Blockchains become more scalable
One of the common criticisms and reasons argued by the naysayers for not using Blockchain technology was that blockchain-powered platforms would not be able to handle large volumes of transactions. Last year, as reported in the 22nd December 2021 Digital Bytes, Mastercard processed $6.3 trillion of transactions versus Ethereum which processed $6.2 trillion of transactions in 2021. It is likely we will see blockchain-powered platforms become faster and be able to handle even more transactions per second as 2022 progresses, so encouraging even greater institutional engagement with this technology.
CBDCs and stablecoins
Expect to see a number of Central Bank Digital Currencies (CBDC) and stablecoins being launched. The world’s second largest economy, China, is set to launch its digital Yuan at the Winter Olympics in Beijing in February. The Chinese CBDC will be for wholesale as well as for retail users but will not be using Blockchain technology as the Chinese government looks to keep total control. Other countries will equally be trialling CBCDs as well as officially launching their own during 2022. Given that most CBDCs will be primarily aimed at the wholesale market, there is still plenty of scope for a range of retail-focused stablecoins to be launched. Will 2022 see challenges for some of the decentralised autonomous organisations’ (DAO) stablecoins and other stablecoins not 100% being backed by fiat currencies?
Given the growing awareness and concerns around climate change, we are likely to see governments and corporations looking to influence and encourage a change of behaviour so as to encourage us all to be more mindful of global warming. Some governments are likely to use a ‘carrot and stick’ approach e.g., a ‘stick’ in the form of taxes to reduce our carbon footprint (congestion charges on roads, taxes on pollution, airline ticket taxation etc) and a ‘carrot’ in the form of carbon credits - possibly even issuing tokens to reward consumption/behaviour which helps the environment (using bicycles, not cars). Corporations may turn to offering tokens as way to reward staff and customers for being more mindful about pollution and recycling as they increasingly focus on being able to improve their Environmental Social Governance (ESG) credentials.
Decentralised Finance (DeFi) promises to make financial markets more inclusive on a global basis by offering a range of digital lending, borrowing, insurance and trading products and services. We are likely to witness other regulated DeFi exchanges follow the lead of Berlin-based Swarm Markets and so enable greater institutional engagement. It will be interesting to see what support the Depository Trust Clearing Corporation (DTCC) in the USA and the International Swaps and Derivatives Association (ISDA) offer DeFi and blockchain-powered platforms in 2022.
Digitalisation of equities, bonds and commodities
There are now a number of regulated exchanges; in the UK - Archax; Switzerland - SIX; Singapore - DBS and Barbados - Tokenise. If these regulated exchanges are also ‘recognised’, then this will enable many mutual funds to invest in those assets quoted/listed on these regulated exchanges. This may well usher-in the issuing of many more tokenised/digitised wrappers around stock, bonds, commodities, real estate, derivatives and cash in 2022.
Governments and companies are likely to use Blockchain technology to be able to offer greater transparency whereby allowing suppliers and individuals to be able to track and trace where and how goods have been sourced. Meeting Environmental Social Governance (ESG) requirements will continue to be a key issue for prospective investors and firms looking to raise capital. Expect to see ongoing issuance of $/£/€/Yen/CHF billions of green bonds. Existing shareholders, suppliers and staff will also be holding companies to account as to corporations’ ESG credentials.
Greater adoption of Digital Assets by governments, corporations and individuals
As more CBDCs are launched, governments will begin to appreciate how Digital Assets offer another tool to meet the challenges of the shadow economy, which accounts for 10%-70% of the GDP in various countries and controls their economies. Firms will issue equity, debt and loyalty in a digitised format so increasing the number of digital wallets in circulation, and this will be helped as it gets easier for individuals to engage with Digital Assets as the whole user-interface with this asset class becomes simpler.
Institutions investing in Blockchain and Digital Assets
There will be a growing number of firms that buy Digital Assets and hold them, either in treasury or simply for investment purposes. We have already seen asset managers and banks allocating capital to Digital Assets and to those firms involved with Blockchain technology. In 2022 this trend will continue (possibly encouraged by governments and regulators), given the transparency that Digital Assets enable for investors, compliance staff, boards and those involved with oversight and monitoring.
Metaverse’s influence set to expand
The world’s first exchange trade fund (ETF) to focus on the metaverse has just been announced, offering investors exposure to what will be a fast-growing sector in 2022 as the likes of Facebook and Microsoft (to name just two IT giants) jostle to dominate the digital lands and games in the metaverse. Look for more multi-national corporations and well-known brands committing an increasing amount of their marketing and tech budgets to having a presence in the metaverse. As remote working becomes more of the norm and people begin to spend greater time and money on the metaverse, we will see increasing competition from companies looking to promote themselves digitally, on-line and virtually as the metaverse ‘morphs’ from being a social/play time activity to being a way for staff to train and collaborate.
We have already seen auctions houses, museums, artists, musicians, the film industry, on-line games, sports teams and superstars begin to engage with Non-Fungible Tokens (NFTs). As we see greater regulatory clarity and more robust infrastructure in the form of exchanges, custody and storage solutions being created, NFTs will prove to be irresistible for those who own or are able to create Intellectual Property (IP). Sports stars and their teams, record labels, artists, fashion houses (the list goes on) will all seek how to digitise their IP by using NFTs.
Regulation and legislation
More jurisdictions will offer legal and regulatory clarity as to the use of Digital Assets and the enforceability of smart contracts, thus removing another obstacle for the adoption of Digital Assets in various formats. As governments see more ‘digitally-savvy’ countries attracting highly paid jobs and companies, 2022 could see legislation being passed in order to encourage those firms engaged with Digital Assets, FinTech, Reg Tech, Prop Tech, Law Tech, Agri Tech and whole host of ‘xxxTech’ sectors.
Rising inflation will force interest rates up
The longer-term impact of COVID-19 will continue to hang over the global economy. The huge debt piles created by governments (meaning there is even more money ‘sloshing’ around), coupled with the desire to restore home manufacturing in a quest to be less reliant on complex international supply chains, will all lead to prices rising. We have already seen various countries increase the cost of borrowing and this is a trend that is set to continue.