Policy & Regulation

2022 Cryptocurrency Predictions: Chainalysis Experts Weigh In

2021 was the year digital assets hit the mainstream. Cryptocurrency, web3, DeFi and NFTs can now regularly be heard in conversations anywhere in the world. And if the first month of 2022 is any indication, we’re in for an exciting year. Below, you’ll find opinions from thought leaders with varying backgrounds, painting an interesting tapestry of the near future.

Chainalysis’s Crypto Predictions for 2022

Governments will warm up to crypto

The explosive adoption of cryptocurrency in 2021 bolstered the industry into the mainstream and sparked interest globally. While those already in the industry saw this as inevitable, many governments found themselves unprepared for the boom. A lack of regulatory clarity and education on blockchain technology left many legislators with outdated notions that digital assets were rife with criminal activity and saw it as a threat to its constituents.

Yet, as the initial shock waned, lawmakers eventually found themselves taking a different stance on the usefulness of digital assets. Indeed, we saw at a recent Chainalysis policy roundtable constructive bipartisan discussions on digital assets.  Two members of Congress —Jim Himes (D) (CT-4) and Tom Emmer (R) (MN-6) – agreed on cryptocurrency’s promise and potential. “The blockchain, in particular, is super intriguing as a way of disintermediating an almost medieval way of doing things around titles, contracts, and ownership,” Himes said. Senator Cynthia Lummis of Wyoming also stands out as an advocate for the community. 

Michael Gronager, Co-Founder and CEO of Chainalysis, believes this is only a first step. As more legislators realize the value of cryptocurrency both as an asset for investment and value transfer, they may be close to promoting it.

Over the next year, I think more countries will endorse crypto. Cities and states in the US like Miami, New York, and Wyoming have already done this, and entire countries will see the opportunity to create jobs and other forms of value.

Seemingly, education continues to be a primary focus for the industry as lawmakers continue to show interest in the potential to strengthen local economies.

NFTs aren’t going anywhere

One of the more quirky results of the crypto boom was another blockchain-enabled asset: non-fungible tokens (NFTs for short). In March of 2021, a digital artist known as Beeple sold a piece for $69 million. Unsurprisingly, this ignited a slew of both intrigue and criticism, with some describing it as a new revenue stream for digital artists while others calling the increased interest nothing more than a “bubble.”

According to Chainalysis’ data, this boom was found worldwide, with no singular region making up for more than 40% of monthly web visits since March 2021. These tokens have also created quite the market, with Ethereum smart contracts associated with the technology taking in more than $43 billion in 2021.

Though NFTs were first thought of in the wider public as simply a tool for transacting in digital art, they have now found themselves being used in gaming, community platforms and events and ticketing, transforming the way we operate in the real and digital world. 

Ethan McMahon, a Chainalysis Economist, looked closely at NFT activity and believes this is only the first step of many as the technology is further adopted.

“We anticipate the NFT market will continue to evolve over the next year, as more artists, creators, celebrities, and even video game makers launch collections catering to their fans, along with many other use cases that haven’t even been invented yet.”

As 2022 progresses, it’s anything but controversial to say NFTs are continuing to gain interest.

Whoever creates the superapp first wins

Not only is the NFT market growing, but DeFi has also found its audience. Mature cryptocurrency markets are leading the charge in adopting decentralized applications and the number of these projects has skyrocketed over the past year. Though some developers are still finding their footing when it comes to security protocols, overall, DeFi has become a major success with massive amounts of funds flowing into platforms.

The challenge for users is there’s no centralized system in which they can interact with crypto investment, NFT, and DeFi platforms together easily. 

Philip Gradwell, Chief Economist for Chainalysis, believes many of the largest companies in the industry are feverishly working on this project now. As he points out, this is the natural progression of our digital world, something consumers have become accustomed to.

In 2021, DeFi and NFTs demonstrated that more can be done with crypto than just investing. However, these use cases are only available outside of the main consumer services. A major lesson of Web 2.0 was that consumers love platforms, and I don’t think that is going to change for Web 3.0. Currently, there is no crypto platform that owns the customer relationship and aggregates suppliers.

