Predictions are hard even when you know what’s 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 give it a go.
By the end of 2022, most crypto projects will be dead, dying or on the brink of collapse. While developers will carry their ideas and innovations forward, the tokens themselves will not.
A great bear market will wipe out the vast majority of altcoins. The experimental phase of cryptocurrency — the genesis stage — will end.
Bitcoin Can’t Go Up Forever
Few realize bitcoin’s price went on a parabolic rise from December 2018 until November 2021.
In December 2021, that parabola broke. This chart shows it clearly.
Whether the price makes a new all-time high before another, larger crash or it keeps trending sideways and down from here, I expect a bear market throughout 2022.
For three years, the price rose at an accelerating pace. It’s time for the market to rest for a bit.
That doesn’t mean innovation and adoption will stop. In fact, specific to bitcoin, I expect great things to happen. Just not “price go up.”
Prepare For The Great Altcoin Purge
What about Ethereum and the thousands of cryptocurrencies that aren’t bitcoin?
During the last bear market, 2018, almost every altcoin dropped more than 90% from its peak. Some dropped 99% and a handful went to $0.
While the best altcoins actually do something other than “go up,” every altcoin has problems, even the biggest ones.
Ethereum can’t scale and costs too much for small users. ETH 2.0 gets delayed all the time, nobody knows if it will work the way they expect, new tokenomics screw up some DeFi protocols, and behind-the-scenes conflicts breed a lot of drama that its developers may never resolve.
From looking into dozens of altcoins for my “Altcoin Insights” research service, I can assure you that most tokens are schemes for founders and insiders to swindle fast money from overzealous speculators. Many legit 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 fits and novel structures, you can’t expect any of them to hold up in a bear market. At least bitcoin has actual users, proven technology and lots of people with a stake in its success. Most altcoins have none of that.
Once bitcoin’s bear market starts, altcoin prices will collapse. Many will drop 99% or more from their high. Most will never recover. The only question is how high they will go before they fall.
Wash Away The Filth
If cryptocurrency still represents the Wild West of finance, the 2022 bear market will wipe away that image.
Already, global financial regulators are probing stablecoins, privately issued cryptocurrencies pegged to the U.S. dollar and other major currencies. They compare stablecoins to digital versions of the wildcat banks of the old West — customers think they can redeem their “dollars” anytime they want, but the banks don’t have nearly enough reserves to do that.
It’s a fair analogy, though it doesn’t make sense when you look at how stablecoins actually work. Still, the result is the same: Customers need to trust a private company to back their dollars, rather than the full faith and credit of the U.S. government. But private companies can tax, spend and print more dollars to cover shortfalls. Once one of them fails, the risk of financial panic goes up a lot.
At least one stablecoin probably does not have enough money to pay out to everybody who asks to redeem their tokens. You may have heard of it, its name rhymes with “feather.”
Perhaps all of them will fall short.
When the bear market comes, we’ll find out who’s swimming naked. Some will go to jail, others will pay huge fines, and the stain will give even crypto diehards reason enough to allow governments to regulate who can create and distribute these digital dollars.
Let’s not get started with pre-mines, pre-sales, ICOs and IDOs.
Regulate Absolutely Everything
While there’s an outside chance countries create crypto-specific legal and regulatory frameworks, I’ll bet they’ll forgo the hassle and just hand the whole thing to Wall Street and big banks.
U.S. regulators have already started to gather input on a regulatory framework for banks that want to put bitcoin in their reserves and companies working on crypto-based financial products. Other countries have gone even further.
They’ve also tried to push speculators to derivatives and other financial products. Wall Street happily complied.
Now, with so many paper-traded bitcoin products, if all you want to do is wager on the price of bitcoin, you don’t need to fuss with a bitcoin wallet or custody platform. You can just buy ETFs, options or futures contracts.
Speculators never have to touch the spot market and institutions can keep bitcoin off of their books.
As more money flows to paper-traded investment products instead of the spot markets, bitcoin will have to earn its price. It can’t depend on “institutions” because those institutions will buy a fund, not actual bitcoin.
Some think retail interest will pick up the slack but not during a bear market. People will get bored, as they did during each of bitcoin’s three previous bear markets. Except unlike those previous three bear markets, people will have plenty of ways to get exposure to bitcoin without buying it.
Set The Stage For Real Adoption
You’ll still have plenty of people accumulating bitcoin, but the 13-year speculative phase of crypto will end. A new phase will begin, for better or worse.
What will that phase look like?
I believe that builders will keep building. Developers will keep innovating. Some platforms will adapt, persist and bloom. Lightning, RSK, Sovryn and other bitcoin projects will render most altcoins obsolete.
The technology will evolve while the price bleeds for months, as it did in each of the three previous bear markets. Speculators will leave or go exclusively to derivatives. Demand will have to come from people who actually want bitcoin, rather than people who want to use bitcoin to get more of their government’s money.
Frankly, that may just be the best thing. Terrible altcoins will die and bitcoin can finally prove it has value beyond “its price goes up.”
This is a guest post by Mark Helfman. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.