ViaBTC｜The Falling Crypto Prices in 2022: When Will the Rebound Come?
Without a doubt, the crypto market flourished in 2021. Over the past year, the total market cap of cryptocurrencies exceeded $3 trillion. As the first Bitcoin ETF futures in the United States started trading, Bitcoin has been increasingly adopted as part of mainstream portfolios. Driven by the NFT boom, cryptos have captured public attention, creating strong market excitement. Many crypto big-shots, including Ryan Selkis, founder of the well-known research institute Messari, believed that the BTC price would hit $100,000 by the end of 2021.
But the crypto market has always been hard to predict. Since the beginning of 2022, affected by unfavorable factors such as the news that the Federal Reserve expects to raise interest rates sooner than previously scheduled, as well as the spread of Omikron (a COVID-19 variant), the global financial market has witnessed a universal decline in January, and the panic in the crypto market hasn’t diminished by a bit. In the past week, the BTC price has dropped by over 20%, falling to $36,364 (market quotation) as of January 25. Compared to the peak price of $68,789 in November 2021, the figure has been almost halved, leading to the worst start for cryptos in any year.
However, the fall does not mean that cryptos will enter a prolonged bear market. For example, Bitcoin witnessed a short bear that lasted for three months from April to July 2021, with a fall of 54%. Despite this, it kept soaring afterward and hit a record high in less than six months. That said, what future opportunities could reverse the decline of cryptos?
The Ethereum “merge”: the official transition from PoW to PoS
Last August, Ethereum’s developer team officially launched EIP-1559. By introducing the base fee, the proposal enables the adjustment of the transaction fee according to actual needs, making it one of the most important upgrades since the birth of Ethereum. Going into 2022, Ethereum will go through another major upgrade as it transitions to Ethereum 2.0 — the merge, which will replace the network’s existing proof-of-work (PoW) consensus algorithm with a proof-of-stake (PoS) consensus mechanism.
Having introduced the PoS mechanism of Ethereum 2.0, the Beacon Chain stipulates that one must deposit at least 32 ETH into the deposit contract to become a validator, which means that miners are no longer the key to Ethereum’s network security. At the moment, the total number of validators has exceeded 286,000, and the Ethereum 2.0 Deposit Contract currently contains 9.6 million ETH. As the ETH deposit grows larger, the circulating supply of ETH will go down, and Ethereum will become increasingly deflationary. The ETH price is expected to surge once again sometime this year.
A multi-chain world dominated by multiple players
It seems that the public chain category is still dominated by “one superpower and many great powers”. We can tell that although Ethereum’s TVL remains at the top, its proportion to the total TVL of the crypto space has dropped from 96% in January 2021 to 59% today. As emerging public chains like Terra, Fantom, and Avalanche flourish, they will provide strong support for building an enabling crypto ecosystem. Additionally, the value of tokens native to public chains, including LUNA, FTM, and AVAX, have become extensively recognized, which brought them a drastic price rise.
Starting from last year, the major public chains have been rolling out ecosystem development funds. Last July, Terra announced a $150 million ecosystem fund. The Avalanche Foundation launched a $180 million yield farming incentive program in August 2021. During the same month, Fantom committed a total of 370 million FTM to be distributed to projects with a TVL above $5 million. Such incentive programs can not only push up the TVL and token prices but also attract more developers to deploy their projects on a public chain. As funds pour in, tokens in the public chain category are expected to witness the next “Summer” sometime in the future.
At the moment, the top five public chains by TVL include Ethereum ($117.72 billion), Terra ($16.21 billion), BSC ($12.15 billion), Fantom ($10.96 billion), and Avalanche ($8.34 billion).
Adopting BTC as legal tender becomes a mainstream trend
In June 2021, after a majority vote, El Salvador’s Legislative Assembly passed the Bitcoin Law, making it the first country to officially recognize Bitcoin as a legal tender. Driven by this favorable factor, the BTC price soared on the same day, growing by 12% in 24 hours.
Later on, American countries including Cuba and Paraguay have embraced cryptos like Bitcoin. These countries have two things in common: 1) The domestic financial services are underdeveloped; 2) Most of the residents do not have a bank account. As cryptos become popular in such countries, citizens only need a smartphone to benefit from services that are more efficient than those provided by traditional finance. It is therefore natural for them to adopt cryptos. In the future, the adoption of cryptos as a legal tender may become a normal practice among countries that are less developed.
The total market cap of cryptos seems weak, and there is no denying that the market declined over the recent period. Despite this, a growing number of traditional investors have ventured into the crypto market in 2022, investing in their preferred categories. Moreover, the entire crypto ecosystem has continued to diversify and expand. It is likely that the market could rebound and turn things around in the next stage.