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Crypto Adoption in 2022: What to Expect?

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  • More institutions are expected to adopt BTC as an investment vehicle and inflation hedge.
  • Future adoption of bitcoin as legal tender depends quite heavily on El Salvador.
  • Many governments may move more towards CBDCs in 2022.
  • The use of crypto for payments is expected to gain further momentum in 2022.

The crypto market is having a strong end to 2021, with various cryptoassets — including bitcoin (BTC) — hitting new all-time highs. The question is: will we continue seeing increasing adoption of cryptocurrencies among investors, institutions, and even governments next year?

For most analysts and observers, 2022 will indeed be yet another year of increasing adoption of cryptocurrency, both in terms of its potential as an investment vehicle and inflation hedge, and also in terms of its utility for payments. 

Of course, 2022 will not all be plain sailing for cryptocurrency when it comes to adoption, with governmental rejection of crypto remaining just as (if not more) likely in some nations as adoption. That said, with the market showing renewed signs of bullishness as we write this, it’s likely that the overall trend will be towards more adoption rather than less.

2021: How accurate were predictions last year?

Back in 2020, industry players predicted that bitcoin would see increasing investment interest from institutions in particular. This is indeed what happened, with the current bull market being largely driven by institutional investors.

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They predicted the growth in Ethereum (ETH) and decentralized finance (DeFi), with the latter (in terms of total value locked in) growing, per DefiLlama data, from around USD 21bn at the start of the year to USD 241bn, as of writing. Likewise, Ethereum accounts for 67% of this value, indicating just how pivotal it has become.

One other thing the commenters predicted in our previous year’s ‘adoption trends’ article was the growth in interoperability platforms and protocols, something which would allow chains to pool resources and value. This was particularly true with regards to the launch of the various cross-chain bridges we saw during this year, such as WormholeAvalanche Bridge, and Harmony

Expect more institutions to come

Given that a new bull market driven by institutions appears to be emerging, it may come as no surprise to learn that analysts are predicting even more institutional adoption of BTC and other cryptocurrencies in 2022. In part, this should be driven by growing inflationary fears, as well as by the increasing normalization of crypto, something helped by new exchange-traded funds (ETFs).

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“After the successful launch of [the ProShares] BITO ETF, regulators in the US and elsewhere will be less resistant to more bitcoin and other crypto ETFs. As a result, I expect we’ll see increased institutional adoption of bitcoin and crypto as an investment vehicle going forward,” said Fawad Razaqzada, an analyst at ThinkMarkets.

For OKEx’s director Lennix Lai, the approval of ETFs really does open the door to significantly increased institutional adoption of cryptocurrencies in 2022.

“We definitely believe with the launch of the Bitcoin ETF, it will attract higher adoption across the spectrum. Reason being more traditional retirement plans, pension funds, brokerage accounts will not accept crypto investments, which is where the bitcoin ETF comes into place,” he told Cryptonews.com.

Other analysts largely agree with this overview, even if they note that it’s dependent on various factors. Simon Peters, an analyst with eToro, notes that institutional investors have accounted for increasing inflows into bitcoin for several weeks now, and that this trend will likely continue as more institutions come to adopt BTC as an investment vehicle and inflation hedge.

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Bitcoin saw inflows totaling USD 95m last week, representing the largest inflows of all digital assets, per CoinShares data. While the inflows slowed down last week, in this 8-week bull-run they now total USD 2.8bn with year-to-date inflows now at a record USD 6.4bn.

Peters adds that the likelihood of increased institutional involvement with bitcoin will rise if the US Securities and Exchange Commission (SEC) approves a spot ETF (i.e. one where the fund actually holds BTC).

“Investors (both institutional and retail) who have been interested in bitcoin and cryptoassets more broadly, but are reluctant to buy the underlying asset due to concerns around regulation/insurance, etc. may feel more comfortable getting exposure via an ETF instead,” he said.

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For Ben Caselin, the head of research and strategy at AAX, the approval of a spot-based Bitcoin ETF will be vital if institutional adoption of cryptocurrency is to really take off next year.

“Before we see larger players come into the market, we would need to see more ETFs pass the bar, including physically-backed ETFs. As the pressure continues to build on the Federal Reserve and central banks in general, we can expect more capital to flow from traditional inflation hedges to bitcoin,” he told Cryptonews.com.

