Bitcoin continues to be a speculative investment without any value. Bitcoin’s use will likely crash or fade out. In 2022, new cryptocurrency strategies will reshape rapidly with second-generation (2nd-Gen) POS blockchains using Ethereum 2.0, stable coins, and central bank digital currencies. Bitcoin’s volatility continues to be at risk after undergoing wild price swings in 2021. Despite the potential for huge losses among investors, and fund managers’ strategies, investment into the overvalued 2021 Bitcoin risk-on market continues unabated.

“Bitcoin was just another financial asset getting trampled as investors headed for the exit.” – Noelle Acheson / coindesk.

Bitcoin and its exchanges continue to be fraught by global fraudulent and illegal schemes, particularly those by North Korea and Russia. The Federal Trade Commission (FTC) and Security Exchange Commission (SEC) are trying to reign in the bad actors; the SEC lists cryptocurrency crime as the top investor risk in 2021. Other countries, such as China, bans Bitcoin for these reasons. Fear of Missing Out (FOMO), however, seems to continue to drive the exuberant Bitcoin stampede in a manner reminiscent of the Gold Rush of 1848!

Most organizations require to reset the 2022 Cryptocurrency Strategic Playbook to reduce/phase-out Bitcoin’s risk and loss exposure.

Recommendations

Speculative Investors:

  • Figure out the Bitcoin losses you’re willing to take; think of investing in Bitcoin as you would using a slush fund for gambling money in casinos-fun/risk-rewards.
  • Use a VPN for all cryptocurrency trades with any exchange to prevent cyber-hacking, fraud, or theft of coins.
  • Use a physical key and digital key, including a wallet stored where it can be found/used.
  • Use exchanges with companies using physical corporate office(s) and a strong management team with a governance processes/oversight team.
  • Research/ensure the cryptocurrencies coins and sites, such as Bitcoin and others, are vetted, using a secure and trusted website, without DOJ, FTC, SEC, State AG lawsuits, complaints, and fines.
  • Don’t use Bitcoin investments in IRA, 401K, and pensions.

Banking/Financial Services/FinTech 

  • Boards of Directors – direct/enable/approve any cryptocurrency strategies. Understand high-level Ethereum 2 POS platform opportunities.
  • CEOs (Banks/Financial Services/FinTech) – lead/plan/execute Ethereum 2.0 crypto Proof-of-Stake (POS)-platform and staking services in 2022. Consider reducing Bitcoin holdings for risks.
  • CFOs – set up a contingency fund for Bitcoin risks; record losses when reporting, book gains only in sale transactions.
  • Treasurers – ensure all the corporate cash obligations and cash reserves are on-hand and for unplanned events, excluding crypto investments.
  • CROs – assess and adopt new global and US cryptocurrency regulations for compliance, governance, and new risks.

Bitcoin Buyer’s Exuberance vs. Today’s Risks

Investors Crypto Rush of 2021

The cryptocurrency marketplace continues to fuel trillions of USD each trading day as many big, and small investors/investment platforms hop on to Bitcoin via casino-style gambling, hoping for huge winnings.  Unfortunately for them, the first large investors got to be billionaires a long time ago.

Retail FOMO investors are racing to get in on Bitcoin’s skyrocketing prices. Meanwhile, new fraud cases continue, including Africrypt, in which two brothers stole $6.4B in a Bitcoin scam. Just about every month, we see another Bitcoin fraud/scam.

Today’s Bitcoin Use

Currently, Ransomware’s go-to cryptocurrency, Bitcoin, is being used in cyberattacks. In these cases, CEOs need immediate support from the FBI. Bitcoin has been utilized in other criminal activity including the following:

  • Drug Deals
  • Illicit Activities-Fraud, Kidnapping, Ponzi Schemes, Scams, and Theft
  • Money Laundering
  • Nation-State Fraud Schemes
  • Payoffs/Blackmail – individuals, corporations, dictators, governments
  • Tax Evasion
  • Terrorist Funding
  • Thefts – High Value
  • Weapon Sales/Transfers, and
  • Ultra/high-risk Billionaires, Corporations, Trust/ETFs, and FOMO Investors.

It’s a perfect financial vehicle for any illegal activities until its use collapses, falls out of demand with the availability of new law enforcement cyber tools, or becomes protected by central governments.

To be fair, there are other limited Bitcoin uses:

  • global payment transfers between countries for workers,
  • citizens with country hyperinflation, and/or dictators for alternative currency transfers.

