Crypto Outlook 2022: What Investors Need to Know

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In 2021, it seemed like crypto was on a lot of investors’ minds. It was also consistently making headlines. Overall, the price of Bitcoin went up by more than 60% in 2021. What’s more, a recent survey found that more than half of the American investors who hold cryptocurrency bought it for the first time in the previous 12 months.

So, there’s no doubt that cryptocurrency adoption has increased significantly over the last year… and it shows no signs of slowing down in 2022.

Here are a few things crypto investors need to know:

Bitcoin Has Value in Developed and Developing Countries 

There was a time when Bitcoin didn’t have a clear use case, but those days are long gone.

El Salvador became the first country in the world to adopt Bitcoin as legal tender in 2021. The move was made to reduce the fees that Salvadorans pay to send and receive remittances, and as a way for unbanked Salvadorans—who make up 70% of the population of El Salvador—to get access to financial services. There will likely be others that follow the lead of Salvadoran President Nayib Bukele, as other developing countries experience similar problems.

Bitcoin is unlikely to be adopted as legal tender in developed countries anytime soon, but it can be used to protect individuals and corporations from inflation, which came in at its fastest pace in nearly 40 years in December. In the short-term, Bitcoin trades as a risky asset in an increasingly risk-on, risk-off market. But in the long run, the cryptocurrency’s limited supply could lead it to outperform during periods of high inflation.

Cryptocurrencies With Smart Contract Capabilities Could Continue to See Rapid Growth

In 2021, cryptocurrencies with smart contract capabilities were on fire. The total value of transactions on the Ethereum network in the first nine months of 2021 increased by more than 300% over the value of transactions in the same period in 2020. Solana, which was founded in 2017, was up by nearly 12,000% at one point.

Ethereum, Solana, and other cryptocurrencies with smart contract capabilities could continue to see rapid growth in 2022 and beyond, as they are needed to run applications like decentralized finance (DeFi) and non-fungible tokens (NFTs). Trading in NFTs, for example, hit $22 billion in 2021, up from just $100 million in 2020. Going forward, the network of participants and the number of use cases could continue to see rapid growth, giving cryptocurrencies in this category plenty of further upside.

Digital Asset Companies Had a Big 2021… and Could Have an Even Bigger 2022

There are a lot of companies that are involved with cryptocurrencies in one way or another, as there is a need for payment processors, asset managers, miners, hardware, software, and exchanges. In 2021, there were a number of digital asset company IPOs, led by Coinbase, the largest listing (IPO, SPAC, or otherwise) of any digital asset company in history. Coinshares, Bakkt, and Stronghold Digital Mining are a few more big names that went public.

There might not be another crypto-related IPO that is as big as Coinbase in 2022, but the cryptocurrency industry is still growing and users are demanding more and more crypto-related services, which could lead to a growing number of multi-billion dollar IPOs going forward.

Consider Digital Asset ETFs to Capitalize on Crypto Trends

We specifically mentioned three cryptocurrencies in this article, but there are actually more than 10,000 coins in the crypto world, so it’s important to categorize the coins before making investment decisions.

MV Index Solutions (MVIS), a VanEck subsidiary, has developed a classification scheme to categorize digital asset coins in a way that captures the value and use case related to a coin. Categories include smart contract platforms, media and entertainment (metaverse), DeFi, and infrastructure applications

If you want to get exposure to the cryptocurrency industry, the VanEck Digital Transformation ETF (DAPP) is a solid option. The fund tracks the performance of companies that are participating in the digital asset economy including digital asset exchanges, miners, other infrastructure companies, and companies that can potentially get 50% of their revenue from digital assets. If you want an investment that is more closely tied to the price of Bitcoin, you should consider the VanEck Bitcoin Strategy ETF (XBTF), which invests in Bitcoin futures contracts.

With investors continuing to show interest in cryptocurrencies, there is likely much more growth to come in 2022. By knowing the top trends and investment opportunities, you can incorporate exposure to digital assets into your portfolio.

DISCLOSURES

The information herein represents the opinion of the author(s), but not necessarily those of VanEck. The securities/ financial instruments discussed in this material may not be appropriate for all investors. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. This material has been prepared for informational purposes only and is not an offer to buy or sell or a solicitation of any offer to buy or sell any security/financial instrument, or to participate in any trading strategy.

Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results, are valid as of the date of this communication and subject to change without notice. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. VanEck does not guarantee the accuracy of third party data.

The VanEck Digital Transformation ETF (DAPP) will not invest in digital assets (including cryptocurrencies) (i) directly or (ii) indirectly through the use of digital asset derivatives. The Fund also will not invest in initial coin offerings. Therefore the Fund is not expected to track the price movement of any digital asset.

Investors in the Fund should be willing to accept a high degree of volatility in the price of the Fund’s Shares and the possibility of significant losses. An investment in the Fund involves a substantial degree of risk. An investment in the Fund is not a deposit with a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Therefore, you should consider carefully various risks before investing in the Fund, each of which could significantly and adversely affect the value of an investment in the Fund.

An investment in the Fund may be subject to risks which include, among others, risks related to investing in digital transformation companies, investing in equity securities, Canadian issuers, small- and medium-capitalization companies, information technology and financials sectors, foreign securities, market, operational, index tracking, authorized participant concentration, new fund, absence of prior active market, trading issues, passive management, fund shares trading, premium/discount and liquidity of fund shares, non-diversified and concentration risks which may make these investments volatile in price or difficult to trade. Small- and medium-capitalization companies may be subject to elevated risks.

The technology relating to digital assets, including blockchain, is new and developing and the risks associated with digital assets may not fully emerge until the technology is widely used. Digital asset technologies are used by companies to optimize their business practices, whether by using the technology within their business or operating business lines involved in the operation of the technology. The cryptographic keys necessary to transact a digital asset may be subject to theft, loss, or destruction, which could adversely affect a company’s business or operations if it were dependent on the digital asset. There may be risks posed by the lack of regulation for digital assets and any future regulatory developments could affect the viability and expansion of the use of digital assets.

The value of Bitcoin and the VanEck Bitcoin Strategy ETF’s (XBTF) Bitcoin Futures holdings, could decline rapidly, including to zero. You should be prepared to lose your entire investment. The Fund does not invest in Bitcoin or other digital assets directly.

The further development and acceptance of the Bitcoin network, which is part of a new and rapidly changing industry, is subject to a variety of factors that are difficult to evaluate, the slowing, stopping or reversing of the development or acceptance of the Bitcoin network may adversely affect the price of Bitcoin and therefore cause the Fund to suffer losses, regulatory changes or actions may alter the nature of an investment in Bitcoin or restrict the use of Bitcoin or the operations of the Bitcoin network or venues on which Bitcoin trades in a manner that adversely affects the price of Bitcoin and, therefore, the Fund’s Bitcoin Futures. Bitcoin generally operates without central authority (such as a bank) and is not backed by any government, Bitcoin is not legal tender and federal, state and/or foreign governments may restrict the use and exchange of Bitcoin, and regulation in the United States is still developing.

Futures Contract Risk. The use of futures contracts involves risks that are in addition to, and potentially greater than, the risks of investing directly in securities and other more traditional assets. The market for Bitcoin Futures may be less developed, and potentially less liquid and more volatile, than more established futures markets. Bitcoin Futures are subject to collateral requirements and daily limits that may limit the Fund’s ability to achieve its target exposure. Margin requirements for Bitcoin Futures traded on the Chicago Mercantile Exchange (“CME”) may be substantially higher than margin requirements for many other types of futures contracts. Futures contracts exhibit “futures basis,” which refers to the difference between the current market value of the underlying Bitcoin (the “spot” price) and the price of the cash-settled futures contracts.

This risk may be adversely affected by “negative roll yields” in “contango” markets. The Fund will “roll” out of one futures contract as the expiration date approaches and into another futures contract on Bitcoin with a later expiration date. The “rolling” feature creates the potential for a significant negative effect on the Fund’s performance that is independent of the performance of the spot prices of the Bitcoin. A market where futures prices are generally greater than spot prices is referred to as a “contango” market. Therefore, if the futures market for a given commodity is in contango, then the value of a futures contract on that commodity would tend to decline over time (assuming the spot price remains unchanged), because the higher futures price would fall as it converges to the lower spot price by expiration. Extended period of contango may cause significant and sustained losses.