Others suggest that while SEC approval is welcome, institutions will continue embracing bitcoin regardless in 2022, simply by virtue of its market growing in size.

“As the ecosystem grows in scale, their involvement is inevitable.  At the margin, the SEC’s latest move brings that inevitability a little closer,” said Lou Kerner, the head cryptocurrency analyst at Quantum Economics.

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More legal adoption?

With El Salvador officially adopting bitcoin as legal tender in September, there’s also a distinct possibility that other nations will follow its example in 2022. However, this depends on just how successful El Salvador’s embrace of BTC ends up being, with many nations in similar situations mostly observing from a distance for now. As reported, the CEO of the crypto exchange giant BitMEX Alexander Höptner estimates that “at least five countries” will “accept bitcoin as legal tender” before next year is out.

“I think most would-be countries are just sitting back and watching to see how El Salvador’s economy will evolve with the adoption of BTC as legal tender. If successful, I am sure more countries will follow suit — if not fully like El Salvador, then at least in other ways — especially those with weak economies and where currency crises are prevalent,” said Fawad Razaqzada.

Ben Caselin also suggests that future adoption of bitcoin as legal tender depends quite heavily on El Salvador. Nonetheless, if things do go well, there are other countries that may similarly stand to gain from adoption.

“In countries like Mexico, Peru, and Colombia, unbanked communities comprise more than 50% of the population. In South East Asia, in countries such as the Philippines and Indonesia, we find similar figures,” he said.

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While he doesn’t necessarily expect more formal adoption to take place in 2022, he does suggest that “we will see countries signaling their interest” in moving closer to crypto next year. 

On the other hand, some analysts say it’s almost inevitable that other nations will turn to bitcoin and other cryptocurrencies in one way or another, if not in 2022 then not long after.

“I think there is every possibility that other countries could follow in the footsteps of El Salvador and make bitcoin legal tender. Most of ‘the noise’ seems to be coming from Latin America at this moment in time,” said Simon Peters.

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Lou Kerner is even more explicit about bitcoin and crypto’s chances in this respect, suggesting that it’s mostly a matter of ‘when, not if.’

“Just as the institutional adoption of crypto is inevitable,  so is the adoption of crypto by governments around the world. Adopting bitcoin as legal tender will be increasingly attractive for smaller governments without strong currencies,” he said.

Central banks and their tokens

That said, Anndy Lian, the Chairman of crypto exchange BigONE and the Chief Digital Advisor to the Mongolian Productivity Organization, says that developed nations will be more interested in central bank digital currencies (CBDCs) in 2022 than bitcoin or any other public cryptocurrency.

“The real crypto push from governments will be more likely to come in the form of central bank digital currencies, most notably in China. There the central bank is looking to use blockchain at the issuance layer for its digital yuan system, which is centralized,” he told Cryptonews.com.

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He adds that a drive towards CBDCs may be catalyzed by Facebook (now – Meta), with its Novi app launching as a limited pilot in the US and Guatemala in October.

“If the Facebook initiatives take off then this could spur governments to action, if not creating their own digital currency, in supporting the growth of private sector solutions with improved regulations and support. A good example of this approach is in Ukraine, which voted almost unanimously to legalize and regulate cryptocurrency just a day after El Salvador’s official bitcoin adoption,” he added.

Lou Kerner also suggests that many governments may move more towards CBDCs in 2022, particularly those that feel threatened by bitcoin and other public and decentralized cryptocurrencies.

“Central bank digital currencies will be attractive for other governments looking to leverage technology to provide better financial infrastructure for internal or global use.   There will be some governments who resist out of fear of losing control, similar to countries who resisted the internet,” he said.

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What about payments?

CBDCs bring us to the issue of payments, because while it seems likely that investors will increasingly adopt bitcoin and other cryptos as inflation hedges, it’s not clear whether the general public will increasingly use such currencies for making payments.

For Fawad Razaqzada, increasing payment use will follow on from increasing investment, with more holders and owners equaling more opportunities to use cryptocurrency for purchasing goods or services.

“This trend will likely gather momentum as more institutions get involved. So there is little doubt in my mind that 2022 could set a new record for crypto transactions for payments of actual goods and services,” he said.

Some analysts suggest that the use of cryptocurrency for payments is already picking up steam, and that it will therefore only gain further momentum in 2022.

