On a year-to-date basis, the cumulative crypto market capitalisation has surged 2.75 times or 175.6%, from $776 billion as of January 1st to $2.1 trillion as of December 20th, 2021. The market cap attained an all-time high on November 10th at $2.9 trillion; the same day, Bitcoin hit a record price above $68,000. Although several cryptocurrencies have recorded an inflow of capital, Bitcoin remains the dormant player accounting for almost half at $870 billion.
Drivers for crypto market growth in 2021
At the center of the growth is the increased demand for cryptocurrencies by retail and institutional investors who contributed to various digital currencies hitting the mainstream. Notably, the entry of institutions is partly contributing to the sector’s maturity, with investors aiming to profit from the multiple rallies. Additionally, in 2021, various digital assets were increasingly deployed as a payment medium by merchants from different sectors. At the same time, El Salvador declared Bitcoin a legal tender, with other countries poised to follow the same course. Overall, cryptocurrencies have emerged as alternative options in countries with unstable economic structures, partly driving the sector’s growth. Cryptocurrencies have also benefited from the launch of new related investment products, with the Bitcoin-linked futures ETF approval in the United States emerging as the main highlight. Such products made it easier for investors to get involved in the crypto space. Interestingly, the last BTC all-time high is partly linked to the Bitcoin ETF. At the same time, meme cryptocurrencies have been integral to the growth driving significant interest from investors seeking benefit from short-term rallies. Notably, meme cryptocurrencies like Dogecoin and Shiba Inu have emerged to compete with established assets.
The threat of regulatory uncertainty
Despite several factors driving growth, the market has also undergone turbulence, mainly from regulatory uncertainty. Jurisdictions like China have constantly moved to eradicate the sector and consequently impacted the price and market cap. As per our previous report, at some point, the market wiped out close to $100 billion in minutes after China’s central bank banned foreign exchanges from providing their services through the internet in mainland China. Based on the significant capital inflow in the market, it appears cryptocurrencies might be growing immune to frequent regulatory crackdowns, an aspect backed by Bloomberg Intelligence chief commodity strategist Mike McGlone.
Bitcoin projections for 2022
According to McGlone, the cryptocurrency sector is maturing, and assets like Bitcoin are showing their revolutionary value to resist the crackdown. He has since projected that Bitcoin will hit a new all-time high of $100,000 in 2022. The same bullish stand on the crypto market for 2022 is also shared by Alex Mashinsky, CEO of cryptocurrency lending platform Celsius Network. Mashinsky has maintained that Bitcoin might trade around $140,000 before April 15th, 2022, backed by increased adoption. By press time, the asset was trading at $46,100 having dropped almost 2% in the last 24 hours. The sustainability shown by the cryptocurrency sector is likely to be replicated next year, backed by various industry activities like the expected enactment of standard regulations by various jurisdictions, with the U.S. projected to join the list of countries. Already, other countries have rolled out legislation expected to take effect from next year. For example, a new South Korean cryptocurrency tax scheme that targets overseas digital assets holdings will take effect in 2022. Under the law, residents with foreign crypto exchange accounts may be compelled to report the holdings for balances exceeding $447,900 (500 million won). However, the market might experience some level of turbulence if jurisdictions enact harsh regulations.
