Bitcoin and Ethereum: 3 Problems for 2022; potholes could continue |

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  • A winning year although Ethereum performed much better
  • Custody is essential
  • Security poses threats
  • Control: the main problem for governments
  • Cryptocurrencies are here to stay, but it could be a bumpy ride

At the end of last week, the close ones were trading above $ 50,000, and the contract was over $ 4,000 a week by the end of the year. Although prices are down from the all-time highs on November 10, anyone who owned the major cryptocurrencies on December 31, 2020 and held them throughout the year has seen impressive returns.

A winning year although Ethereum performed much better
Anyone who owns or tokens on December 31, 2020, without trading or selling them during 2021, had the value of their computing wallets soaring this past year so far this year.

Source: Barchart
The graph illustrates the rise of Bitcoin from $ 28,986.74 on December 31, 2020 to $ 50,818 on December 27, 2021, an upward movement of more than 75% in 2021 a few days to the end of the year.

ETHUSD Monthly 2010-2021

Source: Barchart

Ethereum did even better, going from $ 738,912 at the end of 2020 to $ 4,060 on December 27, 2021. The second largest cryptocurrency provided investors with a return of more than 449% in one week to the end of the year 2021.

Ethereum far surpassed Bitcoin in 2021 as its protocol is faster and more efficient. While Bitcoin is a cryptocurrency and medium of exchange, Ethereum is a protocol that supports many other of the 16,000+ cryptocurrencies. Furthermore, Ethereum 2.0 will be a much greener token, as its version 2.0 proof-of-stake will require much less power than Bitcoin’s proof-of-work design.

As we approach 2022, several factors are likely to cause continued volatility in the cryptocurrency asset class.

1. Custody is essential
Keeping cryptocurrencies in computer wallets is not a problem for devotees of this asset class, but it is not the case for the potentially larger market. Horror stories about the loss of millions and billions of dollars in cryptocurrencies when hard drives are discarded or passwords are lost have prevented many market participants from opening computing wallets.

In late 2021, Jack Dorsey resigned as CEO of Twitter to focus on his payments company, formerly known as Square (NYSE :). Mr. Dorsey has been an advocate for cryptocurrencies, saying that the asset class will “bring the world together.”

It changed the name from Square to Block in a sign that cryptocurrencies will dominate the future of payments. Block is obviously a reference to the blockchain. Mr. Dorsey’s company is working on a hard wallet to solve the cryptocurrency custody problem. Custody is a key factor in the success of the asset class in the opinion of market participants and regulators.

During 2021, the SEC approved Bitcoin ETF products based on futures prices, as the CFTC is charged with regulating the scope of futures. However, the SEC has not approved any physical cryptocurrency ETF products. Improving the custody issue would be of great help to regulators.

Additionally, the FDIC insures dollar deposits at financial institutions. An insured cryptocurrency deposit system would dramatically increase the accessible market. Many market participants are looking to diversify their portfolios with some exposure to cryptocurrencies. When financial institutions provide their clients with custody solutions, we will see the asset class grow.

2. Security poses threats
Computer hacks have been problematic in 2021. Colonial (MC 🙂 Pipeline and JBS meatpacking were two of many events that put the spotlight on security. The fear of losing cryptocurrencies to hackers breaking into digital wallets or token-holding exchanges for many clients has been a roadblock for many potential market participants.

Security is another issue facing this asset class in 2022. A significant cryptocurrency hack could send prices down considerably in the coming months and years.

Solving the security problem involves cooperation between exchanges and government agencies that watch out for hackers to develop robust token theft prevention methods.

3. Control: the main problem for governments
Custody and security are important issues, but they are technical. Control is ideological. Governments around the world gain power from their military and control of finances. Governments can expand and contract the money supply as they please to achieve a political agenda.

US Treasury Secretary Janet Yellen and ECB President Christine Lagarde have warned about the dire uses of cryptocurrencies. US Senator Elizabeth Warren recently said that she wants the cryptocurrency asset class to be further regulated as its growth could pose “systemic risks” to the global financial system. Other government officials have made similar comments, with China outright banning cryptocurrencies in 2021.

Meanwhile, government regulators are likely to be far more concerned about losing control of the money supply than about any other issue.

Cryptocurrencies are a libertarian medium of exchange that takes the power of money’s value from governments and returns it to a collective of individuals who set prices based on buying and selling in the market. The ideological divide may be the hardest to overcome in 2022 and beyond. Governments’ concern is expected to grow with the market capitalization of this asset class.

Cryptocurrencies are here to stay, but it could be a bumpy ride
At the $ 2.38 trillion level at the end of last week, the cryptocurrency market capitalization is more than three times higher than at the end of 2020. In 2020, the market capitalization moved almost four times more than at the end of 2019. In 2019, it moved more than 1.5 times more than at the end of 2018.

If the market capitalization of the asset class doubles in 2022, it will approach the $ 5 trillion level. The higher it rises, the greater the likelihood that a significant decline will trigger systemic shocks spreading through markets for all asset classes. If the pace of growth continues, hopefully government officials and regulators will sound the alarm.

Meanwhile, the world has embraced blockchain and financial technology. Rising cryptocurrency prices are a wake-up call for governments to issue digital currencies. By the end of 2021, China appears to be in the lead, and the United States, home of the world’s reserve currency, is far behind.

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Bitcoin and Ethereum: 3 Problems for 2022; potholes could continue |

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