VanEck Year-end Inventory: Five Highlights and Five Trends Forecast of the Crypto Market

2021 is a milestone year for cryptocurrency adoption and breakthroughs, and we expect this momentum to continue until 2022. Here, we take a look at the five major events in the cryptocurrency field in 2021 and share our predictions on the trends that may occur in 2022.

Highlights of the crypto market in 2021: disruption and the rise of promoters in the crypto sector

1. Fintech companies and traditional payment providers embrace blockchain and at the same time begin to adopt encryption solutions.

It is generally believed that the financial service industry is one of the main targets of blockchain technology. We believe that blockchain technology is deflationary in nature because it provides higher efficiency and transparency for the entire system, which greatly reduces transaction costs. In 2018, Square established itself as an early adopter of cryptocurrency by allowing users to buy and sell Bitcoin on the app. In 2021, PayPal, Venmo, Mastercard and even Twitter will begin to allow customers to use Bitcoin for transactions. As the Mexican crypto remittance company Bitso said, providing remittance solutions at low prices can immediately grab more market share than existing financial companies such as Western Union.

2. The use of blockchain transactions and the adoption of smart contracts have exploded, and the transaction volume on the Ethereum network has reached 3.5 trillion US dollars.

A variety of encryption applications have sprouted on the fertile ground of Ethereum, from NFTs to smart contracts. In 2021, under the background of widespread proliferation and adoption of Ethereum-based projects (such as NFT), Ethereum network transactions have seen a large-scale growth. Looking ahead, as the number of participants and network use cases continue to grow, we expect smart contract networks such as Ethereum and Solana to see significant development.

VanEck Year-end Inventory: Five Highlights and Five Trends Forecast of the Crypto Market

The total transaction value of the Ethereum network has explosive growth in 2021

3. Bitcoin begins to unleash its full potential as a fiat currency disruptor, especially for emerging market countries

Since Bitcoin was launched in 2009, many Bitcoin extremists have tended to believe that Bitcoin is a safe haven that can protect investors from the negative effects of monetary and fiscal policies implemented by developed countries and emerging markets. Because Bitcoin is decentralized and has a fixed supply, it will not face inflationary pressures that affect global fiat currencies. From a geopolitical point of view, Bitcoin may provide a viable currency alternative to emerging market countries, rather than relying solely on IMF/World Bank loans, which sometimes even exacerbate rather than solve the problem.

In September 2021, El Salvador officially recognized Bitcoin as legal tender, and it was the first country to do so.

4. China’s crypto ban makes global mining market share flow to U.S. miners

Since the launch of the digital currency in 2009, the relationship between China and Bitcoin has always been “a love-hate relationship.” On the one hand, Chinese miners control most of the world’s computing power, and they are also one of the main producers of ASIC chips for Bitcoin mining. On the other hand, the Chinese government threatened to ban the mining and trading of Bitcoin, and escalating restrictions on cryptocurrencies, eventually completely banning the trading, mining and exchange of cryptocurrencies. Although the long-term impact remains to be seen, the short-term impact is obvious. Cryptocurrency miners fled the country, and the global mining market share immediately began to flow to miners in the United States and other regions. With the withdrawal of Chinese exchanges and the mining industry, the United States and other miners face less competition and have more opportunities to increase their share of global computing power.

5. The IPO of crypto companies highlights the large-scale growth of the digital asset business, and the market value of crypto pioneer companies is approaching traditional market companies

2021 is a huge year for companies listed in the cryptocurrency field. Coinbase made history as the largest crypto company in history. Its valuation was twice that of Nasdaq at the time of listing, almost the same size as the Intercontinental Exchange (ICE), the parent company of the New York Stock Exchange. In addition to Coinbase, some mining companies and other cryptocurrency promoters have also gone public, including Coinshares, Bakkt, and Stronghold Digital Mining.

As a group, supported by the wave of IPOs and excellent stock price performance, the market valuation of crypto pioneer companies represented by the MVIS Global Digital Asset Stock Index will increase significantly in 2021. These pioneering crypto companies are now approaching the market valuations of the competitors that have been finalized in their hearts-gold mining companies!

