The New Year is approaching – it’s time to make predictions. Each of you is probably wondering what the coming year will bring us – and not just for us personally and our families, but for the whole country and the entire planet. Investors are wondering what will happen next year to the global and domestic economy, stock markets, exchange rates, prices of oil, gas, gold and other assets. Well, for those who invest in cryptocurrency, the main question is: what will happen to bitcoin in 2022? So let’s talk about that today. But first, let’s ask the question of how we should approach predicting cryptocurrency rates in general.
A general approach to predicting cryptocurrency rates
Many people complain about the volatility of bitcoin and forget that cryptocurrencies are a completely new asset class, and it is their highest volatility that attracts the attention of crypto-traders and crypto-investors around the world. Therefore, bitcoin forecasts cannot be approached with the standards and templates that are used when analyzing classic financial instruments. In my opinion, the main principle of forecasting cryptocurrency dynamics is not to try to guess the range of fluctuations, but to forecast the general trend, the general trend, being aware that temporary deviations from this trend can be very significant, and in both directions – both up and down. However, the criticism of cryptocurrencies for excess volatility is gradually fading, because investors start to perceive their wide fluctuations as a certain specific feature of this asset class, as one of its main characteristics, which just needs to be learned to work with. In addition, we are also seeing the maturation of the asset itself. Bitcoin has turned from some obscure digital coin into an asset in which large companies and even some states invest, and futures and ETFs on which are traded on the largest American exchanges. It turns out that not only the price of bitcoin has grown in the last couple of years, but also its role in global finance.
Bitcoin forecasts for 2022
Well, now let’s move directly to forecasts. Let’s start with predictions from various analytical agencies and experts.
JPMorgan
One of the most bullish forecasts on bitcoin was made by JPMorgan. In the beginning of the year analyst of the bank Nikolaos Panigirtsoglu stated that if bitcoin decreases its volatility, this will attract big institutional investors to it, and then in long term it will reach prices of $145K. Panigirtzoglu justified his position with the fact that bitcoin, in his opinion, will displace gold as an alternative to national currencies. However, at the end of the year, JPMorgan lowered the forecasted price. The analysts estimated the fair value of bitcoin at $35,000, but also noted its declining volatility and said that $73,000 is a reasonable target for bitcoin in 2022.
Bank of America
But Bank of America is skeptical of bitcoin. A December survey by the bank found that about 59% of managers surveyed believe the cryptocurrency is a bubble. That said, most expect bitcoin to stay in the $50,000 to $75,000 range over the next 12 months. Another 19% of respondents expect bitcoin to fluctuate between $25,000 and $50,000 next year, while 25% predict it will rise to $75,000.
Bloomberg
But Bloomberg Intelligence senior strategist Mike McGlone thinks bitcoin will break the $100,000 mark in 2022, helped by its recognition as legal tender in the United States. That’s a pretty bold statement when you consider that Fed Chair Jerome Powell said at the December Fed meeting that cryptocurrencies are not backed by anything, so recognition of bitcoin as a means of payment is unlikely for now. However, Powell said that he does not see cryptocurrencies as a threat to financial stability. And one more quote from Bloomberg analysts’ forecast for 2022: “Unrestricted supply of fiat currency should keep prices up, especially for bitcoin and ether, whose supply is limited.” It sounds logical, but let’s not forget that the monetary policy of the world’s largest central banks will most likely already in the second half of 2022 clearly turn towards tightening, which means that excess liquidity will be “pumped out” of the economy as part of the fight against inflation. Understanding this, one could argue with Bloomberg analysts.
Barry Sternlicht
One of the chief optimists about bitcoin is Barry Sternlicht, head of Starwood Capital Group. He thinks that in the future bitcoin can grow to a million dollars. But unfortunately, the billionaire didn’t specify when exactly this future will come. Meanwhile, he refers to one of the key advantages of bitcoin – the limited issuance, which makes this cryptocurrency anti-inflationary asset. By the way, this month bitcoin mining has passed an important milestone – 90% of all bitcoin “reserves” have already been “mined”, so there is a rational point in Barry Sternlicht’s words. But let’s try to calculate: if bitcoin is worth a million dollars, then its total capitalization will be approximately $18 trillion. And the total capitalization of the U.S. stock market is now equal to about $51 trillion. It turns out that for bitcoin to reach the level of one million dollars, almost half of the money from the U.S. stock market must flow into this cryptocurrency. By comparison, Apple, the largest company by capitalization, is worth “only” $3 trillion. In my opinion, it is extremely difficult for bitcoin to reach even those peaks. To catch up with Apple in terms of capitalization, it needs to rise to $150,000, which is still a pretty high bar for the first cryptocurrency. And reaching the price of a million will be even more difficult. Of course, gradual depreciation of fiat currencies due to inflation allows one to set such goals for bitcoin, but it will take many years to reach them.
