Five Crypto Trends to Watch: From NFTs to Regulation

1. NFTs Go Mainstream

Yes, ‘NFT’ may have been Collins Dictionary’s word of 2021, but it’s likely that non-fungible tokens are only just getting started. From just over $2 million in sales at the start of January, NFTs now account for around $300 million in sales every seven days, with peaks in late August and early September now witnessing over $1.5 billion weekly sales volume.

To put this differently, the NFT market has experienced an extraordinary surge, growing by nearly 15,000% recently. While such exponential relative growth may not be repeated in the near future, the absolute size of the NFT market is expected to continue expanding significantly in the coming period.

Why? Because more mainstream corporations are going to get involved in the sector. In particular, big gaming firms will be diving into non-fungible tokens next year, and in the process they’ll bring a big portion of the wider consuming public with them.

That this is likely to happen was underlined in November, when Electronic Arts — one of the ten biggest game companies in the world — declared that NFTs are “an important part of the future of our industry.” Speaking during an earnings call to investors, CEO Andrew Wilson said that gamers are now looking for titles to offer experiences that extend beyond the games they see directly on their screens.

“They want more digital experiences outside the game — esports, NFTs, broader sports consumption and they want us to move really, really quickly,” he said.

Other big game companies are moving in a similar direction: Ubisoft CEO Yves Guillemot told his own firm’s investors (also in November) that it would be developing games involving blockchain and NFTs; and Take-Two’s chief executive Strauss Zelnick said he’s a “big believer” in NFTs. Meanwhile, former employees from Activision and Lucasfilms launched their own studio focusing on NFT-based games, also in November.

The video game industry is one of the biggest in the world, and with its biggest publishers getting behind non-fungible tokens, it’s highly likely that NFTs will take off in 2022.

2. Bearish and Bullish Markets

Given that the cryptocurrency market is trending sideways at the moment, even with the best efforts of stablecoin issuers, it’s highly likely that the start of next year may be very bearish.

As we’ve explained before, a range of factors have combined to suppress prices, and these will likely extend into the first half of 2022. This includes the growing threat of regulation, renewed fears surrounding the Covid-19 pandemic and Omicron variant, the approach of Mt. Gox rehabilitation payments, underperformance of the sector and relative lack of real-world adoption (for now), and general economic uncertainty (e.g. rising inflation and potentially rising interest rates).

Taken together, these factors suggest that the environment for high-return/high-risk assets such as cryptocurrency may not be favorable for the next few months. As such, don’t be too surprised if the start of 2022 fails to deliver new all-time highs or stunning growth.

However, there are at least one or two things on the horizon that could serve to boost the market from around H2 onwards. In particular, Ethereum’s transition to a proof-of-stake consensus mechanism is likely to be the major event for crypto in 2022. When this happens, its success will inject a substantial dose of confidence into the market, with Ethereum’s shift to Ethereum 2.0 serving as proof that cryptocurrency industry has real long-term viability. In turn, it could function as the catalyst that gets the market moving again.

3. Web 3.0 and Metaverses Become A Reality

Facebook’s rebranding to Meta marked a significant moment in the tech sector, creating substantial ripple effects across the crypto landscape. While several established blockchain-based’metaverse’ platforms have already experienced growth in the wake of this shift, a wave of new metaverses is emerging, bringing both opportunities and challenges.

While many of these will come from pre-existing mainstream tech/media companies (such as Epic, Microsoft, Tencent, Roblox, Nvidia, Nike, and Disney), a big portion of them are likely to incorporate NFTs and potentially other kinds of cryptocurrencies. This will be a big boon for crypto, in terms of increasing general public awareness and also increasing the value of any related platforms (or coins).

A related concept known as Web 3.0 is poised to take center stage, representing a more interactive and user-centric evolution of the Internet. This new phase emphasizes greater user involvement and ownership, potentially leveraging cryptocurrencies and decentralized autonomous organizations (DAOs) to democratize control over websites and digital assets.

As a result, networks set up for Web 3.0—Internet Computer, Livepeer, the Graph, Arweave, BitTorrent, Filecoin, and Theta—will likely experience a surge of interest in 2022 as they expand and grow.

4. Central Bank Digital Currencies Receive Full Launches

The discussion around central bank digital currencies has been dominated by pilot programs rather than full-scale implementations. However, this trend is set to shift, as several central banks—alongside private banks and companies—are preparing to introduce their own digital currencies on a more permanent and widespread basis.

Most notably, the end of November saw the Indian government introduce a bill that would create the framework through which the Reserve Bank of India could launch its own CBDC. While previous reporting had suggested that the central bank would trial a CBDC in 2022, official discussion of the bill indicates that it has more than pilots in mind.

“The government’s approach to crypto may be careful, measured, and evolving; we will start with a CBDC. (The central bank) will launch that, and in the future there may be RBI-authorized and regulated private stable coins,” said an unnamed government official speaking with Economic Times.

Likewise, China’s CBDC has been trialled among nearly 140 million people for several months now, with experts suggesting that it will be the first to receive a full launch.

And if major economies such as China and India do launch their own CBDCs, it can only be a matter of time before other central banks follow. However, from the perspective of cryptocurrency investors, this may not (initially at least) be a good thing. Because as the example of both India and China make clear, promotion of CBDCs may come with repression of open cryptocurrencies such as Bitcoin.

5. Layer-Two Ethereum Protocols Gain Further Traction

While many may assume that the arrival of Ethereum 2.0 will make layer-two scaling solutions for Ethereum largely redundant, we’re likely to find in 2022 that the opposite will be the case.

To begin with, Ethereum 2.0 won’t be with us until spring 2022 at the earliest. This means layer-two protocols such as Polygon (MATIC) and Loopring (LRC) will continue growing in the meantime, particularly as average transaction fees on Ethereum continue to rise inexorably.

At the same time, the transition from Ethereum to Ethereum 2.0 will be gradual, even after the initial merge with Ethereum 2.0’s beacon chain. As such, Ethereum 2.0 will not reach its full scalability and capacity for quite some time, with the implementation of shard chains needing to follow the merge (which is penciled in for some time in Q1/Q2 2022).

On top of this, we all know that advanced technology has in many cases resulted in people working more rather than less. The same principle could end up applying to Ethereum 2.0: its steadily increasing capacities could attract more demand, which in turn could continue to outstrip the network’s capabilities. As such, layer-two scaling solutions may continue to be needed for some time to come.