VanEck Year-end Inventory: Five Highlights and Five Trends Forecast of the Crypto Market

Crypto pioneer company valuation is approaching gold mining company valuation

Cryptocurrency predictions in 2022: more IPOs, more use cases, and wider adoption

1. In 2022, even more cryptocurrency-intensive companies will be listed

We believe that the number of crypto companies preparing to go public is still huge, and the trend of newly listed companies in 2021 will continue in 2022. And the scope of business that crypto companies can participate in is very wide-from exchanges to digital asset miners to payment companies. As the cryptocurrency market continues to grow and develop, we expect that the market will grow as new companies go public, and will also change as companies win and lose market share.

VanEck Year-end Inventory: Five Highlights and Five Trends Forecast of the Crypto Market

The picture above shows the possible areas of 7 major encrypted listed companies, including payment nodes (credit cards, digital payments, etc.), hardware (mining-related hardware manufacturers), digital mining, exchanges, and participation in the holding/trading of encrypted currencies (such as Microstrategy). ), software services (digital infrastructure related to encryption), banking & asset management.

2. NFT (non-fungible token) went out of the circle and entered the mainstream culture. Millions of users flooded into the market. The next major use cases will be sports ticketing, loyalty points, and e-sports.

NFT will be reborn in 2021, but we believe that better things are yet to come. In our opinion, there are two things that hinder the wider adoption of NFT. The first is that the user interface (UI) of the NFT platform needs to become easier for non-encrypted native users to participate. NBA’s TopShot is a good example of the NFT project, which makes it easy for non-encrypted native users to purchase NFT. The second stumbling block preventing its widespread adoption is the current narrow NFT use case. Although there are already some applications in the market, we believe that sports ticketing, loyalty points and e-sports will become the next important areas of NFT’s success. The smart contract system provided by the NFT platform will attract people to participate. Once it can provide more functions, such as VIP lottery, it will greatly increase the participation and enthusiasm of fans.

3. Ethereum will undergo a major network upgrade to get rid of the energy-intensive proof-of-work mechanism and significantly increase network capacity.

Both Bitcoin and Ethereum use the “Proof of Work” (PoW) mechanism to verify the information recorded on the blockchain and prevent malicious attacks. In 2022, Ethereum plans to shift from “Proof of Work” to “Proof of Stake” (PoS), which will greatly change the pattern of Ethereum-centric miners. Instead of spending energy on solving computationally intensive problems (PoW), proof of stake will provide better energy efficiency, increase network capacity, lower barriers to entry, and provide stronger centralization immunity for the Ethereum blockchain. One of the main disadvantages of the proposed upgrade is that Ethereum hardware mining will no longer exist, which means that miners focused on Ethereum will find another way out.

4. Bitcoin continues to mature in terms of broader institutional ownership and adoption, as another emerging market country may declare Bitcoin as legal tender (El Salvador 2.0)

As the broader digital asset market grows, we expect more companies will add Bitcoin to their balance sheet assets and expand mining operations to increase potential sources of income. As El Salvador has demonstrated, certain emerging market countries may also find Bitcoin useful as a currency tool, which is also a potential solution to avoid relying solely on IMF/World Bank debt assistance.

5. ESG investors finally discovered that Bitcoin is an accelerator for the adoption of green energy and financial inclusion (ESG: Environment, Social Responsibility and Corporate Governance (Environment, Social responsibility, Corporate Governance))

Unfortunately, the concerns of misguided and unknowing ESG investors continue to plague the cryptocurrency industry, especially concerns surrounding the energy use required to mine Bitcoin. Although the debate continues, we believe that cryptocurrency miners will continue to play a prominent role in the adoption of green energy and financial inclusion. Riot Blockchain, the leading Bitcoin miner in the United States, has always been an advocate and supporter of the Bitcoin mining industry. It is a force for good in the dialogue surrounding sustainable energy use. Stronghold Digital Mining, which went public in the fourth quarter of 2021, is another Bitcoin mining company focused on ESG. It uses coal mining waste (a by-product of coal mining) to generate electricity for mining Bitcoin. We expect that mining companies that focus on sustainable development will continue to expand their market share.

Original Author: VanEck Product Manager John Patrick Lee

Original source: VanEck

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