Bitvo’s Cryptocurrency Outlook 2022

2021 was a big year for cryptocurrency. It started with an upside breakout and had lots of volatility through to year-end. Institutional adoption and mainstream acceptance grew substantially through the year. And in a year where crypto fluctuated between $1T-3T in value, it was an extraordinary period for trading.

I got together with Pam Draper, President and CEO of Bitvo, and Bitvo’s Institutional OTC traders Joel Johnson and Yiannis Kanatas for a conversation.

In this interview, we cover:

  • * The big surprises for the year
  • * The influence of DeFi on ETH
  • * Trends in crypto, including the Metaverse
  • * The evolution of value and what it means
  • * Some crypto themes
  • * What the regulatory environment looks like for 2022
  • * How the exchange space is evolving and upcoming consolidation
  • * What Bitvo has in store and how they decide what coins to list

An image with Pam Draper, Joel Johnson, Yiannis Kanatas and the rest of the Bitvo team.

Tristram: Welcome, guys! It’s great to get together at the close of another year. 

Pam: Nice to see you.

Joel: Great to be here.

Yiannis: Looking forward to it.

So 2021, what a year. I’m pretty sure that nobody was expecting 2021 to be kind of like 2020. What were your biggest surprises for the year?

Pam: The biggest surprise was how quickly things took off in the first quarter. Last year at exactly this time, Bitcoin was just topping $20,000. So everyone was excited because this was the previous all-time high.

All the way there, there were lots of skeptics saying it’s not going to get to new highs, let alone surpass all-time highs. This conflict, combined with a long crypto winter, created anticipation and excitement as we ended 2020 on a high note. Then it was one new high after the other.

We entered this year with BTC at $20k, headed to $30K. And then it goes through $40k to $50k. Then we have a pullback mid-year followed by a march back up to $70k in October. The size of the moves and the breadth of volatility across the year have probably surprised most participants. But then you think back again to last year at this time, BTC was at $20k US.

No matter how you look at it, it was a great year for crypto.

Joel: For me, the response of BTC to the onslaught of Chinese news was the biggest surprise. It was also surprising how aggressive they were this year. Considering Chinese dominance versus any other nation, we expected this news to be more impactful. But Bitcoin adjusted and eventually rebounded. It’s like nothing happened.

Pam: That’s a great point. The chatter was that China’s exit would be the death knell, and it now looks like a blip. The mining shops relocated to other parts of Asia and North America. The other surprise is how much of the mining left China and moved to North America. China’s actions have been great for Canada in the US from that perspective.

Yiannis: And those mining companies already here did very well picking up the slack during that transition.

Joel: Another surprise was El Salvador’s adoption of Bitcoin and all the innovation happening there.

Pam: The El Salvador story initially looked like a gimmick but has evolved into an innovative series of ideas. There’s a Bitcoin City powered by geothermal power from a volcano. And they are looking to do another first, which is to issue Bitcoin-backed bonds in 2022 to support the city. It’s hard to say how it will turn out, but it shows how Bitcoin has helped drive innovative thinking.

Joel: It’s amazing to watch videos of people in El Salvador paying with BTC by scanning QR codes. Like it’s the most normal thing in the world.

We’ve talked a lot about Bitcoin, but the other stellar performer was Ethereum. How has Ether activity changed over 2021?

Pam: The biggest change in ETH has been driven by demand for DeFi and NFTs. The DeFi movement has grown exponentially this year. And the growth of NFTs has added lots of demand for ETH to participate in those two areas. As for proof-of-stake, it may already be priced in, but we will have to see in 2022.

What are you guys seeing?

Joel: I agree. DeFi and NFTs are strong drivers. Compared to 2020, there is definitely an increase in demand for ETH, and volumes have gone up across the year.

Let’s talk about the trends in crypto that emerged in 2021. What would you say are the most important trends that emerged this year? 

