Regulatory clarity and an inflow of institutional capital are needed for the cryptocurrency market to extend its rally, and 2022 promises to be an interesting year for the industry, according to SpartanBlack, a partner at The Spartan Group.
0/ In the past few weeks I have been asked repeatedly by investors when crypto winter will come. The last 3 crypto winters have so traumatised the collective psyche of crypto investors that everyone is cautious after a strong 2021.
— SpartanBlack (@SpartanBlack_1) December 21, 2021
“In the last few weeks, investors have repeatedly asked me when crypto winter will arrive. The last three crypto winters have traumatised the collective psyche of crypto investors, causing everyone to be cautious after a strong 2021,” wrote SpartanBlack.
According to his observations, many crypto holders were taking profits after every strong upward move in prices. Therefore, there was no FOMO and no parabolic price movement as in the previous three bull-market phases.
1/ Perhaps because of this, we have seen investors take profits after every significant run up in prices. Hence, we havent seen the type of FOMO and parabolic move in prices that have characterized the last 3 cycles (2010-2011, 2013-2014, 2016-2017).
— SpartanBlack (@SpartanBlack_1) December 21, 2021
Another notable factor is the increasing institutional capital. According to SpartanBlack, whales have become more disciplined about taking profits and managing risk/leverage, while institutional players have been more willing to step in during corrections.
2/ The other factor is increasing institutional capital in the market which tends to be more disciplined about taking profits and managing risk/leverage, while at the same time also having a greater willingness to step in when markets sell off substantially.
— SpartanBlack (@SpartanBlack_1) December 21, 2021
The expert said that for a parabolic move to occur, a major catalyst is needed—for example, crypto-friendly regulations introduced by U.S. regulators that allow mainstream financial institutions to flood in.
3/ My view is, for a parabolic move to occur, we would need to see a major catalyst take place. Examples I can think of are a) US regulators enact crypto friendly regulations that allows mainstream financial institutions to flood in;
— SpartanBlack (@SpartanBlack_1) December 21, 2021
Significant impacts could also come from:
- sharp reductions in inflationary pressure;
- a change in the stance of Chinese authorities toward cryptocurrencies (which is unlikely).
4/ b) inflationary pressures decline sharply negating tapering concerns, c) China reversing its anti-crypto stance (low prob) These are outlier events but any of the above can lead to a parabolic price outcome for crypto markets.
— SpartanBlack (@SpartanBlack_1) December 21, 2021
In SpartanBlack’s view, there were signs of overheating in some sectors, including gaming. However, prices of major gaming tokens and NFTs subsequently corrected markedly.
6/ There are parts of the market where valuations were looking bubbly a few weeks ago eg in gaming (both public and private) But prices of the major gaming tokens have corrected by about 50% or more since. The NFT market has also deflated sharply in the past few months.
— SpartanBlack (@SpartanBlack_1) December 21, 2021
He also noted that DeFi tokens face pressure from the sector being under the SEC’s scrutiny. Regulatory clarity could serve as a powerful catalyst for the growth of DeFi tokens.
8/ Meanwhile, DeFi tokens have been major laggards and are currently trading at depressed valuations due primarily to the SEC’s scrutiny into DeFi. I see a Uniswap settlement as being a major catalyst for DeFi tokens that could drive prices up 2-3x, although timing is uncertain.
— SpartanBlack (@SpartanBlack_1) December 21, 2021
Overall, according to SpartanBlack, the market cannot be described as excessively overheated. There is no widespread FOMO, when “people simply buy without regard to fundamentals”.
“The current market conditions can be described as uncertain; the market is looking for direction for the next move.”
Among the positives, the expert cited a strong influx of venture capital into the ecosystem, and substantial reserves of crypto assets held by various projects. These funds are meant to support innovative startups.
10/ Further, given the strong inflow of venture capital into the ecosystem, coupled with the billions in treasury funds raised by major L1 chains in the past 1-2 months, there is an abundance of capital to support more startups innovating in the space even if there is a slowdown.
— SpartanBlack (@SpartanBlack_1) December 21, 2021
SpartanBlack expressed confidence that private funding “will not dry up, as it did in 2018 after the ICO bubble”.
In his view, 2022 promises to be an interesting year for the world of cryptocurrencies. Among potential future risks he noted:
- rising interest rates by central banks;
- escalating geopolitical tensions;
- worsening COVID-19 situation.
As reported, in November SkyBridge Capital founder Anthony Scaramucci stated that Bitcoin would easily reach $500,000.