Today’s Bitcoin Risks 

Many Bitcoin retail investor risks are prevalent and show up in numerous:

  • Fake websites
  • Exchange impostures
  • State-sponsored fraud exchange sites-North Korea, and other websites

Today’s volatile cryptocurrency market is not for the faint of heart.  Keep in mind that the casino always wins, not the gambler! All investors, especially retail, need to understand the risks. Bitcoin is not a hedge investment and has no tangible assets of value. Key risks include:

  • Corporation, Financials, Exchanges, Trust Funds Bitcoin Holdings. Currently, there is limited Bitcoin adoption and use in corporations, finance, and megabanks. Hedge and private funds have the same Bitcoin risk exposure for transactional losses as retail investors. A few corporations hold Bitcoins, such as MicroStrategy and Tesla. For example, MicroStrategy has a substantial Bitcoin position, and its stock can range in 2021 from $113 to a peak of $1,315. Megabank crypto transactions use Ethereum with stable/USD-backed coins, not Bitcoin. Exchanges and Trusts pass Bitcoin’s gains/losses to investors.
  • Environmental. Even with China shutting down Bitcoin miners, they just moved to Kazakhstan and Russia using fossil energy. Many countries have a growing concern over Bitcoin’s massive power consumption. ESG investing is now a hot trend. Bitcoin loses out because other eco-friendly crypto uses much less power consumption, i.e., second-generation (2nd Gen) blockchain using POS.
  • Liquidity/Volatility. Bitcoin processing is expensive and takes up to a day or more to complete. It trades at significantly adverse volatility in prices, such as its 2021 record range of $64K to $28K. There is a substantial ongoing risk with extreme swings hourly in Bitcoin pricing. Other risks include the cryptocurrency market spike situations with large volumes, such as Bitcoin-Whales, celebrity comments-Elon Musk, corporates, EFTs sell trades.
  • Central Failure. Bitcoin’s peer-to-peer blockchain networks lack centralized points of vulnerability that security hackers can exploit. It has no central point of failure to minimize risk.
  • Private Key or External Wallet Password. A private key gives its owner access to their digital assets or access to the blockchain’s capabilities. If Bitcoin’s owner loses the private key, then the access/use of the Bitcoins are lost forever, as are external wallet passwords. In 2021, the market lost coins estimate is about 3-4 million Bitcoins.
  • Regulations. Global crypto regulations are increasing and closing in on the crypto space. They are in full force in Hong Kong/China. China restricts Chinese-based cryptocurrencies, forcing out Bitcoin and others to operate under its central oversight regulators. Global countries continue to call for more rigorous oversight regulations forcing Bitcoin’s most prominent exchange-Binance to stop operations in UK, EU countries, others to follow for lack of governance and consumer protections. Currently, US regulations are weak, but changes for 2022 are afoot. The Commodity Futures Trading Commission covers crypto anti-fraud and manipulation. Now, state attorney generals are in play, such as NY banned/fined Tether and Bitfinex for “reckless and unlawful” financial coverups. Both are speculative financial crypto houses of cards!
  • Systems– Bitcoin, Exchange, Wallet. There is an ongoing risk that transactions may be affected due to system failures in the cryptocurrency ecosystem resulting from events such as changes in the external ecosystem. These systems risks include delayed/canceled/lost transactions, resulting in up to 100% losses if an exchange or wallet goes bankrupt.
  • Technology. Bitcoin’s technology-Proof-of-Work blockchain is obsolete and does not scale with expensive fees. It was never intended for a worldwide high-volume peer-to-peer currency. Today’s cryptocurrencies use or are moving to 2nd-Gen POS, Proof of Authority (POA), or a combination blockchain. It is very fast, cost-effective, scales, and the transactions use little power energy– 99% less than Bitcoin. It offers adopters more stability with greater useability for global banking, commerce, and investing.
  • Value. Bitcoin cryptocurrency is not legal tender nor has any monetary value, is not backed by any government and asset accounts. Bitcoin’s value can go to zero anytime.

2021-2022 “Big-Crypto” –  Regulations and ESG Afoot

Bitcoin will continue to be in the “played-fast, over-hyped” crowded sector until it fades out for other newer cryptos. There should be more negative EU and US SEC, FTC, and state regulations and consumer protection trends for Bitcoin. “Big Crypto” leaders, like Bitcoin, are facing greater compliance, protections, and transparency for their investors. Entities/exchanges and institutions using Bitcoin will attract additional global government regulations, oversight, and scrutiny gaining ground. Many corporate ESG profiles should be prioritizing carbon offset actions, resulting in the phaseout of Bitcoin and other positions with other fossil-consuming assets for eco-pollution-friendly cryptocurrency assets.

