicly stated that they wouldn’t ban cryptocurrency in the U.S.
Another major bitcoin milestone was that 90% of all bitcoins have already been mined as of December 13th. This is according to data from Blockchain.com. This means that 18.89 million bitcoins out of 21 million are now in the market.
It took just over a decade to get here. But to mine the last 10% will take another 120 years due to bitcoin’s estimated halving schedules.
“That’s the constant deflationary pressure of bitcoin that makes it such a good store of value and hedge against inflation. Not only are there only 21 million coins, but every four years, the difficulty to mine those coins doubles, meaning half as many new bitcoins will be mined in that time,” said Scott Melker, crypto trader and the host of The Wolf Of All Streets podcast. “Increasing demand and decreasing supply is one of the primary fundamentals behind most of bitcoin’s bullish outlooks.”
In 2010, bitcoin traded at $0.10. At the end of 2012, it rose to $7.50. In 2013, it rose above $1,000. In 2017, it advanced to nearly $20,000. And in 2021, it climbed to $69,000.
Bitcoin’s price forecasts
After hitting record highs in November, bitcoin went into a consolidation phase and dropped below $50,000. At the time of writing, the cryptocurrency was trading at $48,263, up 65% year-to-date.
“Consolidation was inevitable after such a bull run. Bitcoin is tied to some of the larger markets and what’s going on with the Federal Reserve. But we are seeing continued support at the current levels,” said Shone Anstey, CEO and co-founder of LQwD.
Looking into 2022, many analysts have identified $100,000 as the next target for bitcoin. And wider adoption is listed as of the main drivers that will get the cryptocurrency there.
Bitcoin’s current support level is $40,000, and its initial resistance is $70,000, said Bloomberg Intelligence senior commodity strategist Mike McGlone.
“Incentivized by China’s ban and the proliferation of revolutionary technologies such as crypto dollars and non-fungible tokens (NFTs), we expect the U.S. to embrace cryptocurrencies in 2022, with proper regulation and related bullish price implications,” said Bloomberg Intelligence senior commodity strategist Mike McGlone.
Money managers will face a greater risk if they don’t have an allocation to crypto in 2022, McGlone added. “Past performance is no indicator of future results, but when a new asset class outperforms incumbents, naysayers have little choice but to join in. Money managers may face greater risks if they continue to have no portfolio allocations to cryptos,” he stated.
Melker would not be surprised to see bitcoin over the $100,000-$120,000 level next year. “This is my conservative estimate for the next bull run. I can’t put a time on it, but I think bitcoin goes to $235,000, and ethereum will probably surpass $20k-$25k in the coming two years,” he said.
Bitcoin’s outlook for 2022 is $100k+, said Shone Anstey, CEO and co-founder of LQwD, with the next breakout happening in the first quarter of next year. “An important driver next year will be an approval of a spot bitcoin price ETF. There could be several approved at the same time. And we’ll have more capital driving into that market,” Anstey said. “In the short-term, strong support is at $42,000.”
This is the trigger to watch
More regulation in the space is inevitable next year, according to analysts. New laws and some clarity from the SEC is a good thing for the crypto space.
Many big institutional players, including the pension funds, have been waiting for regulatory clarity before getting involved with crypto, said Melker.
“A lot of people view regulation as a major threat to the space. But sensible regulation could be the next catalyst for a big move up. Clarity from regulators would give this huge wall of money — institutions, sovereign wealth and pension funds — the confidence to come into the space,” Melker said. “Next year will be an amplified continuation of what we saw in 2021. We’re just at the tip of the iceberg for both mainstream and institutional adoption.”
Regulation will drive the next inflection point in the digital assets space, said Bank of America global crypto and digital asset strategist Alkesh Shah.
“Regulation could drive the next inflection point to broader digital asset adoption from institutions, retail and banks,” Shah said. “Many institutions are waiting for the rules of the road to be set before adding exposure to digital assets. A regulatory framework should incentivize payments companies to integrate blockchain technology and stablecoins into their platforms to make purchases and money transfers faster and cheaper, increasing the use of stablecoins by retail users.”
