It was a banner year for digital assets in 2021, and the new year should see cryptocurrencies reach new milestones.
Crypto investors went on yet another roller-coaster ride in 2021. Nearly every cryptocurrency from bitcoin to dogecoin hit record highs and delivered eye-popping gains. But in May, about 50% of the entire market's value was wiped out in just seven days. And September saw China's clampdown against crypto escalate to a ban on all transactions.
Other wild crypto moments from 2021 came when El Salvador made bitcoin legal tender, meme tokens exploded, and an NFT sold for $69 million.
So what's in store for 2022? Arcane Research, a blockchain research firm, made dozens of crypto predictions for 2022. Here are five:
Bitcoin will outperform or underperform the S&P 500
Despite the threat to the global economic recovery from rising coronavirus cases, both bitcoin and the benchmark index locked in impressive gains in 2021: Bitcoin jumped 66%, and the S&P 500 rose around 27%.
But given that bitcoin has behaved more and more like a risk-on asset, Arcane Research said it will further amplify significant movements of the stock market.
"Therefore, if the stock market continues to increase in 2022, bitcoin will likely outperform," the firm said. "But if we see a red year for the stock market, bitcoin will likely underperform."
Ether will outperform bitcoin again
Long viewed as second fiddle, ether far outperformed bitcoin in 2021, gaining 418% compared to 66% for bitcoin.
"This performance gap is the widest seen since 2015 when ethereum was launched," Arcane said.
Among the reasons ether will continue to outperform in 2022 is the surge in NFT sales volumes. Most of these tokens still run on the ethereum blockchain. And major upgrades this year from the Berlin update to the London hard fork helped improve the network's capacity to process more transactions.
Ethereum performance in 2021
Trading View, Arcane Research
Most meme coins will fade into obscurity
Investors saw meme coins pop left and right in 2021. For example, dogecoin spinoff shiba inu rocketed 44,540,000% last year. And squid, a crypto named after the popular Netflix series "Squid Game," jumped more than 75,000% in under a week only to vanish into oblivion soon after.
"We cannot summarize the 2021 market without mentioning the absurd meme coin rally of 2021," Arcane Research said, adding the phenomena will be "a historical relic of the absurd times that was 2021."
USD Coin will overtake Tether as biggest stablecoin
Tether has reigned supreme for quite some time as the biggest stablecoin by market valuation. But it may want to watch out this year, especially with USD Coin's decision to join the lending wave.
"Innovative lending products paying out high yields for stablecoin deposits have primarily been the drivers for stablecoin growth," Arcane Research said.
Bitcoin will remain closely linked to the VIX
The stock market had a stellar run last year, but one pattern crystallized, according to Arcane Research: "Fear in the broad financial markets directly affected bitcoin's performance."
Spikes in the Cboe Volatility Index, or VIX, accompanied bitcoin sell-offs. Arcane Research warned that market headwinds in 2022 could have implications for bitcoin's short-term price trajectory.
