- “Institutional capital <…> shapes the conversation, broadens support, and imbues the asset class with legitimacy.”
- Even if some retail investors become a little more mature in 2022, “new retail is still largely driven by speculation and trading with high leverage to maximize exposure.”
2021 has been a record year for the crypto market, which has institutional and retail investors alike to thank for its growth. While these two categories of investors have diverged in their trading behaviors, they’ve both entered the market in seemingly high numbers, helping to push a whole range of cryptoassets to new all-time highs.
For the most part, 2021 has seen institutions focus on bitcoin (BTC) and (to a lesser, yet increasing extent) on ethereum (ETH), while retail traders have been happy to also chase after whichever hyped altcoin or faddish meme is currently rising high in the market. However, according to industry players and observers speaking with Cryptonews.com, 2022 will witness a relative convergence in trading preferences, with retail investors increasingly maturing in their approach, helped in part by a growth in market analysis and research from established institutions.
At the same time, these same commenters predict that institutions will become increasingly important in driving the market next year, with their involvement also helping to drive regulation in a favorable direction. Conversely, the market’s growing maturation will also mean that a section of more risk-friendly retail traders will seek out high returns from more speculative cryptoassets.
2021 predictions and reality
In 2020, speaking to Cryptonews.com, analysts predicted that institutions would be drawn towards bitcoin in 2021 as the COVID-19 pandemic continued, and as increased inflation made BTC seem more attractive as an asset.
They also predicted that an influx of new money into bitcoin would spill over into altcoins, bringing them to new highs. Again, this is what we largely observed, with most major altcoins experiencing new all-time highs this year.
Some analysts we spoke to predicted that more companies would add bitcoin to their balance sheets. This hasn’t really materialized on a larger scale though, even if one of our panel was somewhat correct in suggesting 2021 would bring a breakthrough in the quest to have a Bitcoin ETF approved in the US (which it in a way did).
2022: Institutions even more important, retail maturing
In 2022, commenters foresee that institutional investors will become even more important than they’ve been this year.
“Institutions will have a crucial impact in 2022. To understand why, it’s important to consider the institutional/corporate shift in sentiment towards crypto that took place in 2021,” said Oleksandr Lutskevych, CEO and founder of the CEX.IO crypto exchange.
Lutskevych notes that companies that were able to move quickly in 2021 made substantial inroads (e.g. Microstrategy, BNY Mellon, etc.), setting a precedent for those who were unable to start buying or playing a role in the crypto market, largely because they lacked the required infrastructure to do so.
“At this point, institutions have had ample time to get their programs set to enter the market. On the supply side, there are products and services that make it possible for enterprise clients to do so,” he told Cryptonews.com.
Other commentators agree, with a spokesperson for another crypto exchange, BitMEX, also telling this site that institutions will overshadow retail in terms of impact next year.
“The inflow of institutions into the crypto space as they get more comfortable and regulations advance is likely to be the larger source of capital,” they said.
The growing regulation of cryptassets is likely to play a huge role in coaxing more institutions into the market next year.
“We are already seeing greater regulatory certainty attract new institutions into digital asset markets. What comes with them, the ecosystem of information, research, rating, and advisory services, will likely have an increasing influence over investment strategies and that will be interesting to follow in 2022,” said Andrew Leelarthaepin, Managing Director at crypto exchange Bitstamp Asia Pacific.
The ramifications of growing institutional involvement in crypto is a theme that’s also picked up by Ben Caselin, the head of research and strategy at AAX, a crypto exchange.
“As bitcoin and other major cryptoassets see a continued inflow of institutional capital, we will also see more alignment and integration with the public, corporate, and even geopolitical interests. The inflow of institutional capital is then not only significant in terms of price impact, but also in how it shapes the conversation, broadens support, and imbues the asset class with legitimacy,” he told Cryptonews.com.
Indeed, for Andrew Leelarthaepin, the presence of institutions will have a maturing influence on at least some segment of the retail crowd, who may benefit from a corresponding upsurge in high-quality market analysis and research.