Bitcoin’s value could be $500k higher?
Ark Investment Management founder and CEO Cathie Wood estimated that new institutional and hedge-fund allocation into bitcoin could add $500,000 to bitcoin’s value over time.
“Institutions are moving in. To some extent, this is a new asset class with correlation very different compared to other asset classes,” Wood told CNBC in December. “That’s the key to diversification, and it’s the holy grail in terms of asset allocation. The move actually by institutions into bitcoin, if we were to choose bitcoin and that seems to be their first stop, could add $500,000 to bitcoin’s price if they move into roughly 5% over time.”
Bitcoin and a more aggressive Fed
The Fed’s more aggressive tightening schedule for next year will keep bitcoin supported. During Wednesday’s December announcement, the central bank accelerated tapering to $30 billion a month while pricing in three rate hikes next year.
“Renewed impetus from the Federal Reserve to take away the punch bowl and declining bond yields may point to a macroeconomic environment in 2022 that favors top cryptocurrencies bitcoin and wthereum. Crypto assets showing divergent strength vs. equities near the end of 2021 may portend continued digital-asset outperformance in 2022,” McGlone said.
On top of reaching the 90% bitcoins mined mark, bitcoin has completely recovered from China’s crypto mining ban, which saw more than half the world’s miners go offline.
“When China banned mining, it was viewed by the mainstream as a massively bearish event, but anyone who had been in bitcoin for a long time always feared centralization in China,” Melker said.
A move away from crypto mining being centralized in China continues to be a major bullish price driver in the long term. “China had the opportunity to centralize bitcoin mining power and control the network, which was arguably the biggest threat to bitcoin that existed. Bitcoin hash rate has now fully returned. And the implication of mining moving from China to other countries, in particular the United States, is a much more energy-friendly policy focused on renewables,” Melker added.
Ethereum to outperform bitcoin in 2022
One major trend this year has been ethereum outperforming bitcoin. At the time of writing, ethereum was trading at $4,029, up 447% year-to-date. This price relationship is expected to continue in 2022.
Melker sees ethereum reaching over $10,000 next year and then rising towards $25,000 in 2023. “If you’re a technical analyst, it just seemed that the ethereum versus bitcoin pair was extremely bottomed out and showed plenty of signs throughout this run that it would continue to outperform,” he explained. “But from a fundamental perspective, we’ve seen institutional interests, ETF products, trust products being offered for ethereum at a pretty dramatic rate.”
Plus, the London hard fork has made ethereum a deflationary asset, aligning it closer to bitcoin, meaning there have been days and weeks where more ethereum was burned and destroyed than was mine, Melker added.
This year, ethereum showed how useful it is when it comes to the digital universe, including the non-fungible tokens (NFTs), said McGlone. Ethereum’s current support is at $4,000, and this level could act as the key pivot for 2022.
“Ethereum appears to be in the early days of becoming the collateral of the internet and is the epicenter of building the platform for DeFi, fintech and NFTs,” McGlone noted. “Most NFTs are denominated in Ethereum, which means an expanding ecosystem represents demand for ETH.”
Crypto space in general
Other trends analysts are excited about in the new year include smart contracts, DeFi, metaverse, NFTs, and cryptos, such as Solana and Avalanche.
“I like to be exposed to a basket of assets of each major sort of genre of crypto. You have bitcoin and at the top. Then you have competitive layer 1s to ethereum — Solanos, Elrond, Harmony. It’s important to have exposure to the major layer 1 that are finding their own major use case, where ethereum is falling short,” Melker noted. “From there, you also have layer 2, like Polygon. After that, I would say it’s important to have exposure to metaverse and gaming, especially now that Facebook has made the commitment to rebranding as Meta and going all-in on the metaverse.”
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