After a hawkish turn by the Federal Reserve took some steam out of cryptocurrencies at year-end while largely sparing other risk assets, central bank policy is taking a key role in the debate about the outlook for tokens in 2022. 

To what extent will Jerome Powell’s Fed tighten policy to stem inflation? The answer to that question will help determine whether Bitcoin follows its 60 per cent gain in 2021 with another banner year, some analysts say. 

Another school of thought holds that as companies from Meta Platforms Inc. (formerly Facebook) to Apple Inc. push deeper into the metaverse and consumers keep piling into non-fungible tokens, that will push crypto higher regardless of the macroeconomic forces at play. Just witness the sale last year of an NFT artwork for US$69.3 million at Christie’s, or the loosely organized group of crypto investors that battled billionaire Ken Griffin at an auction for a copy of the U.S. Constitution. 

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Bitcoin traded at about US$47,250 on Monday as of 8:40 a.m. in New York, up about 0.5 per cent on the day. Here, four market-watchers discuss their outlook for the token and wider crypto universe in 2022:  

Bullish Bitcoin Technicals

“We are bullish Bitcoin long-term, based on our long-term trend-following gauges,” Katie Stockton, founder and managing partner of Fairlead Strategies LLC, said in an email. 

“We assume the long-term uptrend will maintain itself and a more decisive breakout to new highs would allow for an impressive measured-move projection of approximately US$90,000. For now, a corrective phase still has a hold, although there are potential signs of short-term downside exhaustion.”

The Fed and the Metaverse

“The No. 1 influencing factor for Bitcoin and cryptocurrencies in 2022 is central bank policy,” Antoni Trenchev, managing partner of crypto lender Nexo, said in an email. “Cheap money is here to stay which has huge implications for crypto,” as “the Fed doesn’t have the stomach or backbone to withstand a 10 per cent-20 per cent collapse in the stock market, along with an adverse reaction in the bond market.”

Trenchev sees a choppy 2022, yet forecasts Bitcoin will reach US$100,000 by the end of June. He also doesn’t expect tokens such as Solana and Avalanche to offer the same exponential gains they did in 2021, but rather “these upstarts -- awash with arrogance, attitude and funky narratives -- will face the same scaling challenges that Ethereum and other older protocols faced.” 

“What I’m really excited about in 2022 is the metaverse,” he wrote. “The ‘birth’ and use of the term metaverse is a beautiful mess, and it has a lot of potential. It will be one of the overarching themes of next year: the metaverse, the infrastructure building and then the NFTs that will make up part of the economy there.”

The Skeptic

“Although I expect the speculative zeal to continue in the crypto space, it, like bloated technology valuations, faces a much more challenging environment in 2022,” said Jeffrey Halley, senior market analyst at Oanda Asia Pacific, in an email. “The primary reason is the start of interest-rate normalization by the Federal Reserve but with other major central banks likely to follow as well. That will challenge the raison d’être that crypto is an alternative to fiat money.”

“Hanging over the crypto space is the threat of more regulation and frankly, with a new coin coming out every week which is ‘the next big thing’ and driven by speculation and not blockchain, I’m struggling to see how any of them will be,” Halley said. “I continue to believe that cryptocurrencies are the greatest case of financial-market group-think stupidity in history. The music may keep playing for part of 2022, but the emperor still isn’t wearing any clothes.”

Awaiting an App Store

“The race is on to be the app store for crypto,” said Philip Gradwell, chief economist at Chainalysis, in an email. “A major lesson of Web 2.0 was that consumers love platforms, and I don’t think that is going to change for Web 3.0. Currently there is no crypto platform that owns the customer relationship and aggregates suppliers. I predict that in 2022, many companies will race to build this platform, with Coinbase in the lead as it integrates DeFi and NFTs.”