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“The usage of cryptocurrency to ‘make payments’ is already scaling rapidly. There’s more than USD 125 billion in stablecoins in circulation used to make payments,” Lou Kerner said.

He adds that cryptocurrency is already being used, for example, to incentivize community members to provide value to the community, from gaming (e.g. Axie Infinity) to talent networks (e.g. Braintrust).

“We expect this activity to continue to scale in 2022 and far beyond, similar to how e-commerce is continuing to scale 27 years after Amazon started selling books,” he said.

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Likewise, Anndy Lian is another observer who argues that 2022 will only cement what is already happening in 2021.

“The trend towards greater use of crypto for payments has already started, with the recent news in the US that cinema chain AMC will soon be accepting cryptocurrency payments. It comes just a few months after PayPal decided to allow US consumers to use crypto to make purchases and news that Mastercard would be supporting cryptocurrency payments across its network,” he said.

Despite these significant inroads, Ben Caselin urges some degree of caution, arguing that while we see bitcoin’s use in El Salvador, for instance, we’re still very much in a growth phase where market volatility militates against everyday use of many cryptos.

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He says, “For Bitcoin to take hold as an everyday payment system and currency, more adoption is needed […] It may take a few more years before we can see Bitcoin being used more for everyday payments globally.”
 

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Crypto Is Here To Stay, Says Paytm Founder Amid Regulatory Debate In India

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The government of India is set to propose a new crypto bill in Parliament. This bill contains some regulations that are unfavorable to India’s cryptocurrency economy. In the midst of this, Vijay Shekhar Sharma, the founder of Paytm, has a lot to say. Paytm is an Indian multinational technology company that specializes in digital payment systems, e-commerce, and finance.

Sharma proclaimed that crypto is here to stay, and he expects it to become mainstream in a few years.

Crypto Will Become Mainstream In 5 Years

On Thursday, at a virtual conference organized by the Indian Chamber of Commerce (ICC), Sharma spoke about cryptocurrencies. He stated that crypto is Silicon Valley’s answer to Wall Street.

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“I am very positive about crypto. It is fundamentally based on cryptography and will be the mainstream technology in a few years like the internet, which is (now) part of daily life,” he said.

In India currently, there are no laws that regulate crypto use. However, Prime Minister Narendra Modi recently held a meeting with other officials on the regulatory steps to take.

According to a parliamentary bulletin dated Nov. 23, the Indian government plans to introduce a new bill to regulate digital currencies. With this bill, the authorities are preparing to ban private cryptocurrencies. And at the same time, create a framework for developing an official digital currency. The bill, however, “allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses.”

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Sharma further stated that cryptocurrency use is currently speculative. “Every government is confused. In five years, it will be the mainstream technology.” He claimed that people would soon realize how the world would be without crypto. However, he emphasized, it would not replace fiat currencies.

Total crypto market cap on TradingView.com
Total crypto market at $2.469 Trillion | Source: Crypto Total Market Cap from TradingView.com

The Paytm founder also said that he would expand to other countries once Paytm’s revenue crosses $1 billion.
“Now Paytm in a JV with a Japanese entity is running Japan’s largest payments system. Later we will go without a partner,” he said.

Paytm Considers Offering Bitcoin Services

Earlier this month, Paytm said that it would consider Bitcoin services if the Indian government legalized crypto. During an interview with Bloomberg, Paytm chief financial officer Madhur Deora spoke about the unclear cryptocurrency laws in India.

“Bitcoin is still in a regulatory grey area if not a regulatory ban in India. […] At the moment, Paytm does not do Bitcoin. If it was ever to become fully legal in the country then clearly there could be offerings we could launch.”

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Facebook’s centralized metaverse a threat to the decentralized ecosystem?

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Facebook has been planning its foray into the metaverse for some time now — possibly even several years. But it’s only recently that its ambitious expansion plans have catapulted the concept into mainstream headlines across the globe. Renaming the parent company to Meta was perhaps the biggest, boldest statement of intent the firm could make. Suddenly, major news outlets were awash with explainer articles, while finance websites have been bubbling with excitement about the investment opportunities in this newly emerging sector. 

However, within the crypto sphere, the response has been understandably more muted. After all, decentralized versions of the metaverse have been in development around these parts for several years now. Even worse, the tech giants’ cavalier attitude to user privacy and data harvesting has informed many of the most cherished principles in the blockchain and crypto sector.