An investment in the Fund may be subject to risks which include, among others market and volatility, investment, futures contract, derivatives, investments related to Bitcoin and Bitcoin futures, derivatives, counterparty, investment capacity, target exposure and rebalancing, borrowing and leverage, indirect investment, credit, interest rate, illiquidity, investing in other investment companies, management, new fund, non-diversified, operational, portfolio turnover, regulatory, repurchase agreements, tax, of cash transactions, authorized participant concentration, no guarantee of active trading market, trading issues, fund shares trading, premium/discount and liquidity of fund shares, U.S. government securities, debt securities, municipal securities, money market funds, securitized/asset-backed securities, and sovereign bond risks, all of which could significantly and adversely affect the value of an investment in the Fund.

Cryptocurrency is a digital representation of value that functions as a medium of exchange, a unit of account, or a store of value, but it does not have legal tender status. Cryptocurrencies are sometimes exchanged for U.S. dollars or other currencies around the world, but they are not generally backed or supported by any government or central bank. Their value is completely derived by market forces of supply and demand, and they are more volatile than traditional currencies. The value of cryptocurrency may be derived from the continued willingness of market participants to exchange fiat currency for cryptocurrency, which may result in the potential for permanent and total loss of value of a particular cryptocurrency should the market for that cryptocurrency disappear. Cryptocurrencies are not covered by either FDIC or SIPC insurance.

Investing in cryptocurrencies comes with a number of risks, including volatile market price swings or flash crashes, market manipulation, and cybersecurity risks. In addition, cryptocurrency markets and exchanges are not regulated with the same controls or customer protections available in equity, option, futures, or foreign exchange investing. There is no assurance that a person who accepts a cryptocurrency as payment today will continue to do so in the future.

The features, functions, characteristics, operation, use and other properties of the specific cryptocurrency may be complex, technical, or difficult to understand or evaluate. The cryptocurrency may be vulnerable to attacks on the security, integrity or operation, including attacks using computing power sufficient to overwhelm the normal operation of the cryptocurrency’s blockchain or other underlying technology. Some cryptocurrency transactions will be deemed to be made when recorded on a public ledger, which is not necessarily the date or time that a transaction may have been initiated.

  • Investors must have the financial ability, sophistication and willingness to bear the risks of an investment and a potential total loss of their entire investment in cryptocurrency.
  • An investment in cryptocurrency is not suitable or desirable for all investors.
  • Cryptocurrency has limited operating history or performance.
  • Fees and expenses associated with a cryptocurrency investment may be substantial.

There may be risks posed by the lack of regulation for cryptocurrencies and any future regulatory developments could affect the viability and expansion of the use of cryptocurrencies. Investors should conduct extensive research before investing in cryptocurrencies. Past performance is not a guarantee of future results.

Information provided by Van Eck is not intended to be, nor should it be construed as financial, tax or legal advice. It is not a recommendation to buy or sell an interest in cryptocurrencies.

Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider the investment objective, risks, charges and expenses of the Fund carefully before investing. To obtain a prospectus and summary prospectus, which contains this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus carefully before investing.

Article Sources
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  1. CoinDesk, “Bitcoin, https://www.coindesk.com/price/bitcoin/.” Accessed January 18, 2022.

  2. TurboTax, “Cryptocurrency Tax Calculator, https://blog.turbotax.intuit.com/income-and-investments/cryptocurrency-tax-calculator-50398/.” Accessed January 18. 2022.

  3. Time, “El Salvador Is Betting on Bitcoin to Rebrand the Country — and Strengthen the President's Grip, https://time.com/6103299/bitcoin-el-salvador-nayib-bukele/.” Accessed January 18, 2022.

  4. CNBC, “Inflation rises 7% over the past year, highest since 1982, https://www.cnbc.com/2022/01/12/cpi-december-2021-.html.” Accessed January 18, 2022.

  5. The Guardian, “NFTs market hits $22bn as craze turns digital images into assets, https://www.theguardian.com/technology/2021/dec/16/nfts-market-hits-22bn-as-craze-turns-digital-images-into-assets.” Accessed January 18, 2022.