Pam: Hands down, I’d say the Metaverse and NFT’s. These weren’t even on the radar last year at this time. It was a peripheral topic in crypto coming into the year. Then there were a bunch of high-profile NFT sales with Beeple and Jack’s tweet. Dapper’s NBA Top Shots hit the news, and things just took off from there. As we finish the year, the original CryptoPunks are making huge sales, and now we have the multi-million dollar Bored Ape Yacht Club.

Exiting 2021, it’s all about the Metaverse. Do you have land in the Metaverse? If not, when are you buying some? The narrative is that buying property in the Metaverse now is akin to buying SoHo, which was swampland in New York back in the 1600s. And when you set up shop, do you need one or more NFTs for your Metaverse experience?

Did you see Nike’s acquisition yesterday? So now you can wear your Nike’s when you’re walking around the Metaverse. It’s amazing how big this has gotten and how fast it seems to be evolving.

Yiannis: There are even real estate agents now advertising themselves as experts for buying and selling in the Metaverse.

Joel: It’s like advertising the ability to buy land on Mars.

Pam: A friend of mine works at a big consulting firm, and she’s really into Sci-Fi. And she tells me she really gets the Metaverse. She loves hanging out in that digital world, and her interest in Sci-Fi drives her perspective.

You can meet people in your part of the Metaverse, display your art, show off your Nike’s. This is a hot area for kids right now, especially because it combines a digital world with gamification. They started with Fortnight. Now they have the Metaverse with NFTs.

Tristram: This transformation of the imaginary into a form of reality is an extraordinary transition.

Pam: Yes, and it relates back to how value has evolved over time. In many ways, value is what people believe it is. Seashells were used for trading, making them a form of value transfer or currency. Then there was gold which was transformed from a shiny rock to a form of value. These are physical forms of value. Eventually, Governments decided to use paper for money. Their endorsement and monopoly on force gave that paper value making it real.

Today value is being explored across digital assets. Cryptocurrency, tokens, NFTs, and the Metaverse are all examples of the next phase of value discovery and attribution. So what people decide or accept as real or valuable makes it a form of value.

What stands out on the institutional side? 

Pam: Mainstream adoption was strong across 2021. From hedge funds to asset managers and large corporations, they started in 2020, but this year was when their presence was noticeable.

The listing of a few ETFs in the US was an extension of this trend, with BITO by ProShares getting the most attention. Then there are corporations adding Bitcoin to their balance sheet. There are a variety of reasons for this, including diversification and the explosion of MMT around the globe.

Joel: We’re also seeing crypto firms stepping into the mainstream. For example, is using the marketing tactics of traditional enterprises to expand their reach. They picked up the naming rights for the Staples Center and have their logo on or associated with sports from UFC to Formula 1 and the NHL.

Pam: We’ve talked about Bitcoin being a growing dinner conversation at home. In 2021, the conversation has expanded to almost any outing. This is evident when you look at some of the traditional financial media as well.

The Bloomberg end-of-the-day summary would mention Bitcoin or Ethereum maybe once a month. Then it was weekly. Now it’s every single day with important crypto news over the last 24 hours. BTC and ETH stats are available along with gold and the S&P. The growth of crypto over 2021 up to a 3 trillion dollar industry has converted many naysayers.

What do you anticipate in terms of these trends moving into next year? 

Pam: We anticipate that NFT’s will continue to be significant. It started with Beeple ringing the bell at the beginning of the year, and the year is closing with Nike ringing it in the Metaverse. NFTs began with CryptoPunks, and then it was Kitties. Then sports and art took center stage. Now it’s fashion’s turn. We expect this trend to be a strong one into 2022.

We are also watching for some consolidation in the crypto space generally. There are some great projects, but the level of speculation may be getting a bit too hot, and that tends to attract more aggressive regulation in response. So we are looking for a good balance of value exploration and strong growth in key areas.

What themes are you watching as a result? 

Pam: Themes around the store of value and smart contracts are key, obviously. We’re looking for more inroads on the payment side. While many of these are payment systems like Bitcoin, Ethereum, LTC, and XRP, payment acceptance isn’t mainstream yet.

