Bitcoin in 2022: Nerves Of Steel Or Pockets Of Profit?

In Summary: 

• Bitcoin, the world’s biggest cryptocurrency, may be on track for a new record high in 2022
• To do that, it will need to deal with a number of key challenges along the way

How Bitcoin Performed In 2021 

Bitcoin experienced its best year in 2021 in terms of price levels, new players onboarded, and increasing presence in mainstream finance. In that context, the price of Bitcoin was gaining steadily over the first quarter of the year.  More specifically, the orange coin got a significant boost to an all-time high at that time when the price peaked at $64,800. That record, however, was about to be shattered later in the year.  

The smooth climb came to a halt in May when a wave of bad press jolted the cryptocurrency market. On May 19, Chinese authorities released a statement saying they will no longer allow any crypto mining or trading. Chaotic moods ensued and the price of Bitcoin dropped 31% on the day, and over the next month, the original cryptocurrency reached its lowest point of the year: $29,000 per coin.

But crypto, notorious for volatility and quick recovery, did not sit low for long. Prices renewed their upside swing in late July, leading to the current record high of Bitcoin: $69,000 apiece. Finally, Bitcoin ended the year up 60% to $47,500. 

Key Milestones In Bitcoin’s Journey In 2021 

• Tesla’s $1.5 Billion Investment – Without a doubt, Tesla’s purchase of $1.5 billion worth of bitcoin is among the main events for crypto in 2021. This said, the EV maker made the biggest investment by a mainstream company into the most popular digital currency.  
• Companies Rush to Adopt Bitcoin in 2022 – a flurry of companies followed Tesla’s example and added bitcoin to their reserves. That way, the biggest token is now present on the balance sheets of Square, MicroStrategy, and Marathon Digital Holdings. Many more are eyeing a potential investment, including Mastercard, PayPal, and BNY Mellon. 
• Regulators Hammer Out Crypto Rules – a key milestone in the crypto market’s development is regulation. On that front, the US Securities and Exchange Commission (SEC) said it wants to work closely with the US Senate to introduce clear regulations.  
• El Salvador Makes Bitcoin Legal Tender – another memorable event of 2021 was El Salvador’s move to legitimize Bitcoin as the country’s national currency. Now, Salvadorans can spend BTC to buy coffee, get a haircut, or fix their cars. Moreover, El Salvador’s bitcoin-friendly president Nayib Bukele is creating a Bitcoin city that will have no taxes and be powered by a volcano.  
• Investment Banks Jump In – major US banks saw skyrocketing demand for crypto from their clients. As a result, virtually every large bank, including Goldman Sachs, JPMorgan, and Bank of America, began offering bitcoin products to their customers.  
• Wall Street Meets Bitcoin – after years of waiting and dozens of applications rejected, the SEC finally gave the green light to the first-ever Bitcoin exchange-traded fund. The ProShares Bitcoin ETF was the second-biggest ETF launch on the US stock market with a first-day turnover of roughly $1 billion.  

What Challenges Lie Ahead For Bitcoin In 2022 

With the growing popularity of Bitcoin and cryptos, there are a number of obstacles that would need to be dealt with. The extreme price swings have propelled the token 1,700% from $3,900 when the pandemic hit to the current all-time high. 

Along the way, however, the eye-popping returns are threatened by a number of key challenges. In short, these are:  

• Volatility 
• Regulations
• Carbon footprint 

Bitcoin’s Volatility As A Double-Edged Sword 

From ordinary Bitcoin supporters to billionaire hedge fund managers, all are fascinated by the stunning returns in bitcoin. Even those who’ve been taking a hard line on it, such as JPMorgan CEO Jamie Dimon, are experiencing a paradigm shift.  

The inherent volatility of Bitcoin makes it easy for people to have strong opinions on both ends. This said, it’s difficult to keep bitcoin down; sooner or later, the cryptocurrency tends to propel itself out of any slump.  Statistics show Bitcoin has lost more than 80% of its price three times: one of those times was in 2011 when the token lost 93% of its valuation, and in another three times, more than 50% has been wiped out.  

Still, cautious crypto fans are reluctant to bet aggressively on an asset that could drop 30% in a day. Therefore, many newcomers put only a small amount of their portfolio. Of course, retail traders are not able to diversify like the rich guys, who can often afford to invest a big portion of their savings with the belief this market will continue rising. 