Whoever creates this “superapp” first is not only likely to have an advantage over competitors, but also to own the space as customers prefer the ease of staying with one well-built platform rather than migrate to another.

Crypto expertise will be vital to law enforcement investigations

Even as Bitcoin and other cryptocurrencies have become mainstream, the belief that digital assets are anonymous, untraceable and mainly used by criminals persists. While enticing to believe, research conducted by Chainalysis has shown that, in 2021, a paltry 0.15% of cryptocurrency transactions had ties to illicit activity. This is mainly due to the massive global adoption of crypto outpacing its use by criminals.

Still, many continue to distrust digital assets as they believe it facilitates criminal activity due to their global nature and the immediacy with which transfers can be completed. This misconception stems from a fundamental misunderstanding of how cryptocurrency works.

Digital assets run on immutable ledgers known as blockchains. With the right tools, transactions between known entities are identifiable. This transparency is one of the greatest assets available to law enforcement professionals investigating crimes where suspects have used cryptocurrency. Chainalysis’ Public Sector CTO and retired FBI agent, Gurvais Grigg, repeatedly expresses how critical cryptocurrency is to investigations.

“Illicit activities of this nature are very much here to stay. But, if global adoption of cryptocurrency continues to evolve, law enforcement education improves, and business cybersecurity investment increases, cryptocurrency will soon be recognized as an invaluable tool, and not a hindrance, for helping us topple criminals.”

While many see cryptocurrency as the issue, it could very well be the solution to many forms of cybercrime.

Laying the foundation for regulations

In general, the cryptocurrency industry wants comprehensive and sensible regulations that provide guidance on what they can and cannot do as a business. These guardrails will help them create strategic decisions on how they grow their business domestically and internationally.

What’s exciting is there is an opportunity for regulatory innovation. Traditional finance is opaque; regulators have no access to transaction data without requesting that information from financial institutions directly. However, blockchain technology allows for an unprecedented level of transparency that enables regulatory supervisors to review transactions without requesting information from cryptocurrency businesses. 

As we saw, the past year has created more questions than answers and it has frustrated industry leaders and lawmakers alike. In the US, states have begun to impose their own regulations on how digital assets are marketed and issued, creating problems for companies who operate in more than one jurisdiction — which makes up a large percentage of the field. These complicated rules create more immediacy for the federal government to push through legislation that addresses the broader ecosystem and an agency that can oversee the industry without stifling its innovation.

But Salman Banaei, Head of Public Policy, North America, does not expect total clarification to emerge in 2022. Still, he does anticipate new draft bills and hearings and constructive bipartisan discussions on digital assets that will lay the groundwork for a more successful 2023. Banaei’s hopeful demeanor comes from the changing attitude amongst legislators in the previous year.

“In 2021, we saw the growing acceptance among policymakers that digital assets will play a substantial role in the future of finance and beyond. At Chainalysis’ LINKS conference this year, Deputy Treasury Secretary Wally Adeyemo highlighted digital asset technology’s ‘potential to unlock new opportunities” and ‘to help reduce the cost people pay to transact across borders.’ While I don’t think comprehensive bipartisan Congressional digital asset legislation is unlikely in 2022, we do expect to see regulators provide increased clarity.”

We’re excited for what’s to come

While nobody knows how cryptocurrency will evolve in 2022, through speaking with the experts at Chainalysis, one thing remains clear; it’s here to stay. Only time will tell how the world reacts to market moves, legislation, and new use cases for digital assets. Regardless, Chainalysis is here to continue enabling the safe adoption of blockchain-enabled technology through our data platform.

This material is for informational purposes only, and is not intended to provide legal, tax, financial, or investment advice. Recipients should consult their own advisors before making investment decisions. Chainalysis has no responsibility or liability for any decision made or any other acts or omissions in connection with Recipient’s use of this material.

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