The cryptocurrency market hit new highs in 2021 but 2022 appears to be sending both cryptocurrency and stock markets on a correction exercise. What does this signify for the blockchain industry’s prospects this year? Experts at a Huobi Research Institute-organized webinar have their say.
Markets are tumbling, screaming financial headlines the world over. And while it is common knowledge that the currently bearish crypto and stock markets are due to Federal Reserve-backed interest rate hikes, what’s not so clear is whether the current trials afflicting the crypto market are akin to the events of 2018, where interest rate hikes similarly led to a crash in crypto prices.
During a webinar on Jan. 26, 2022, organized by Huobi Research Institute, three industry experts debated the future awaiting the crypto market this year. Topics covered included a market overview, Central Bank Digital Currencies (CBDCs), crypto regulatory changes, meme coins, and Non-Fungible Tokens (NFTs).
There are some pertinent differences between 2018 and 2022 that need to be taken note of, warned Flora Li, director of the Huobi Research Institute and author of the institute’s annual report titled Global Crypto Industry Overview and Trends: 2021–2022.
“Firstly, size matters. The cryptocurrency market has grown exponentially since the days of 2018 when it was relatively small and functioned somewhat independently of global markets,” Li said. “That is no longer the case. Today, more large financial institutions and investors are involved in crypto and the connection between the two can no longer be ignored. Crypto players now need to pay more attention to the global economy.”
The hike in interest rates means a decrease in liquidity, which cuts the prices of other risky assets, including Bitcoin and other cryptocurrencies. Add accelerated tapering measures, also a Federal Reserve initiative, and we will likely see a bear market in 2022, ” Li said. “Let’s prepare for the upcoming winter.”
Co-chairman of the Singapore Blockchain Association, Chia Hock Lai, said market losses will likely continue into Q3 this year, due to the contraction of liquidity in the market due to tapering, reducing fund flows into both traditional and digital asset markets.
This convergence between the crypto and traditional economies means investors should expect to see risk-adjusted returns gradually trend down in the longer term, according to Esme Pau, senior financial analyst and insights lead at EmergentX Esme Pau.
“It is crucial for investors to recalibrate their trading strategies and diversify into trading different digital currencies. Five years ago, BTC dominated the market, but it will no longer give you the same returns you’ve seen in the past few years,” Pau said.