Bank of England
And perhaps the most negative outlook for bitcoin today from the Bank of England. Representatives of the regulator warned investors that they could lose all the money they invest in bitcoin. “The price of cryptocurrencies can vary quite significantly, and theoretically or practically they could fall to zero,” the deputy governor of the Bank of England said. And Bank of England official Thomas Belmesh called bitcoin a “worthless” asset that cannot be used either as a means of payment or as a means of savings. As you can see, friends, the forecasts are very diverse and, given that the asset is relatively young and few people understand how to value it, it is very difficult to predict the dynamics of bitcoin. By and large, it is wrong to make predictions with a one-year horizon for cryptocurrencies at all – you need to evaluate longer-term trends, which are less affected by market noise. Nevertheless, let’s try to make our own bitcoin forecast for 2022.
InvestFuture Forecast
First of all, let’s pay attention to the most important factors that will determine the main trend of bitcoin behavior in the new year. Let’s start with inflation. It has been a long time since the world economy has seen such problems with inflation. Because fighting inflation is now the number one issue for the world’s central banks, it seems logical to expect bitcoin to weaken: if inflation goes down, so will interest in bitcoin as a tool to protect against this very inflation. But let’s not jump to conclusions.
In the first quarter of 2022, despite the turnaround in monetary policy by Western central banks, financing conditions will still be very soft and stimulative. The U.S. Federal Reserve, the European Central Bank, and even the Bank of England, which raised its policy rate slightly at its last meeting, still have key rates near zero. Even if the Fed starts raising rates in March and is projected to hold three rate hikes during 2022, monetary policy in the U.S. will still remain soft. Yes, we see Western central banks winding down their asset purchase programs, but they are in no hurry to reduce their bloated balance sheets. Therefore, the surplus liquidity will leave the markets very slowly, so the bitcoin exchange rate will probably be affected only in the second half of the year, and this negative effect will build up slowly and gradually. Thus, in the first quarter, bitcoin still has room for growth and a chance to return to historical highs – and even to renew them.
But from the second quarter, the negative impact on the cryptocurrency market will begin to intensify, and in the second half of the year, the cryptocurrency market may start to go into a depression. And the main source of the negative effect will most likely be two other factors, rather than a decline in inflation. The first is regulatory problems. Bitcoin has already reached a trillion-dollar capitalization, and regulators around the world can no longer just brush it aside and pretend it doesn’t exist. Questions about the regulation of cryptocurrencies are now being raised at every meeting of leading central banks. True, it’s not bitcoin that worries the authorities the most right now, but stabelcoin.
But even if regulators focus their efforts on regulating stablcoins in 2022, it could cause concern for bitcoin investors as well, because everyone has heard about bitcoin pumping at the expense of stablcoins and another “plumping” of the first cryptocurrency after the additional issue of Tether stablcoin.
And the second negative factor is the ESG trend. While talk of “dirty” bitcoin has recently subsided, the problem has not evaporated. Given that bitcoin still consumes a lot of energy, the active implementation of ESG standards around the world could also be a source of negativity for it. But on the other hand, more “green” cryptocurrencies may benefit from this – for example, Ethereum, which is moving to a new mining algorithm.
Conclusions
To summarize. In my opinion, we should probably not expect any fantastic growth from Bitcoin in 2022. The first quarter still gives hope that bitcoin will be able to break through the previous maximums and rise to about $70-75 thousand, but in the second half of the year we will most likely see its fall into the $30-40 thousand range. And in 2023, the decline may continue because of the final change of the central banks’ course towards a tightening of monetary policy. If we talk about specific price levels, it is worth paying attention to such bitcoin analysis tool as the onchain metric SSR – Stablecoin Supply Ratio. It is calculated as the ratio of the market capitalization of bitcoin to the market capitalization of all stablecoins. This metric shows that strong support for the first cryptocurrency passes at the $30,000 level. If regulators don’t use harsh crackdowns against stabecoin in the new year, this support is likely to continue into the second half of 2022, although bitcoin may test it at times.
That, friends, is how I see bitcoin dynamics in 2022 right now. Naturally, as the markets change, this forecast can and should be adjusted or revised altogether.