Being able to buy your coffee in the morning is considered a symbolic but important endorsement by many. And for adoption, it has to be made easier and a lot less intimidating.

We’re also looking at new concepts that combine the essence of the sharing economy with crypto. An example of that might be something like Filecoin, where you share computer storage. Virtual, decentralized cloud storage on a blockchain.

What are some lessons that crypto traders can take away from 2021?

Yiannis: One notable observation is the amount of volume you see when the prices spike to the upside. There is no waiting or patience. It’s like they feel like they’re late to the party, so as the price action gets more aggressive, they buy buy buy. On the way down, it’s the opposite. They rein in the buying and go quiet. Then the process repeats itself on the next upside spike. So a lesson this year is the value of patience.

Pam: Yes, it’s remarkable how busy the desk is at $65,000 BTC. Then it dumps to $30K like in May/June, and everything goes quiet. Then as the price gets going again, it’s rinse repeat. That pattern was 2021 in a nutshell.

Yiannis: The volatility reflects a wide spectrum of participants in a relatively new market like crypto. This is a young market with a range of trading experience, knowledge, and risk tolerances. These combine to exaggerate the volatility versus traditional markets. Crypto volatility would be unusual in senior stocks but not uncommon in the penny issues. But at $30K to $50K, these percentages represent uniquely big moves.

Joel: These events teach you that there are lots of opportunities if you pay attention and don’t panic.

What are your thoughts around regulation for 2022, and what are you anticipating?

Pam: Regulation is now fairly well defined in Canada, which is good. All crypto exchanges are required to be regulated by FINTRAC. In addition, FINTRAC added incremental reporting obligations for all platforms starting about six months ago. The next leg of regulation will be securities regulation.

On March 29, this year, the CSA (Canadian Securities Association), IIROC, put out a joint publication outlining how platforms that custody cryptocurrency assets in Canada will have to operate. Every cryptocurrency trading platform in Canada that provides custody of customers’ assets will have to be registered with the CSA and eventually IIROC. That includes Bitvo, so we are working towards that.

These are very big steps forward in the Canadian regulatory landscape, and we welcome them.

How has the exchange space evolved over the last couple of years?

Pam: Two years ago, anyone could do anything they wanted. The space was almost entirely unregulated. However, our approach was always based on the assumption that regulation was inevitable. So we have continuously operated our business based on this assumption. We are expecting things to get a bit more granular.

For example, coins like BTC, ETH, BCH, and LTC will likely be considered unrestricted by the regulators. This means that anyone can trade as much as they want as they do now. However, we are anticipating changes to other crypto assets and altcoins. For example, certain altcoins may have trading limits as defined by the regulator.

We anticipate that these regulatory changes will drive consolidation within the Canadian platform space. And we expect it to generate exits of some foreign firms that are still here.

So what’s in store for Bitvo in 2022?

Pam: On the regulatory side, we expect to complete our registration with the CSA in Q1 2022. We consider this a big step forward for us. We will also be looking at the consolidation we anticipate and see across the crypto exchange space and what, if any, role we want to play there.

Through our parent company Pateno Payments, we will be moving forward on our mission to expand crypto payments to a more mainstream footing. Pateno Payments has the infrastructure to facilitate crypto payments and the movement of crypto and fiat in and out of the banking system.

Joel: We’ll be adding new listings in the new year as well.

Pam: Yes, we will continue to update listings based on our criteria as an ongoing priority. We added, Uniswap (UNI), USD Coin (USDC), Dogecoin (DOGE), and Cardano (ADA) in September this year.

Any hints on what some of those might be?

Pam: We look at things like market capitalization and demand. So we want to offer the largest coins by market capitalization. We want to offer the largest coins by demand, including global demand and 24-hour volumes. And we are also getting feedback from our customers as well. The last potential criterion is based on regulation. Our decision is also based on whether the regulator has any restrictions on a given coin listing in Canada.

Looks like an exciting year ahead. Thanks for taking the time. 

Joel: Thank you.

Yiannis: Great to connect.

Pam: Thanks very much




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