Predictions are difficult even when you know what is going to happen.
If things turn out the way you predict, it’s a coincidence. When you’re wrong, people throw it back in your face.
It’s a no-win situation, but I’ll try.
By the end of 2022, most crypto projects will be dead, dying or on the verge of collapse. While developers will pursue their ideas and innovations, the tokens themselves will not.
A big bear market will wipe out the vast majority of altcoins. The experimental phase of the cryptocurrency – the genesis stage – will end.
Bitcoin can’t go up forever
Few people realize that the price of bitcoin rose parabolically from December 2018 to November 2021.
In December 2021, this parable erupted. This graph shows it clearly.
Whether the price hits a new all-time high before another bigger crash or continues to trend sideways and down from here, I expect a bear market throughout 2022.
For three years, the price rose at an accelerated rate. It’s time for the market to rest a bit.
That doesn’t mean innovation and adoption will stop. In fact, when it comes to bitcoin, I expect great things to happen. But not “prices rise”.
Prepare for the Great Altcoin Purge
What about Ethereum and thousands of non-bitcoin cryptocurrencies?
During the last bear market, in 2018, almost all altcoins fell more than 90% from their peak. Some have fallen 99% and a handful have gone to $0.
While the top altcoins actually do more than just “go up,” every altcoin has problems, even the biggest ones.
Ethereum cannot scale and is too expensive for small users. ETH 2.0 is delayed all the time, no one knows if it will work as expected, new tokenomics are screwing up some DeFi protocols, and behind-the-scenes conflicts are generating a lot of drama that its developers may never resolve.
After reviewing dozens of altcoins for my “Altcoin Insights” research service, I can assure you that most tokens are schemes that allow founders and insiders to scam money quickly from overzealous speculators. Many legitimate projects are copies or hard forks of other projects with few (if any) improvements. But they’re new and exciting, so their tokens might pump.
As an early-stage experimental technology with uncertain product market adjustments and new structures, you cannot expect any of them to hold up in a bear market. At least bitcoin has real users, proven technology, and plenty of people who have a stake in its success. Most altcoins have none of this.
Once the bitcoin bear market begins, altcoin prices will crash. Many will drop 99% or more from their peak. Most will never recover. The only question is how far they will go before they fall.
Wash off the dirt
If cryptocurrency still represents the Wild West of finance, the 2022 bear market will erase that picture.
Already, global financial regulators are probing stablecoins, cryptocurrencies issued by individuals and pegged to the US dollar and other major currencies. They liken stablecoins to digital versions of the wild banks of the Old West – customers think they can exchange their “dollars” at any time, but the banks don’t have enough reserves to do so.
It’s a good analogy, even if it doesn’t make sense when you look at how stablecoins actually work. Yet the result is the same: customers must trust a private company to back their dollars, rather than the full trust and credit of the US government. But private companies can tax, spend and print more dollars to cover shortfalls. Once one of them fails, the risk of financial panic increases a lot.
At least one stablecoin probably doesn’t have enough money to pay everyone who asks to redeem their tokens. You may have heard of it, its name rhymes with “feather”.
Maybe all will fail.
When the bear market comes, we will know who is swimming naked. Some will go to jail, others will pay huge fines, and the stain will even give crypto die-hards reason enough to allow governments to regulate who can create and distribute these digital dollars.
Let’s not start with pre-mines, pre-sales, ICOs and IDOs.
Regulate Absolutely Everything
While there is an outside chance that countries will create crypto-specific legal and regulatory frameworks, I bet they will forgo the hassle and hand it over to Wall Street and the big banks.
US regulators have already started gathering information on a regulatory framework for banks that want to put bitcoin on their reserves and companies working on crypto-based financial products. Other countries have gone even further.
They also tried to push speculators into derivatives and other financial products. Wall Street just complied.
Now, with so many bitcoin products being traded on paper, if all you want to do is bet on the price of bitcoin, you don’t need to worry about a bitcoin wallet or custodial platform. You can simply buy ETFs, options or futures.
Speculators never have to touch the spot market and institutions can keep bitcoin off their books.
As more and more money flows to paper-traded investment products instead of spot markets, bitcoin will need to earn its price. It cannot depend on “institutions” because these institutions will buy a fund, not actual bitcoin.
Some believe retailer interest will take over, but not during a bear market. People will be bored, as they have been in each of Bitcoin’s three previous bear markets. Except that unlike those three previous bear markets, people will have plenty of ways to gain exposure to bitcoin without buying it.
Set the Stage for True Adoption
You will still have plenty of people hoarding bitcoin, but the crypto’s 13-year speculative phase will end. A new phase is about to begin, for better or for worse.
What will this phase look like?
I believe builders will continue to build. Developers will continue to innovate. Some platforms will adapt, persist and thrive. Lightning, RSK, Sovryn and other bitcoin projects will make most altcoins obsolete.
Technology will evolve while price bleeds for months, as it has in each of the previous three bear markets. Speculators will leave or go exclusively to derivatives. The demand will have to come from people who actually want bitcoin, rather than people who want to use bitcoin to get more money from their government.
Frankly, that might be the best thing. Terrible altcoins will die and bitcoin can finally prove that it has value beyond “its price goes up”.
This is a guest post by Mark Helfman. The opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.