5 Crypto Trends to Watch in 2022 and Beyond: Grayscale CEO's Outlook
5 Crypto Trends to Watch in 2022 and Beyond: Grayscale CEO’s Outlook
Even after a landmark year in crypto, Michael Sonnenshein thinks the digital economy is still young. In an investor letter, the Grayscale CEO explained why digital assets will augment physical reality. He also broke down the five key trends that could shape crypto in 2022 and beyond. Even after a landmark year during which the total market cap of cryptocurrencies rose to over $2 trillion from under $800 billion, Michael Sonnenshein thinks that the fast-evolving industry is still in its early innings.
“I believe that the most exciting thing about the digital economy is how early it still is,” Sonnenshein, the CEO of Grayscale Investments, wrote in an investor letter viewed by Insider.
Amid growing institutional adoption of crypto last year, the $43 billion digital asset manager launched the Grayscale DeFi Fund and six single-asset investment trusts for basic attention token (BAT), chainlink (LINK), decentraland (MANA), filecoin (FIL), livepeer (LPT), and solana (SOL). It also filed for its first equity exchange-traded fund — the Grayscale Future of Finance ETF — and indicated that more ETF products were in the works.
Yet as the world’s largest digital-asset manager continues to grow, it also faces increasing competition. One of the industry’s biggest milestones last year was the launch of the first futures-based bitcoin ETF — the ProShares Bitcoin Strategy ETF (BITO) — which has gained $1.2 billion in assets since its launch in October .
That month, Grayscale filed to convert its bitcoin trust (GBTC) into an ETF, but the Securities and Exchange Commission has delayed making a decision on whether to allow the conversion until February 6. With about $30 billion in assets, GBTC is the world’s largest bitcoin fund. It was trading at a 19.92% discount to net asset value as of Tuesday, according to YCharts .
The digital economy will augment physical reality As crypto watchers look forward to another momentous year, a variety of predictions have emerged, from Goldman Sachs’ recent forecast that bitcoin’s price could hit $100,000 if it continues to take market share from gold to the Twitter cofounder Jack Dorsey’s belief that bitcoin could replace the US dollar.
After Facebook’s Meta rebrand brought widespread recognition to metaverse-linked decentraland (MANA) and the sandbox (SAND), some predicted that digital social exchanges could replace in-person interactions.
To Sonnenshein, these forecasts are “premature or unfounded” and are a result of “a fundamental misunderstanding of the relationship between the physical world and the digital one.”
“Neither digital assets nor the metaverse will replace the physical world or traditional asset classes, but will instead augment them, creating a future full of new modes of interaction, new experiences, and new economic opportunities,” he said in the letter.
Five key trends to watch in 2022 and beyond Looking ahead, Sonnenshein sees five key trends that could shape the future of crypto in 2022 and beyond.
(1) The development of crypto infrastructure such as exchanges, wallets, and analytics software.
“As the crypto economy and existing financial markets become increasingly intertwined, these are likely to provide some of the most compelling long-term investment opportunities,” he said, adding that infrastructure will be “a key growth area” going forward.
Indeed, of the $30 billion venture-capital investors poured into blockchain companies last year, more than $1.3 billion went to the crypto exchange FTX in two funding rounds.
(2) The continued proliferation of crypto protocols
From layer-one protocols and layer-two networks to the rise of decentralized-finance applications, crypto protocols are mushrooming and showing no signs of slowing, Sonnenshein noted.
“Sorting through these protocols to separate the wheat from the chaff continues to be challenging, requiring deep knowledge of both the technology and the marketplace,” he said.
(3) The expansion of Web3 and the metaverse
Web3 has been criticized , most prominently by the Twitter cofounder Dorsey, for being heavily controlled by venture-capital interests. But Sonnenshein believes that users of the next-generation internet, which includes the metaverse , will be able to control their data and digital footprints, thus gradually adding value to users.
“Web3 flips the script and empowers users in a revolutionary way,” he said. “We will continue to see supercharged mainstream exploration and adoption through 2022, which also presents an exciting investment opportunity.”
(4) The growing use cases of nonfungible tokens beyond digital art
NFTs exploded onto the scene when the digital artist Beeple’s work was sold for over $69 million in March. Since then, trading volumes have soared and sales skyrocketed as crypto collided with culture. For example, the popular NFT series, Bored Ape Yacht Club, has jumped past $1 billion in sales . The largest NFT marketplace, OpenSea, also just raised $300 million in a Series C funding round that pushed its valuation to $13.3 billion from $1.5 billion in July.
Sonnenshein expects to see NFTs “evolve beyond their current, limited iteration to new, more sophisticated use cases” in the future.
“We expect to see a blending of the physical and digital worlds even further, particularly around topics, like authenticity, provenance, ownership, and more — and across sectors, including fashion, music, gaming, real estate, and ticketing,” he said.
(5) New regulations and policy will set global standards for crypto
As the crypto industry continues to grow, it also needs to reckon with an increasing number of scams and frauds. In 2021, scammers pilfered $7.7 billion worth of cryptocurrency from victims, up 81% from the year before, according to Chainalysis . Meanwhile, transparency issues around the reserves of the largest stablecoins continue to put the industry under the focus of global regulators.
Many crypto players, including the FTX founder Sam Bankman-Fried , have said that increased regulatory clarity will help usher more institutional investors into crypto. For Sonnenshein, increased regulation is “not only inevitable but beneficial.”
“Never in the life cycle of the asset class have we seen regulators and policymakers as engaged and articulate about the crypto ecosystem as they are today,” he said. “This enables the conversation to shift to how these new technologies —when provided with the appropriate regulatory frameworks — can flourish, keeping crypto companies in the United States, and setting a global standard for crypto regulation.”