Regulations As A Path Toward Mainstream 

Another challenge for crypto markets in 2022 is regulation. Some countries already pushed crypto out of their borders: China, India, Iran, Iraq, and Egypt are only a few examples so far. Still, crypto proponents have powered through those restrictions and are now looking to see what the US will do.  

On that front, US regulators are working over the clock to present a clear framework that would introduce rules to crypto trading and investing. The Biden administration has already suggested it is preparing to release an executive action that will aim to regulate Bitcoin and cryptocurrencies as a matter of national security. In that context, federal agencies will be tasked with evaluating the risks and opportunities that Bitcoin poses.  

Projections for crypto regulation in the US are bright for several reasons. First, the US SEC Chair, Gary Gensler, is a former Bitcoin lecturer who has taught Bitcoin and blockchain courses at MIT. Second, the US Federal Reserve, headed by Chair Jerome Powell, said it had “no intention” of banning Bitcoin or crypto. 

Bitcoin’s Swings Raise Carbon Footprint Worries 

The third biggest challenge for Bitcoin heading into 2022 is its massive carbon footprint. The amount of electricity required to mine Bitcoin, on an annual basis, is equal to that of New Zealand. In other words, about 37 megatons of CO2, according to data from Digiconomist. Indeed, Bitcoin’s insanely high electricity consumption was the reason Tesla walked back its decision to accept BTC as payment for cars.  

With the growth of Bitcoin, more miners are expected to join the operations, as more miners are required to validate transactions on the blockchain. Bitcoin’s model, “proof of work”, rewards those who participate in the network and solve hashing algorithms. Critics insist it is crucial that Bitcoin finds a reliable and sustainable clean energy source in order to continue scaling.  

What Opportunities Are In Store For Bitcoin In 2022? 

Besides the challenges ahead for Bitcoin, there is also a flurry of opportunities. Let’s find out what they are and whether you will need nerves of steel in 2022 or you’d enjoy pockets full of profits. 

It’s The Time Of The Early Adopters 

As of early 2022, the price of Bitcoin has retreated significantly from its record high. More specifically, prices now hover just over $40,000 per coin, with a market cap of under $850 billion. To put this in perspective, market cap slipped below $700 billion in January and recovered $150 billion in two weeks.

Moreover, given that the token has a relatively short history of 12 years, projections are that Bitcoin will continue to grow. There are currently about 100 million owners of Bitcoin around the world, with the crypto market commanding 400 million participants in total and presently worth roughly $2 trillion. In comparison, the US stock market is valued at $51 trillion in 2022, with Apple in the lead, worth over $3 trillion. Growing adoption rates are expected to take the crypto market to new highs in terms of valuation. Many analysts now explain how the crypto industry is still young and compare it to the early days of the Internet companies.  

Bitcoin As An Inflation Hedge 

Bitcoin’s property as an inflation hedge has been getting more popular recently. With consumer price inflation reaching a 40-year high, more people are shifting toward Bitcoin to find a safe haven. Due to Bitcoin’s fixed supply of only 21 million coins, crypto participants consider the digital asset a secure place from the inflation threat.  

Bitcoin As Digital Gold 

The Bitcoin vs gold debate arises from the way in which these two financial assets stack up against each other. Bitcoin is considered a store of value, just as gold. That means the orange coin is not used extensively as means of exchange; rather, investors have been flocking to it in efforts to park their funds.  

Traditionally, gold has been the preferred asset for investors seeking to find refuge in uncertain times. In that context, Bitcoin is similar to gold as it has become an investment serving as protection. While Bitcoin is a lot more volatile than gold, analysts say it could very well become “digital gold” in the eyes of investors. Obviously, as with any investment, we must be prudent and cautious to avoid losses and wear and tear when investing in bitcoin and other cryptocurrencies.

Can We Expect Another Record High In 2022? 

The year ahead is likely to lead to new price swings, more volatility, and even a new all-time high. If US regulators give bitcoin and cryptos the green light to enter mainstream finance, banks will immediately get involved in the nascent industry. 

Moreover, if green energy sources are responsible for the larger part of Bitcoin mining, many newcomers will join and the price could skyrocket. Against this backdrop, you might very well expect a new record high for Bitcoin. Projections for the leading token, according to some banks and analysts, land at $100,000.  

Summary 

Bitcoin has now become too large to ignore. As banks await regulations in order to offer it to millions of clients, crypto circles are rushing to make it as clean-energy as possible. And although challenges remain, the original cryptocurrency promises to bring high returns to those that act early and get themselves even a fraction of the 21 million coins.