Bitcoin (EXANTE: Bitcoin) during the first half of 2021 enjoyed the FOMO effect as institutional interest in cryptocurrencies surged significantly. Big fintech companies (e.g. PayPal) have been actively engaging into the space and bought with them new capital. El Salvador's recognition of bitcoin as legal tender also played a key role in adoption.
However, every hype has an end. In May, China initiated a massive crackdown on the market focusing specifically on cryptocurrency miners in addition to Elon Musk's decision to drop support for bitcoin as a payment method due to environmental harm. This sequence of events brought bitcoin down to the $30,000 mark, which, in turn, triggered massive liquidations.
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The market has also seen episodes of profit taking "buy the rumor, sell the news" impulses where bitcoin sold off after hitting $60,000. Bitcoin, however, succeeded to updated an all-time high in November, almost hitting $70,000 even though in December the cryptocurrency fell again to $42,000.
In 2021, bitcoin took its place in investor portfolios, proving itself as a hedge against rising inflation. In general, the growth of bitcoin was muted by the rapid growth of altcoins. The greatest interest was attracted by ether (ETH), Layer-2 solutions, as well as non-fungible tokens (NFT).
What to expect in 2022?
Cryptocurrencies may face difficulties in early 2022 due to the general macroeconomic backdrop as uncertainty surrounding COVID-19 and inflation remains high. There is little doubt that the Fed's fight against inflation will not affect the economy. Nevertheless, bitcoin's price in recent weeks has become relatively low, falling below $50,000. Moreover, the market continues to have a high appetite for cryptocurrencies from both retail and institutional investors, buyers will seek to redeem the decline.
It is barely possible to forecast what exactly 2022 will look like for bitcoin. Even though a major downturn, like in 2018, might not happen: the market is filled with long-term investors who are in no hurry to close their positions. It is likely that if US indices continue to grow in 2022, bitcoin will surpass this dynamics.
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