Binance Futures: 2021 Crypto Market Review & 2022 Forecast
Main Takeaway:
Rampant inflation continued to diminish the purchasing power of most sovereign fiat currencies in 2021.
Investors flocked into cryptocurrencies to seek shelter, pushing the total market valuation above $3 trillion.
The US Federal Reserve might not have the means to control the financial crisis.
The cryptocurrency market blossomed in 2021 as trust in the global financial system continued to erode. Now, the new monetary policies that are being enacted worldwide to stifle rampant inflation will determine whether the bull market will resume in 2022.
Bitcoin, Ethereum, BNB, and many other altcoins surged to new all-time highs in 2021, while the annual inflation rate in the US hit its highest point since 1982. Several publicly traded companies have opted to ditch the US dollar and added BTC to their balance sheets instead as the new asset class becomes a haven asset even for institutional investors.
2021 in a Nutshell
A massive amount of capital flowed into the blockchain industry in 2021, pushing the total value of all cryptocurrency assets to exceed $3 trillion. Many market sectors within the space, such as DeFi, NFTs, and Metaverse, rose to the spotlight and even turned the most skeptic non-coiners into coiners.
Tesla's CEO Elon Musk, Apple's CEO Tim Cook, Twitter's former CEO Jack Dorsey, and billionaires like Thomas Peterffy and Ray Dalio, to name a few, affirmed to have bought some cryptos in 2021. Likewise, several football clubs partnered with Binance to launch their own fan tokens and El Salvador became the first country in the world to make Bitcoin legal tender.
Although regulatory oversight in the market heightened, cryptos appear to have gone mainstream.
The first Bitcoin futures ETF in the US made its debut on the New York Stock Exchange, and Christie's sold a $69.3 million NFT-based piece of artwork. Additionally, Visa started settling transactions on the Ethereum network, Facebook changed its name to 'Meta' to focus on the Metaverse, and Dogecoin was one of the world's most searched terms in 2021 on Google.
These developments appear to have built a strong foundation for cryptocurrencies to continue to flourish in 2022 despite the rising concerns about the global economy.
Cryptos Perform on Rampant Inflation
Some of the most prominent economists believe the US Federal Reserve will hike interest rates considerably and begin rolling back its quantitative easing stimulus program to deal with inflation. But the new measures may come a little too late as consumers are already struggling to afford the skyrocketing costs of food and energy.
The Fed once considered these factors "transitory," but now they represent a "severe threat" to the economic recovery, with new COVID-19 variants exacerbating the crisis.
For better or worse, a new asset class to hedge against a painful economic downturn has emerged. Bitcoin, Ethereum, BNB, and many other altcoins outperformed gold and the stock market for the third year in a row. A similar outcome could be expected for 2022, as investors seek haven assets to protect themselves from the effects of inflation on their purchasing power.
The relationship between cryptocurrencies and inflation appears to have tightened over the years as changes in forward inflation expectations are usually reflected in the price of digital assets.
For instance, the lockdown restrictions in 2020 influenced a rapid change in the economic outlook, causing forward inflation expectations to fall substantially. Cryptocurrencies dropped in tandem alongside other speculative assets as the pandemic began. Subsequently, both forward inflation expectations and cryptocurrencies recovered sharply as governments started implementing unconventional monetary policies to support the economy.
All Eyes on the Fed in 2022
Today's financial climate is far different from 2020, which begs the question of whether the relationship between forward inflation expectations and cryptocurrencies will persist.
One of the main factors is that governments worldwide plan to make a u-turn in their quantitative easing programs. Consequently, slowing down or putting a hard cap on the monetary stimulus seen over the past few years. The move could have severe implications on the amount of capital flowing into the cryptocurrency market.
From a technical perspective, the answer to what to expect for 2022 resides in the ability of the total cryptocurrency market capitalization to hold above $1.85 trillion.
Keeping this critical zone as support could help digital assets continue to outperform and reach a total valuation of $4 trillion or higher. However, a breach of such a vital demand barrier can kick start a downtrend that wipes $60 billion from the cryptocurrency market.
With inflation in the US soaring to 7% in December 2021, its highest level in 40 years, some analysts argue that the Federal Reserve does not have the means to control the financial crisis. The independent government agency would have to develop and implement an unprecedented master plan to reverse 14 years of excess, which is easier said than done.
All the pressure in 2022 is on the Fed to develop new monetary policies to stifle rampant inflation. Failing to achieve so could encourage more investors to seek shelter in haven assets like Bitcoin, inadvertently pushing prices into higher highs.
Read the following helpful articles for more information on adding cryptocurrencies to your portfolio:
(Blog) Crypto Futures Trading: Things You Need to Know Before You Begin
(Blog) Crypto Futures Risk and Money Management: 5 Things You Can Do to Better Manage Trading Risk
And many more Binance Futures FAQ topics...
