Persistent inflation, tighter monetary policy, or a reversal to lower inflation leading central banks to keep rates low are all scenarios that could play out and have an impact on crypto markets in 2022, crypto market data provider CryptoCompare said in a new report.
According to the report, which went into details on CryptoCompare’s view on the last year and outlook for 2022, the most likely macroeconomic scenario is that inflation will persist into 2022, making it likely that crypto will outperform other asset classes. This could happen “as Bitcoin assumes its position as an anti-inflationary store of value,” the report said.
However, the authors of the report also noted that a different and more bearish scenario could playout for the sector. In this scenario, continued inflation could force central banks to raise interest rates, which could lead to outflows from crypto and into “more defensive investment classes.” This is also true for the stock market, which bitcoin is likely to follow as it becomes “more institutionalized,” the report said.
Next, CryptoCompare said the least likely scenario, which still remains a possibility, is that crypto decouples from traditional financial markets due to factor specific to the nascent space. This could be driven by things like extensive innovation and a growing ecosystem that has the potential to impact cryptoasset prices regardless of the macroeconomic backdrop.
Further, in its outlook report for 2022, they touched on the currently hot discussion of where we currently stand in the crypto market cycle, with many market participants arguing that the bull market is not over since no “blow-off top” has been seen yet.
The report noted that the camp that believes in the 4-year cycles – which roughly fall in line with bitcoin’s halving cycle – is correct that the classic “blow-off top” has yet to be seen. However, it also pointed to others who argue that the cycle theory is wrong, and that past cycles are merely coincidences. Based on this, “it may be the case that crypto is currently in a bear market after the aforementioned fall in November and December,” the report said.
Meanwhile, the report predicted that the decentralized finance (DeFi) ecosystem will become more institutionalized in the new year, just as traditional cryptoassets have seen increased adoption by institutions in 2020 and 2021, as illustrated by veteran investors like Paul Tudor Jones entering bitcoin.
“We expect this trend to accelerate in the coming years. There are many optimists out there in this regard, most famously the CEO of Ark Invest, Cathie Wood, who in October stated that ‘the move by institutions into Bitcoin…could add USD 500,000 to Bitcoin’s price if they moved into the tune of roughly 5% [of their portfolio] over time’,” the report said.
Lastly, CryptoCompare pointed to retail adoption of crypto in emerging countries as a key factor driving the asset class forward.
It said it expects emerging markets in Latin America, Asia, and Africa to see an even faster rate of crypto adoption in 2022, citing “dire economic challenges” and high inflation in many developing countries.