Having more than trebled in value to $60,000 between
December 2020 and April, Bitcoin has lost some shine to trade at under $50,000
heading into the new year.
"The current choppy and directionless price action with
a possibility of further pressure to the downside has introduced a lot of
uncertainty to the digital asset market," noted Loukas Lagoudis, executive
director at cryptocurrency investment fund ARK36.
He added, however, that "sustained adoption of digital
assets by institutional investors and their further integration into the legacy
financial systems will be the main drivers of growth of the crypto space"
during 2022.
No certainty in crypto
Bitcoin's rise in 2021 coincided with Wall Street's growing
appetite for cryptocurrency. The record high in April occurred with the stock
market debut of cryptocurrency exchange Coinbase.
October's peak above $66,000 followed the launch of a
Bitcoin futures exchange-traded fund (ETF), or type of financial instrument, on
the New York Stock Exchange.
Tesla boss Elon Musk helped the market rise — and fall— with
controversial tweets about cryptocurrencies.
The move by El Salvador in September to make Bitcoin a legal
tender also made an impression.
But pressure has come from China's crackdown on the trading
and mining of cryptocurrencies, while the risk of wider regulatory action, from
the likes of Europe and the United States, weighs on Bitcoin.
"There is no certainty in crypto, never mind
regulation," said Huong Hauduc, general counsel at digital assets exchange
Bequant.
"However one thing is certain, the voices calling for
crypto regulation, whether it be for tighter consumer protection or just
clarity of the rules for institutions, are getting much louder."
Created following the 2008 global financial crisis, Bitcoin
initially promoted a libertarian ideal and aspired to overthrow traditional
monetary and financial institutions such as central banks.
In more recent times, climate change watchers have shone a
spotlight on the huge amount of electricity used to power computers required to
unearth new Bitcoin tokens.
More competition
Bitcoin is at risk of increased competition as it enters
2022, especially from its closest rival Ethereum, according to some analysts.
In November, Twitter co-founder and CEO Jack Dorsey
announced his departure from the social media platform, leaving him to
concentrate on his digital payments firm as it looks to expand into
cryptocurrency.
For now, Bitcoin remains the dominant player.
According to the specialised site CoinGecko, the
cryptocurrency sector has a market value totalling $2.36 trillion, with Bitcoin
worth a combined $900 billion.
For analyst Frank Downing, "Bitcoin's reluctance to
evolve its design" compared to the likes of Ethereum, is in fact "a
feature that provides the stability and consistency required to serve as a true
global money".