“It was only at the start of last month that Bank of America Global Research launched its cryptocurrency research division along with its first report and the [bank] is likely to be the first of many. Growth in the information ecosystem will permeate across retail and institutional investors to help inform strategies,” he said.
As with other industry figures, Leelarthaepin holds that the impact of regulation and the professionalization of the digital-asset ecosystem will have a knock-on impact on the behavior of retail traders.
The power of memes and retail
However, observers still think that, even if some retail investors become a little more mature in 2022, many or most will still be chasing after more speculative altcoins, in contrast to institutions.
“Unfortunately, new retail is still largely driven by speculation and trading with high leverage to maximize exposure. It takes time and experience for retail traders to settle down, filter out the noise and focus their attention and capital on high-quality projects,” said Ben Caselin.
Likewise, Oleksandr Lutskevych suspects that the ‘meme coin’ phenomenon will continue playing a role in 2022 and beyond.
“Weighing the impact of this movement is critical because retail traders have shown to have sums of capital that are capable of shifting markets. This value is distracted from meaningful projects and is now directed at memes,” he said.
Lutskevych adds that the significance of retail’s love for memes can be larger than many are inclined to think.
“At their peaks, DOGE and SHIB combined for nearly USD 80bn in value which is > 10% of ETH’s market [capitalization] at USD 4,400/coin and ~7% of BTC’s market [capitalization] at USD 63,000/coin,” he said.
One other divergence we may see in 2022 is retail investors being more drawn (than institutions) to smaller, newer coins, in the hope that they can get large gains in a narrow window of time.
“Smaller retail traders may be able to access initial launches more efficiently given their smaller investment sizes. 2022 may see the beginning of lightly structured products for the new retail funds entering the space,” said BitMEX’s spokesperson.
And yes, institutions will continue largely focusing on more established cryptoassets with a more proven track record.
“Institutional funds are primarily focused on bitcoin and to a lesser extent ethereum. Bitcoin is the best-performing asset of the decade, exhibits all the characteristics of a modern-day safe-haven asset, and given both the fundamentals and real-time developments in the market, we can expect continued interest in this asset, and continued growth,” said Ben Caselin.
Despite traditional financial institutions often being fairly conservative, Caselin noted that cryptoasset funds can generally take on more risk.
“The infrastructural play is most in favor. Base protocols such as Solana, Cardano, Avalanche, and Terra, or second layer solutions like Polygon or Stacks, are obviously preferred over meme coins and other hype-based tokens,” he added.
One other difference between institutions and retail in 2022 will be the fact that the former should be able to afford investing in more than just cryptoassets themselves.
“US capital markets have proven to be a major force in the BTC mining migration as several companies have gone public or raised capital using this option (e.g. Stronghold, Marathon, etc.) to expand their operations. Large investment into new and mature crypto companies will come from institutions, which will influence the growth of the space moving forward,” predicted Oleksandr Lutskevych.
Sentiment remains a big player
And while there will be some maturation among retail investors in 2022, most commenters expect retail to continue being dominated by sentiment and fear-of-missing-out (FOMO).
“We’ve seen the surges of opportunistic interest toward meme coins. SHIB even briefly took the top place by traded volume,” said Lutskevych.
For him, this is a perfect illustration of behavioral finance at play in retail markets.
“The market outcomes become more affected by psychological factors, like overconfidence, herd behavior, rather than by fundamentals. The retail investors will likely continue to take this sentiment-driven approach in both the crypto and traditional markets moving into 2022,” he added.
What this means is that, while institutions will enjoy an increased influence in crypto, you should expect 2022 to bring its fair share of speculative manias once again.
Whistleblower Edward Snowden Issues Crypto Gaming Warning, Highlights Potential ‘Unethical’ Practices
Whistleblower Edward Snowden says that the use of non-fungible tokens (NFT) in crypto gaming comes with certain consequences.
In a new interview on Parachains, a Polkadot and Kusama-focused YouTube channel, Snowden says he is against the monetization of gaming platforms that use NFTs because they utilize a false sense of scarcity.
