Bitcoin began the year 2021 with a solid performance and experienced a quick surge in both use and interest over the course of the year. The cryptocurrency had numerous milestones, from the launch of the first Bitcoin-linked exchange-traded funds (ETFs) to the announcement by big corporations that they would accept it as a means of payment. (And then, in Tesla's case, rescinding it.) While Bitcoin ended the year lower than many predicted and is off to a slow start in 2022, it is critical to remember that the cryptocurrency outperformed other asset classes in 2021, including commodities, stocks, and gold.

NYDIG, a Bitcoin-focused technology and financial services company, has presented its year in review and outlook for 2022, stating that key themes from last year—including regulation and institutional adoption—will carry over into the new year.

Take a look at NYDIG's Bitcoin projection for 2022 and the reactions of experts:

Correlations at the Macro Level Remain Elevated

"In the future, we should anticipate correlations to stabilise at these new higher values; there is no reason to believe they will revert to zero correlation. However, similar to commodities, despite moderate positive correlations, Bitcoin should continue to operate as a portfolio diversifier," NYDIG stated in the research.

According to Reeve Collins, Co-Founder of BLOCKv, a leading platform for generating highly programmable and customisable digital assets, Bitcoin is continuing to open up new avenues for more individuals, even those who have never had access to banks, to pay and connect with global ecosystems.

"It is critical that Bitcoin is recognised as a portfolio diversifier in order for people to continue to have access to this currency and its associated technology. Due to the asset's youth and the fact that it is only now becoming widely embraced, correlation with equities is to be expected," Collins added. "However, over time, this acceptance will likely result in Bitcoin being viewed as a hedge, diminishing its link with stocks."

Jorge Pesok, general counsel and chief compliance officer at legal-first crypto software company Tacen Inc., echoed the sentiment, telling GOBankingRates that while there is a correlation at the moment, he expects it to dissipate in the coming years — in part because the functionality of so many of these crypto assets and protocols is so diverse that they will cater to different markets in unique ways.

"For instance, it's difficult to see how DeFi or NFTs can remain associated with, say, ETH or BTC, given that they all serve so many diverse activities for customers," Pesok explained. "Moreover, as Bitcoin's acceptance continues to expand, it is expected to evolve into a risk-free asset similar to digital gold. However, this will require time and additional adoption."

At the Forefront of Stablecoin Regulation

According to NYDIG, there appears to be an expected ideological divide on the topic, with Republicans favouring a softer approach to regulation than Democrats, and Democrats not always having the necessary Congressional control to avoid compromise.

"In any case, we anticipate that finalising a strategy to stablecoins will remain a top regulatory priority in 2022," the paper states.

According to Collins, "stablecoin regulation is the most likely regulatory action in 2022, but given the lack of consensus in Congress, I anticipate a gentler touch."

Ari Redbord, Head of Legal and Government Affairs at blockchain intelligence firm TRM Labs, added that following the President's Working Group (PWG) on Financial Markets' report on stablecoins last year, it is possible that "while we are unlikely to see a comprehensive legal framework for crypto in 2022 given the issue's complexity and apparent partisan divide, we may see movement on stablecoins given the PWG report's pressure and the laser focus on stablecoins."

Pesok said that there is rising support for stablecoin regulation among regulators and both political parties, and this is an area of the crypto business that is likely to see reasonably rapid and, ideally, constructive regulation.

"Such laws may include something close to FDIC-style insurance, similar to bank deposits, as well as more transparent measurements and criteria for stablecoins backed by dollars and dollar-like assets. The crypto business, in general, would welcome something along these lines, and so there might be significant movement in this area in the coming year," he stated.

Securities Classification of Cryptocurrencies

“Charmain Gary Gensler has stated repeatedly that he feels that many of the cryptocurrencies presently traded should be regarded as securities, according to NYDIG's investigation. Bitcoin investors, on the other hand, can take solace in Gensler's previous statements that he does not feel the digital asset is a security, which aligns with his predecessor, Jay Clayton, according to the story.

"However, it is possible that bitcoin lending products will be subject to securities legislation. Additionally, staking a proof-of-stake currency may be considered. The SEC has not said when (or if) it will begin cracking down on either conduct," the paper noted.

Pesok concurred, noting that a spate of crypto financing products have previously come under review by the SEC and various jurisdictions.

"However, support for prudent regulation of crypto-focused goods, including loans, continues to increase," he said. "And I have a feeling that there will be a constructive touch in terms of regulation that will allow such items to thrive," he added.

Payments as a Business Model Continues to Expand

"Bitcoin is best known today as an unbacked store of value, akin to a digital counterpart of gold. BTC rewards credit cards, which were initially offered in a limited capacity by several companies at the end of 2020, entered the mainstream in 2021. 'Get paid in bitcoin,' or 'bitcoin payroll,' has been a hot topic of conversation among mayors and professional athletes throughout 2021. We believe that 2022 will be the year that receiving payments in bitcoin will move out of the shadows and become available to the general public," NYDIG stated.

According to Collins, 2022 will be a watershed year for global cryptocurrency acceptance, as innovators begin to bridge the divide between decentralised currencies and the centralised world via underlying technology.

"Usability is currently a significant impediment to bringing bitcoin payments to the masses: custody, on-off ramps, trouble accessing funds on mobile devices, and interfaces not suited for the target population," Collins added. "As the industry evolves at a breakneck pace, I believe we will see products that provide users with a frictionless way to move decentralised, fiat, and digital currencies in and out of the global financial system without the use of middlemen, removing significant entry barriers currently in place and enabling the broader public to pay and be paid in cryptocurrency."

Added Themes

Collins of BLOCKv is bullish on Bitcoin's prospects in 2022, despite the Fed's tightening monetary policy in response to inflation, which has resulted in broad-based selloffs in both equity and crypto markets.

"This is understandable," Collins stated. "However, at some point, perhaps even now, selling will be viewed as an overreaction. And as the market stabilises, we will see significant price growth across the board in cryptocurrency. Therefore, looking beyond the next year or so, Bitcoin in particular is primed for rapid expansion."

For Redbord, the primary focus is on regulatory clarification in 2022, since "there is a notion that crypto is the Wild West" - a reference to Gensler's statements from 2021.

"What we actually see is a well-regulated industry in the United States, with crypto firms needing to implement risk-based compliance procedures. And there is greater visibility on financial flows than ever before," he added, noting that this visibility on the blockchain enables law enforcement to track the flow of illegal proceeds and regulators to get a bird's eye perspective of their regulated ecosystem.

"By 2022, regulations are projected to become more transparent. Certain cryptocurrencies are classified as securities or commodities. Should DeFi initiatives be regulated as money service businesses (MSBs) similar to exchanges? And how can we categorise and regulate the burgeoning NFT market?" he asked.

Pesok, on the other hand, is enthusiastic about Bitcoin's prospects this year.

"Bitcoin generated a revolutionary idea that has resulted in the introduction of a plethora of unique goods that provide significant value to people the globe over," he said. "In fact, the rapid adoption of Bitcoin and other crypto-assets shows that, zooming out, we are still in the early phases of a rapidly growing industry primed to enjoy huge growth over the next year. Indeed, it's difficult to remain pessimistic about the future of this business."

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