Bitcoin and altcoins have had a record breaking 2021 with Bitcoin reaching a new all time high of $69,000, many meme coins like Dogecoin and Shiba Inu cracking the top 10 list of cryptocurrencies by market cap, and Cardano finally launching smart contracts.
This has led to much speculation that 2021 will follow a similar trajectory with new all time highs, more meme coins, and a general shift to cryptocurrency by the general public. To answer the question, it is our opinion that 2022 will be a very good year for Bitcoin and altcoins. Here are some of our reasons for this opinion.
El Salvador Made Bitcoin Legal Tender
First, El Salvador made Bitcoin legal tender. This is absolutely huge news that most people do not fully understand.
A country has literally made it required for all businesses to accept bitcoin transactions.
More importantly, El Salvador will not be the first country that makes Bitcoin legal tender. Ukraine and Brazil have both floated the idea of making Bitcoin legal tender. Russia has discussed purchasing oil with cryptocurrency like Bitcoin, which would essentially destroy the US Dollar as we know it.
This narrative of countries making Bitcoin legal tender will certainly continue into 2022. Especially in countries, like El Salvador, that use the United States Dollar as their currency.
Starting a new currency is a difficult process while making Bitcoin legal tender is not all that complicated as El Salvador has outlined.
COVID-19 is Back
COVID-19 is back with something called the Omicron variant. We know, what does COVID-19 have to do with Bitcoin and altcoins?
The COVID-19 pandemic and cryptocurrencies are actually closely related. More accurately, the response by the United States federal government to print an absurdly large amount of currency (25% of current supply) to keep the economy stable during shutdowns has led to inflation.
What do people want to buy when inflation rises?
People want to purchase assets when inflation is high. Property, stocks, and gold have historically been the best assets to purchase during times of inflation.
Well, property is good, but it can be expensive for the average person to acquire. Gold has become a sort of joke because the price of it has actually decreased over the past 10 years, which makes it a terrible hedge against inflation.
Cryptocurrencies, especially Bitcoin, have become a popular place for investors to park their money. Bitcoin has beat out every single asset on the planet in terms of return over the past decade.
It’s not even close between Bitcoin and anything else on that time horizon.
Back to COVID-19, the Omicron variant may lead to more shutdowns, a weaker economy, and central banks deciding to print more money. More money means more inflation, and that’s a good thing for assets like Bitcoin and altcoins.
Ethereum 2.0 is set to release sometime around the end of 2021 or early 2022. This will have a massive impact on the usability of decentralized finance applications on Ethereum.
Gas fees on Ethereum currently hover around $200 for Uniswap or OpenSea transactions. Other smart contracts can cost around $100 depending on the complexity of the smart contract.
It’s actually amazing that Ethereum has grown to a market cap of over $500 billion with gas fees that high. Yes, we know that the gas fees are that high because Ethereum is so popular, but it appears that the popularity of Ethereum has only grown despite the high gas fees.
With that in mind, we fully expect that Ethereum will experience massive growth once the gas fees drop to under $1 with Ethereum 2.0. Just think of all the small investors forced to use Binance Smart Chain, Avalanche, Polygon, and so on because of the high gas fees on Ethereum.
A decent chunk of those investors will make the switch to Ethereum. The transition will also bring a lot of new investors to DeFi in general because they don’t trust other blockchains. More users means more money, which means further development of more DeFi protocols.
We have already seen Ethereum go from around $1,300 at the start of the year to nearly $5,000 at the time of writing. Again, this with the highest gas fees that Ethereum has ever had in its history.
The price action on Ethereum will be completely crazy with the release of Ethereum 2.0.
Meme Coins Are Overplayed
Meme coins have become an integral part of cryptocurrency after being regarded as a sort of worthless joke for the past 8 years.
A lot of people have the sentiment that meme coins are completely worthless and have no value. We do not hold that opinion. Meme coins serve as a fun, non-serious way to onboard people to cryptocurrency.
They also draw a huge amount of liquidity, which is a positive because most memecoins are traded against a native cryptocurrency (BNB, ETH, etc.). This drives the price of the native cryptocurrency as people purchase it to pay gas or to swap it to the meme coins.
With that out of the way, meme coins have become very overplayed because so many meme coins have launched after the success of Shiba Inu and Dogecoin. It is similar to the NFT craze – everyone launched an NFT, people got bored of them, and the market crashed.
Don’t worry, meme coins and NFTs aren’t going anywhere in the long term. The worthless ones will stay worthless while the blue chip meme coins (Shiba Inu and Dogecoin) will hold the value.
Again, this is similar to how the NFT market cycle. 99% of NFTs will be worthless bits of code on the blockchain while the blue chip NFTs (Bored Apes and CryptoPunks) will remain valuable and popular for years to come.
To summarize, we do expect meme coins to cool down a decent amount in the early part of 2022. People are sort of tired of all the new meme coins being launched and are craving a legitimate project that solves a problem.
Well, that sums it up for whether or not 2022 will be a good year for Bitcoin and altcoins. 2022, in our opinion, will be an amazing year for Bitcoin, altcoins, and DeFi.
NFTs and meme coins will likely see further pullback as more people become become comfortable with DeFi and abandon the fairly simple NFT and meme coin market.