Crypto in 2022: Challenges and Opportunities Galore

With the U.S. Federal Reserve’s recent actions that have caused a drop in token values across the board, 2022 is already shaping up to be an unpredictable year for the crypto industry. This follows directly on the heels of the optimism that was felt as 2021 came to a close, and crypto values had pretty much stabilized. 

The prolonged COVID-19 pandemic accelerated digitization and pushed adoption of cryptocurrencies across the spectrum in 2021. This increase in adoption was also heavily influenced by announcements from corporate path-pavers like PayPal, which enabled the public to buy and sell tokens, and other major institutions and franchises – including AT&T, Pizza Hut, and AMC Theaters – which now allow consumers the opportunity to pay for goods in tokens. 

The path was not completely smooth for crypto in 2021, though, as regulatory bodies sought ways to curb international fraud and criminal transactions – primarily by transposing rules for traditional financial institutions onto the burgeoning crypto scene. As the crypto industry heads into 2022, some of the trends and activities that influenced it last year will continue, but there are additional challenges and opportunities ahead.

Much will depend on the regulatory environment

First and foremost, the Financial Action Task Force (FATF) Travel Rule, which is being enacted across the globe, looms large as the single biggest regulatory challenge for the crypto ecosystem 2022. The requirement to know who is transacting with whom has placed a massive regulatory grip on the market. The collection and sharing of transaction data on this scale will require a significant amount of alignment between not only countries, but also businesses, platforms, and individuals. 

Another legislative document that will play an important role in 2022 is the European Commission’s proposed Markets in Crypto-assets (MiCA), which aims to streamline regulations for distributed ledger technologies and virtual assets in the EU. Although the draft rules have been public since late-2020, MiCA is set to transition into EU law as early as this year, so the crypto community in Europe will be closely monitoring its progress. This effort is important for the EU and its competitiveness in the global crypto market, and it has the potential to create a playing field that will foster viable crypto players in Europe.

Stability and silos must be addressed

This year, ETH2.0 will play a big role in terms of making the network more scalable, secure and sustainable. These proposed upgrades are important for the long-term success of the Ethereum network, as they would solve its scalability issues. Other platforms are also gaining traction – specifically Solana, Polkadot, Avalanche, Cosmos, NEAR and Flow – and will be important to watch.

Another important trend for 2022 is the integration of crypto services into the legacy stacks of traditional banking. Right now, we have two different silos. To facilitate the institutional money flow, it will be crucial for these two to learn to work together over the next year and to start integrating in both directions. One of the drivers of this need for integration is the increase in institutional demand for digital assets, and this will be a big year for NFTs in that regard. The heightened interest in NFTs will generate a similar rise in the number of services launching to meet that demand. And these services will need to be seamlessly integrated into existing platforms.

Institutional investors will help reduce volatility

Crypto is increasingly becoming the go-to option for investors, due to the mounting economic pressure to find alternatives to cash and to draw yields. While crypto-focused institutional investors, such as hedge funds, asset managers, and VCs have already been diversifying their portfolios with digital assets, 2022 will see the entrance of traditional asset managers and family offices. These latter adopters really just started gaining an understanding of crypto in 2021, driven by negative interest rates, inflation hedging, and a bullish market.

In the coming year, the crypto ecosystem will see more institutional money entering, either directly or via indirect instruments like ETPs, ETFs, and other financial instruments that mirror crypto, but are not direct investments. These investors will help stabilize the market by buying in the dips and reducing volatility. This year will also see institutional investors becoming more interested in NFTs, which are very retail-focused at the moment. As the hype gets filtered out, institutions will be watching for what types of NFTs are really going to maintain their value and which are merely part of a short-term bubble.

Business growth will hinge on finding talent

The crypto ecosystem is growing incredibly fast, and the demand for talent is outpacing the supply. A new report by LinkedIn stated that cryptocurrency-related job listings in the U.S. increased by 395 percent.  Businesses can no longer rely on attracting employees from within the crypto community, so the biggest challenge in 2022 will be appealing to job-seekers from outside the crypto space. HR departments will need to focus on applicants’ skills that are transferable from other industries since it is becoming increasingly difficult to limit searches to people who’ve already been working for crypto-centric businesses. Big Tech companies are already experiencing difficulties due to employees flocking to jobs at crypto companies.

There are reasons to be optimistic

Despite crypto’s troubled start to the year, it’s important to not see this as an omen hanging over the next 12 months. Inflationary concerns will continue to drive investors to crypto as a hedge against inflation. Additionally, the benefits of digital tokens to corporate treasuries – including the ability to swiftly and cheaply move money around the world – will continue to serve as a draw. 

Crypto businesses have already weathered many storms and are getting better at bouncing back faster, but these recoveries have served to highlight the strong interdependence between players in the space. The industry will need to pull together in 2022 to solve the technical and regulatory challenges that lay ahead, for the long-term sustainability of the entire ecosystem.