What the crypto exchange industry can expect next

Major announcements in the crypto exchange industry, enormous culture shifts and rising interest from retail and risk investors made 2021 a defining year of cryptocurrency.

In February 2021 Tesla Inc announced a US$1.5bn investment in bitcoin under its changed policy and announced it would accept the currency as payment for cars. In the same month, business intelligence firm, Microstrategy, stated that it would invest another US$600m in bitcoin, increasing its holdings to around US$3.6bn.

In a record-breaking online auction held by Christie’s, the digital artist known as Beeple sold a JPEG file for US$69m in March 2021. In another first, the 255 year-old auction house accepted payment in Ethereum.

In September 2021, El Salvador became the first country in the world to accept bitcoin as legal currency. Not only will this save US$400m in remittance fees for money sent home from abroad every year, but many Salvadorans now have access to financial services for the first time.

In the same month, China's central bank banned all cryptocurrency transactions in favour of its own digital currency, the digital yuan. China's crackdown on the decentralised finance (DeFi) industry created an opportunity for overseas bitcoin mining operations, and 2021 saw an infrastructure boom in North America, Russia, central Asia, and Europe. By October, the United States became the largest hub for bitcoin mining operations and businesses.

Shortly after Bitcoin reached its all-time high of US$68,223 in November 2021, Treasurer Josh Frydenberg announced plans to overhaul Australia’s payments industry and create a regulatory framework for crypto in 2022.

According to industry experts, there are five major crypto trends to expect in 2022.

1. Increased regulation of cryptocurrency exchanges

Although one of the founding principles of cryptocurrency is that it’s decentralised and unregulated, it’s only natural for increased regulation to follow the widespread adoption of an innovative technology. After a landmark year for the crypto exchange industry, 2022 will see new regulations intended to prevent money laundering and the financing of terrorism.

US President Joe Biden has recently ordered various government agencies, including the Commerce and Treasury departments, to assess the emerging risks and opportunities that digital assets pose, and to coordinate a federal approach to regulating the industry.

However, some experts predict that increased regulation could exclude the average investor from the opportunities that made cryptocurrency so popular. Others worry it could eliminate the transparency and anonymity that make cryptocurrency a unique investment.

On one hand, regulations that put too many burdens on individual investors could smother growth and innovation. On the other hand, new laws could increase the flow of new investors by making them feel safer, paving the way for mainstream adoption.

Without the legal and regulatory safeguards that central bank currencies have, mainstream use of cryptocurrency could cause financial instability. More than 80% of the world’s central banks are examining how to launch digital versions of their own currencies, while 60% are already experimenting.

“At least 25 countries will be using a central bank digital currency by the end of 2022. Either their own, or one issued by another country, such as China's digital yuan.”

Rohit Talwar, Fast Future

A 2021 report by the World Bank reveals that 1.7 billion adults worldwide do not have access to the financial system. Central bank digital currencies (CBDCs) would give more people access to electronic payments, while combining all the desirable characteristics of cash, bank deposits and cryptocurrencies issued by the private sector.

In theory, CBDCs will not only keep the commercial banks in business, but they’ll also be widely accessible, digital, token-based and regulated. CBDCs would allow for cheaper and faster payments, immediate settlements and no processing delays.

Not only will governments need to find a balance between maintaining control and encouraging innovation, but regulation will also require a coordinated effort across several economies.

2. New digital currencies will make an impact in 2022

Global adoption of cryptocurrency grew 881% in 2021 and has increased by over 2,300% since Q3 2019. With almost 16,000 digital assets now in circulation, knowing which cryptocurrency to invest in will be one of the biggest challenges of 2022.

One solution is to look at the best crypto investments in recent years. Binance Coin (BNB), for example, is the digital currency fuelling the Binance ecosystem. Now the world’s largest crypto exchange, Binance disrupted the industry and made a 1,300% gain for those who invested at the start of 2021.

The following new digital currencies are associated with a pioneering technology that is well-positioned to disrupt an industry.

LBLOCK

Powered by LBLOCK, its native digital currency, Luckyblock is currently in the pre-launch phase and poised to revolutionise the global lottery industry. Using blockchain technology to decentralise the lottery process and eliminate the potential for manipulation, Luckyblock promises to be more transparent and easier to win than traditional lotteries.