“We have people that are trying to sort of – maybe they’re not even trying to – but the ultimate result of what they’re doing is they are injecting an artificial sense of scarcity into a post-scarcity domain. I think that is actually an inherently anti-social urge here.”
The former Central Intelligence Agency (CIA) employee says gamers who seek a virtual escape can potentially be put at a disadvantage from the NFT-based gaming business model.
“If you think about the world that people are retreating from to their games, where they live in a cold bare box, if they’re lucky enough to even have a home in some overly expensive city where they spend all their time working, they get home exhausted.
They make their cheap meal, and then they turn on their device to escape from all that and then in their digital world, where they’re on a beautiful island, they build a beautiful home, and they want to change the color of the wall, and you got to pay $19.99 for the wall or for a token to let you roll for the potential to maybe recolor your wall. There is something horrible and heinous and tragic in that to me.”
Snowden’s comment comes following the exponential rise of gaming altcoins and the crypto-based metaverse. According to Snowden, the crypto sector is at risk of facilitating unethical practices.
“I think the community should very much be trying to bend the arc of development away from injecting artificial unnecessary scarcity entirely for the benefit of some investor class into these post-scarcity domains.
One of the promises, one of the privileges of technology, is that it frees us from material limits that only exist in a material space. To try to reimpose material in immaterial space, I think is a little bit unethical.”
Jack Dorsey’s Decision to Quit Twitter Is Not a Vote of Confidence in Future of Social Media
When Jack Dorsey made the sudden public announcement that he had quit as CEO of Twitter, it was only ever going to have happened in one place – Twitter itself. It reminded me very much of Elon Musk’s entertaining tweet adventures, as Dorsey tossed his resignation letter onto the social media platform that he co-founded. You could imagine him sitting back to soak up the theatre of reaction and speculation that unfolded.
This isn’t Dorsey’s first resignation letter to Twitter – he was forced out of the CEO chair in 2008 only to return as executive chairman three years later – and no one can say for sure if it will be the last.
According to the email sent to Twitter staff in which he announced his latest resignation, he thinks the firm should “stand on its own, free of its founder’s influence or direction”. In the ensuing tweetstorm, after he then put the news on Twitter, he insisted it had been his decision. So what does it all add up to?
Social media’s midlife crisis
Dorsey’s move was not entirely unexpected. For more than a year, he has been under intense pressure from activist investors to accelerate Twitter’s development and improve its financial performance.
Wall Street investors have criticised Dorsey’s outside interests, which include running payments giant Square, which he founded during his last Twitter exile, as well as pursuing futuristic projects centred around decentralizing (meaning removing traditional corporate control from) the internet and finance. Notably, Twitter’s share price shot up with the announcement, only to be pulled down with the rest of the market as it worries about the COVID omicron variant.
I sense a similarity here between Dorsey and other digital moguls such as Jeff Bezos and, once again, Musk. Like Dorsey, Bezos and Musk both run two companies in Amazon/Blue Origin and Tesla/SpaceX respectively, as well as seeking different forms of excitement and adventure, with Bezos’ efforts to reach space orbit and Musk sending a Tesla Roadster sports car into space. It all seems to signify mega-tech founders becoming dissatisfied with the monotonous management of their most famous companies and looking for something more.
In the case of Twitter, there is also the social-media dimension. Platforms like Twitter, Facebook, and YouTube are increasingly burdened by political controversy and complex issues such as disinformation, privacy breaches, and hate speech. Twitter, for example, became the megaphone of choice for Donald Trump before later banning him, and is having to wrestle with hate speech as a global issue. It is sometimes said that these companies are facing a social media midlife crisis.
There are no simple solutions, so it makes sense that someone like Dorsey might get more thrilled by creating novel things than mending existing ones. It might make sense to hand over control of your empire to others and set off in quest of new horizons.
