Looking ahead: how will Bitcoin grow in 2022

2021 showed that an individual or a country can opt-out of the fiat financial system. So what does 2022 have in store?

by Nik on 04 Mar 2022

If 2021 was when you grabbed your first fistful of satoshis, make 2022 the year you get to grips with the world you’ve dived into. Because buying bitcoin is not a destination; it is just the start of a lifelong journey to financial self-sovereignty and your divorce from a discredited and (literally) bankrupt economic system.

If you’re serious about this journey — and investing is the surest sign you are — you need to know what’s coming down the track. But with so much noise in the bitcoin space (including outlandish predictions for the year ahead), remember Schopenhauer’s axiom: “Intellect is a magnitude of intensity, not a magnitude of extensity.”

So, let’s focus our intensity on the trends that really matter and which will define the most exciting year yet in the bitcoin revolution.

Legacy finance connects to Bitcoin

In 2021, we saw the first tentative steps towards accommodating Bitcoin within the legacy finance ecosystem. In 2022, the financial services industry will experience an “Orange Rush” as clearer regulatory frameworks like the EU’s Markets in Crypto Assets (MiCA) enables banks to provide bitcoin-based services such as online wallets, BTC-denominated savings accounts, and buy/sell partnerships with regulated exchanges.

But the most interesting aspect of this is what’s going on behind the scenes. There has always been a chasm between fiat and bitcoin in terms of technology, philosophy and much else. But, the imperative (for fiat) of learning to live with bitcoin has been the genesis of a new sub-sector of bitcoin service providers that are developing systems to bridge this gap. This will have a dramatic effect on the entire ecosystem, with yet more money and developer talent drawn towards Bitcoin — a momentous step in Bitcoin’s journey from idea, to currency, to strategic industry.

Markets mature

On the institutional side, the rise of ETFs like BITO, which amassed over $1.25 billion in AUM within two months of launching, is creating a new and highly robust options market, enabling anyone from retail to institutional traders to buy call and put option contracts. This will make bitcoin markets even more efficient and transparent, silencing the critics - including regulators - who have spent the last decade saying that bitcoin’s price was ‘manipulated’ or that its liquidity was sub-par.

Taproot takes root

Taproot is more talked about than understood, but in 2022, Bitcoiners won’t have to know anything about Merklelized Abstract Syntax Trees or Schnorr signatures: they’ll just enjoy the benefits. Taproot is a major leap forward for the Bitcoin ecosystem, permitting a greater variety of private and space-efficient multi-signature smart contracts. This has many likely implications, including reducing fee pressure wherever it is used in place of ECDSA signatures for Lightning or multi-signature schemes; meanwhile, because all Taproot transactions look the same on the blockchain, it will improve privacy for Lightning, Taproot single-sig, and Taproot multi-sig transactions.

While this may sound academic, it’s anything but. Privacy is one of the central pillars of Bitcoin’s philosophy, and it has been under considerable threat from chain analysis companies in the last year. Taproot makes analysis significantly more challenging, and we hope and expect to see chain analysis firms relegated to a losing position, with both immediate and long-term benefits for Bitcoin and its users.

Speed of Lightning

Last year wouldn’t have happened without the Lightning Network. For years, both the traditional financial industry and many altcoin projects brushed off Bitcoin as being too slow and expensive for payments. The rise of the Lightning Network in 2021 spectacularly silenced those criticisms, not least in the central role it played in  El Salvador’s adoption of Bitcoin and Chivo wallet. But Lightning’s story has only just begun, and what’s coming down the track is not just transformative - it’s mind-boggling.

One thing we can confidently predict is that Lighting Network’s capacity is set to increase by 50-100%, from around 3,300 BTC currently to 6,600 BTC or more by the end of 2022, keeping pace with growing Bitcoin adoption. This growth has undeniably been fuelled by the global macroeconomic landscape, and in particular by central bank interventions.

With 80% of all US dollars in existence having been created out of thin air in just the last 2 years, it was only a matter of time before a strong rise in inflation would hit both developed and developing countries. As central bankers now admit they should abandon using the word “transitory” when referring to inflation, more people than ever are discovering Bitcoin’s value proposition as an inflation hedge.

Other developments such as El Salvador’s Bitcoin Bond and the increased functionality that the Liquid sidechain technology offers, will power a virtuous circle where functionality and adoption will grow in lockstep, with Bitcoin not just being used as a medium of exchange, but becoming the foundational base layer of a new monetary and financial paradigm.

And the best part of it is the open and permissionless nature of this revolution. 2021 has shown that it doesn’t matter whether you’re an individual or a country; anyone can opt-out of the fiat currency system, start using Bitcoin and reap the benefits.

Bitcoin shows its real value in times of turmoil

Sadly, during the first few months of 2022, events have taken a turn for the worse, with war breaking out in Europe. As always, the ordinary person pays the highest price. Many Ukrainians are fleeing the country, trying to take their belongings with them. Russian citizens are hit by inflation and sanctions against banks. Other governments respond with more money printing.

In this situation, Bitcoin's neutral, open and permissionless monetary network is the only thing that allows anyone to protect their wealth against inflation. Being a natively digital asset, Bitcoin lets people store and transport value in cyberspace, regardless of nationality, political views or whether national banking infrastructure is still functioning.

For those who look beyond the daily headlines, the transformative nature of these developments is evident. On the one hand, we’re still incredibly early, and trying to explain this to others can feel like telling people in 1995 that they’ll be able to get groceries without going to the store. On the other hand, those who pay attention can see the paradigm shift that Bitcoin is causing already.

With certain governments around the globe sure to keep printing fiat currency, we can be equally certain the new year will bring many new Bitcoin developments. Since you are reading this, you are aware of or at least interested in Bitcoin's growing role in the world. Whether we will see an end to the war in Ukraine is unfortunately anyone's guess at this moment. What we do know, however, is that Bitcoin's importance for personal freedom and protection of wealth will keep increasing.

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