Nevertheless, metaverse tokens such as Decentraland (MANA) and Sandbox (SAND), enjoyed extensive rallies on the back of the news, and within a few days of Facebook’s announcement, decentralized metaverse project The Sandbox received $93 million in funding from investors, including Softbank.

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But now that the dust has settled, do the company-formerly-known-as-Facebook’s plans represent good news for nonfungible token (NFT) and metaverse projects in crypto? Or does Meta have the potential to sink this still-nascent sector?

What is known so far?

Facebook hasn’t released many details about what can be expected from its version of the metaverse. A promotional video featuring the company co-founder and CEO Mark Zuckerberg, himself, along with his metaverse avatar, looked suitably glossy. Even so, it was scant with information about how things will actually work under the hood. However, based on precedent and what is known, some distinctions can be made between what Facebook is likely to be planning and the established decentralized metaverse projects.

Facebook has some form when it comes to questions over whether it will adopt decentralized infrastructure based on its efforts to launch a cryptocurrency. Diem, formerly Libra, is a currency run by a permissioned network of centralized companies. David Marcus, who heads up Diem, has also confirmed that the project, and by extension Facebook, is also considering NFTs integrated with Novi, the Diem-compatible wallet.

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Based on all this, it’s fair to say that the Facebook metaverse would have an economy centered around the Diem currency, with NFT-based assets issued on the permissioned Diem network.

The biggest difference between Facebook’s metaverse, and crypto’s metaverse projects, is that the latter operates on open, permissionless, blockchain architecture. Any developer can come and build a metaverse application on an open blockchain, and any user can acquire their own virtual real estate and engage with virtual assets.

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Critically, one of the biggest benefits of a decentralized, open architecture is that users can join and move around barrier-free between different metaverses. Interoperability protocols reduce friction between blockchains, allowing assets, including cryptocurrencies, stablecoins, utility tokens, NFTs, loyalty points, or anything else to be transferable across chains.

So the most crucial question regarding Facebook’s plans is around the extent to which the company plans for its metaverse to be interoperable, and metaverse assets to be fungible with other, non-Facebook issued assets.

From the standpoint of the decentralized metaverse, it doesn’t necessarily sound like great news. After all, Meta’s global user base dwarfs crypto’s. But there’s another way of looking at it, according to Robbie Ferguson, co-founder of Immutable, a layer two platform for NFTs:

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“Even if [Meta] decides to pursue a closed ecosystem, it is still a fundamental core admission of the value that digital ownership provides — and the fact that the most valuable battleground of the future will be who owns the infrastructure of digital universes.”

Centralization could be the most limiting factor

Based on the fact that Diem is already a closed system, it seems likely that the Facebook metaverse will also be a closed ecosystem that won’t necessarily allow direct or easy interaction with decentralized metaverses. Such a “walled garden” approach would suit the company’s monopolistic tendencies but limit the potential for growth or Facebook-issued NFTs to attain any real-world value.

Furthermore, as Nick Rose Ntertsas CEO and founder of an NFT marketplace Ethernity Chain pointed out, users are becoming weary of Facebook’s centralized dominance. He added in a conversation with Cointelegraph:

“Amidst [the pandemic-fuelled digital] transition, crypto adoption rose five-fold. At the same time, public opinion polling worldwide shows growing distrust of centralized tech platforms, and more favorable ratings of the very nature of what crypto and blockchain offer in protecting privacy, enabling peer-to-peer transactions, and championing transparency and immutability.”

This point is even more pertinent when considering that the utility of Diem has been preemptively limited by regulators before it has even launched. Regardless of how Diem could eventually be used in a Facebook metaverse, regulators have made it clear that Diem isn’t welcome in the established financial system.

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So it seems evident that a closed Facebook metaverse will be limited to the point that it will be a completely different value proposition to what the decentralized metaverse projects are trying to achieve.

Meanwhile, decentralized digital platforms are already building and thriving. Does that mean there’s a risk that blockchain-based platforms could fall prey to the same fate as Instagram and WhatsApp, and get swallowed up as part of a Meta acquisition spree? Sebastien Borget, co-founder and chief operating officer of the Sandbox, believes that decentralized projects can take a different approach:

“Typically, big tech sits on the sidelines while new entrants fight for relevance and market share — and then swoops in to buy one of the strongest players. But that strategy only works if startups sell. So there has to be a different economic incentive, which is exactly why Web 3.0 is so powerful. It aligns the platform and the users to build a platform that stands on its own, where users have ownership over its governance — and ultimate success.”