Dorsey’s reference to “founder ego” in his farewell message to Twitter and staff can only be interpreted as a poke at Mark Zuckerberg, who has shown no signs of relinquishing control over Facebook/Meta. On the contrary, he is looking to further develop the company’s influence by upgrading its operations to a more a virtual reality version of the internet known as the metaverse or 3Dweb.
When Facebook made its historic announcement in October that it was rebranding as Meta, Dorsey’s tweets hinted at his disapproval of Zuckerberg’s decision to stay on. Despite Dorsey insisting this week that he loves Twitter, I suspect he sees difficult times ahead for social media companies and even the concept of these “traditional” platforms.
In my view, the days are gone when young developers wanted to work for Google, Facebook or Twitter. They now seem more interested in “flipping” NFTs (buying and selling these digital collectibles for a quick profit) and writing applications for the (non-Meta) metaverse. Meanwhile, regulators are increasing the heat on Silicon Valley’s old guard over their ethical standards around content and use of data. And if the metaverse is the future, it raises questions about exactly how a microblogging platform with a narrow user-base fits into this new 3D era.
What next for Jack
While Dorsey has handed control of Twitter to 37-year-old chief technology officer Parag Agrawal, he will have more time to focus on Square. The payments firm is valued at nearly USD 100bn – more than double Twitter – and one of its main focuses has been to move cryptocurrencies into the mainstream.
Square has bitcoin on its balance sheet and is planning to launch a decentralized crypto exchange called tbDEX, as well as potentially moving into Bitcoin mining. Dorsey is also an angel investor in numerous other projects, including music streaming app Tidal, in which rapper Jay Z is a co-investor.
In many respects, the cryptocurrency landscape has inherited the loose, freewheeling attitude that characterised the early days of social media platforms. Decentralized start-ups like finance platform Compound, crypto exchange Uniswap and stablecoin issuer MakerDao are making big profits and becoming more and more popular.
They are dominated by eccentric geniuses such as Uniswap creator Hayden Adams and MakerDao’s Rune Christensen, who have unusual backgrounds and voracious appetites for risk. It will look like an appealing landing site for burned-out tech professionals trying to rekindle their optimism.
As I always say to my students, we are living in an age of acceleration, where technology is developing at a rate faster than what any individual can keep up with. To survive this, we need a new way of thinking about technology.
Silicon Valley CEOs like Jack Dorsey were the catalysts for this era, and now they too have to adapt and reinvent the very world they created. Dorsey has the advantage that he has had one foot in this new camp for some time. His departure does not give me a great deal of confidence in traditional social media, but it could give added impetus to crypto and tech start-ups.
Nascent Crypto Sector Is the Biggest Outperformer After Skyrocketing 37,000% This Year, According to Market Research Firm
A prominent market intelligence firm has identified one crypto sector that is exponentially outpacing all others in terms of growth.
UK-based market research firm MacroHive created four indices which the company believes capture the popular use cases of cryptocurrencies.
Each index, except for Bitcoin, consists of five tokens that represent the market value of a particular theme or sector.
One index that’s a cut above the rest is the metaverse sector, according to MacroHive.
“The clear outperformer this year has been the metaverse. It is up a whopping 37,000% this year and has gained 20% over the past seven days alone”
MacroHive says that the metaverse index is made up of play-to-earn game Axie Infinity (AXS), Ethereum-based virtual world The Sandbox (SAND), virtual reality platform Decentraland (MANA), blockchain gaming platform Enjin Coin and player-controlled blockchain gaming platform Gala.
The next top-performing index is the smart contract sphere consisting of Ethereum, Solana (SOL), Cardano (ADA), Avalanche (AVAX) and Polkadot (DOT). The smart contract index is up 2,355% this year, according to MacroHive.
Third on the list is the decentralized finance (DeFi) index. For the DeFi index, which is up 584% this year, MacroHive selected lending and borrowing protocol Aave, stablecoin governance token Maker (MKR), smart contract DeFi platform Compound (COMP), decentralized exchange Uniswap (UNI) and automated market maker PancakeSwap (CAKE).