New Cryptocurrency Strategic Playbook – Ethereum 2.0

Most of these newer cryptocurrencies especially stable coins are moving or using POS. For example, the new Ethereum 2.0 is moving from miners to POS staking. It’s a superior business case for global cryptocurrency exchanges/trust funds and banking/FinTech payment services.

There appears to be a megabank trend toward new Ethereum 2.0 with POS staking crypto playbook and other non-backed and asset-backed cryptocurrencies. Why? Ethereum plans to complete “the merge” from Proof-Of-Work to POS after shipping its EIP-1559 update. It could be ready after debugging/testing/piloting in mid-2022.

“Ethereum currently has the “highest real use potential” and is the most popular development platform for smart contracts”  – Goldman Sachs.

In that event, when the Ethereum 2.0/ETH POS platform goes live, then its adoption rate should accelerate in 2022. Also, there could be a direct correlation to a slower Bitcoin marketplace. In an estimated $1.5T crypto market, the Ethereum 2.0 platform/ETH market share could become the CYE 2022 global cryptocurrency leader.

Megabank Forecast: Ethereum Staking – Huge Game-Changer

Megabanks could be significant players in POS staking services and craft a portfolio(s) of cryptocurrency funds with fewer risks and more rewards. For example, the JPM Coin is already using the Ethereum platform. JPM proved its crypto JPM Coin-stable coin with the Ethereum platform using smart contracts for many successful $B-trades. Megabanks continue to use asset-backed currencies/securities, investing hedge assets and derivatives in crypto swaps like other assets. Both Goldman Sachs and JPMorgan see the full potential of Ethereum’s 2.0 planned to move to POS to make new services that generate higher profits.

“In the current zero rate environment, we see the (staking) yields as an incentive to invest.” – JPMorgan.

The JPM forecast explains how Ethereum’s 2.0 planned move to POS will increase adoption among institutions and retail investors. It sees the cryptocurrency staking sector as setting up for growth. It bases this adoption on seizing the opportunity to take advantage of the high yields generated by staking. Its research points out financial staking opportunities across all cryptocurrencies generate an estimated $9B services year.

Goldman Sachs’s forecast supports the 2022 Ethereum financial opportunities too. Ethereum 2.0 adoption will drive the cryptocurrency “staking sector” as a game-changer for banking, investment firms, and FinTech services. Notably, JPM predicts that the staking opportunity could increase $20B following Ethereum’s move to POS and puts total staking rewards at $40B  by 2025.

For CY21-Q3/4 action, large banks, investment firms, and FinTech services should reset cryptocurrency playbooks now. C-suite must use 2nd Gen cryptocurrency innovation opportunities. Corporate leaders should invest, build, pilot, and launch new cryptocurrency services for a 2022 market disruption.

Into the Future

In the end, cryptocurrencies are here to stay. Bitcoin positions will likely crash or fade out over time. Cryptocurrencies will continue to evolve rapidly with 2nd-Gen blockchain, especially newer stable coins backed by hard assets/reserves, as central banks’ CBDC expand in fiats for their countries’ GDP-backing. China has a CBDC Yuan in place now. EU’s Euro should be next up in 2022-2023, followed by the USD. Since physical currencies have taken more than 40,000 years to get here, it makes sense that paper/coins will not phase out anytime soon.

References

Bloomberg: Quint. Greifeld, Katherine, “Traders Piling Into Overvalued Crypto Funds Risk a Painful Exit.” Updated February 05, 2021,

Goldmansachs.com. Global Macro Research, Issue 98. TOP of MIND: “Crypto: A New Asset Class?.” May 21, 2021.

Harvard Law School Forum, “Testimony by SEC Chair Gensler Before the Subcommittee on Financial Services and General Government.” May 29, 2021.

JPMorgan.com. Insights-Research: Macro asset-classes; “Mid-Year Outlook 202; Cryptocurrency Section”, June 2021.

MIT Media Lab. Digital Currency Initiative. MIT’s Panel, “What a Fed-backed digital dollar means for the crypto revolution.” April 15, 2021.

MIT Media Lab. Digital Currency Initiative. MIT Panel-Bloomberg’s Quint: Narula, Neha, “What is the future of Money?” April 15, 2021. Accessed July 07, 2021.

Copyright @ 2021, STEVE HAWALD CEO CIO ADVISORY LLC. DISCLAIMER: Credits – Peter Brooks and Tom Austin reviews and editing by Regina Lapierre. This article is entirely my opinion without financial payments. They do not necessarily reflect the opinions of The Analyst Syndicate.