A metaverse operated by tech giants?

Rather than attempting to dominate, Facebook may decide to integrate with established metaverses, games and crypto financial protocols — a potentially far more disruptive scenario. It could be seriously transformative for the crypto space, given the scale of Facebook’s user base.

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Therefore, could there be a scenario where someone can move NFT assets between a Facebook metaverse and a decentralized network of metaverses? Sell Facebook-issued NFT assets on a DEX? Import a $69 billion Beeple to the Facebook metaverse to exhibit in a virtual gallery?

This seems to be an unlikely scenario as it would entail substantial changes in mindset from Facebook. While it would create exponentially more economic opportunity, regulatory concerns, risk assessments, and Facebook’s historical attitude to consuming competitors rather than playing alongside them are likely to be significant blockers.

The most likely outcome seems to be that Facebook will attempt to play with established centralized tech and finance firms to bring value into its metaverse. Microsoft has already announced its own foray into the metaverse, but perhaps not as a direct competitor to what Facebook is attempting to achieve. Microsoft’s metaverse is focused on enhancing the “Teams” experience in comparison to Facebook’s VR-centric approach.

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But it seems more plausible that the two firms would offer some kind of integration between their metaverse platforms than either of them would rush to partner with decentralized, open-source competitors. After all, Facebook’s original attempt to launch Libra involved other big tech and finance firms.

Make hay while the sun shines

Just as Libra created a lot of hype, which ultimately became muted by regulators, it seems likely that the development of a Facebook metaverse can play out in the same way with regards to its impact on the cryptocurrency sector.

Regulators will limit Facebook’s ability to get involved with money or finance, and the company isn’t likely to develop a sudden desire for open-source, decentralized, solutions.

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However, the one positive boost that Libra brought to crypto was publicity. Ntertsas believes that this, alone, is enough to provide a boost to the decentralized NFT sector, explaining:

“Meta’s plans will enable a surge in utility for NFT issuers and minters. NFTs can then be used as metaverse goods — from wearables to art, to collectibles, and even status symbols — there is an infinite use case and utility to NFTs and what they can become in the ever-growing NFT ecosystem.”

In this respect, there are plenty of opportunities for decentralized metaverse projects to muscle into the limelight with their own offerings and showcase how decentralized solutions are already delivering what Facebook is still developing. Borget urges the community to seize the moment:

“Now is the time for us to double down on building our vision of the open, decentralized and user-driven metaverse. We also have to invest time and money in explaining the benefits of our vision over what the Facebooks of the world have offered thus far.”

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Chinese ignore government restrictions and are using crypto to send money to Japan

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As the Chinese government continues to fight cryptocurrencies, officials have discovered how the country’s citizens use the technology to bypass government restrictions and send money out of the country.

As the Chinese government recently announced, many citizens are using cryptocurrencies to send money abroad, especially to neighboring Japan.

This time, the discovery of significant international transactions from China to Japan was made by Japanese regulators.

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In the course of an investigation, it was discovered that the Chinese were remitting funds to Japan using cryptocurrencies. Then they converted these funds into Japanese yen.

According to the Chinese government, the discovery came during a Japanese investigation into corporate funds flows. Japan’s National Tax Agency found a channel through a Japanese photography company.

The company opened a bank account primarily focused on alleged Chinese customers. However, he used it as a cover to send Chinese money to Japan.

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The company was found to have transacted up to 27 billion yen, equivalent to $235 million in 3 years. In addition, part of the assets was invested in real estate and other products as a way to hide the money.

In what the government called a classic case of money laundering, three were identified. They acted as intermediaries for some Chinese tycoons looking to invest in Japan.

Money laundry

Regulations in China do not allow citizens to exceed the remittance volume of $50,000 per person per year. Any need to exceed this limit requires a proper audit. In addition, the process goes through relevant agencies for proper reporting.

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These investors, who were indicted for secretly sending money to Japan, simply exploited the anonymity of transactions made possible by cryptocurrencies.

The government used the case to reinforce its stance on banning cryptocurrency activities.

Also Read: DeFi Project Rises 130% in 4 Days and Ignores Bitcoin Drop

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Also Read: Bitcoin Network Transfers More Value in Dollars Than PayPal

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