CRYP

The CRYP token is the backbone of the CryptTalk platform, which strives to be the first social media platform for crypto communication that eliminates scams by fully vetting and auditing all projects. The CRYP token gives users the lowest possible fees while serving as an investment.

ARC

ARC, formerly known as DePo, is the world’s first decentralised multi-market aggregator. Not only does it provide one unified dashboard for users to manage, store and trade all of their digital assets, but it also promises to get the best possible trading deals for investors. Powered by the $ARC token, the platform plans to deliver 50% of revenue to token holders.

3. NFT growth will continue with increasing credibility

Non-fungible tokens (NFTs) are digital assets that symbolise tangible objects. They are stored on the blockchain, where they cannot be destroyed, removed or replicated. Unlike cryptocurrencies, NFTs are indivisible, meaning they cannot be divided into smaller denominations.

Deriving value from their orchestrated scarcity, NFTs are used to purchase authentic and credible digital goods, such as images, videos and albums. This groundbreaking technology has turned the traditional art world on its head by enabling artists to sell their digital creations for thousands — sometimes millions of dollars; the global NFT market was estimated to be worth more than US$40bn by the end of 2021.

“We’re seeing a new generation of traders within the NFT market; people who are digitally native looking for digital native asset classes outside of established asset markets. These are people who have amassed reputation and wealth and want to invest it in purely virtual assets like NFTs.”

Nadya Ivanova, COO, L’Atelier

As digital artists can turn their work into NFTs for copyright purposes, NFTs are a promising tool in the fight against identity theft. NFTs are easily verifiable and no two are the same; being on the blockchain allows easy tracing of the original owner and eliminates the need for third-party verification.

This technology can be used to transfer rights related to both virtual and physical property, and is an efficient way to protect important documents. NFTs can be used for contract negotiations, intellectual property, medical records, identity verification and academic credentials, and have started to converge with decentralised finance, especially in yield farming strategies.

While still in its infancy, the NFT trend is expected to gain credibility in 2022 — particularly with businesses and brands as use cases begin to widen in scope. For example, NFTs could also play a role in showing sustainability within supply chains, giving buyers peace of mind about the ethical production of their purchase.

4. Increased acceptance will bring new challenges and opportunities

According to comparison site, Finder, more than half of financial experts predict that bitcoin will overtake fiat currencies (government-issued currency that is not backed by a commodity such as gold) by 2050.

Cryptocurrency payments systems are here to stay, but as more investors, consumers, businesses and governments get on board, the crypto exchange industry can expect to encounter new challenges. The larger the customer base, the more complex the payment flow becomes. As the industry continues to grow, crypto exchanges can expect to face custody, regulation and liquidity challenges.

On top of navigating new laws and regulations, the existing crypto exchange risks are getting bigger as the industry grows. Benjamin Whitby, who oversees regulatory affairs at peer-to-peer trading network, Qredo, predicts that 2022 will see the world's first billion-dollar hack as the use of decentralised finance continues to rise.

On the other hand, Tony Richards from the Reserve Bank of Australia predicts that cryptocurrency growth might only be temporary, with the industry returning to its ‘niche’ origins once CBDCs and retail-focused stablecoins are in full force.

Indeed, only 9% of traders are satisfied with the crypto exchanges they use. Until recently, cryptocurrency exchanges had enough unique value that they could afford to cut corners with their user experience (UX), but as the industry grows, a UX focus will be key to success.

The opportunity for crypto exchanges lies in overcoming these challenges by remaining flexible, adaptable and efficient — and partnering with the right payments provider can make all the difference.

5. Baby steps for the Metaverse

Metaverses already exist in the way of virtual reality (VR) gaming platforms, but if the concept takes off the way metaverse proponents predict, then it would transform the way we work, socialise and more. In theory, we’ll switch from using apps through computer, smartphone and tablet screens, to immersing ourselves in the internet via VR technology.

However, consumers are still waiting for someone to release an affordable and comfortable VR headset, and Intel recently predicted that computers will need to be 1,000 times more efficient to support the Metaverse.

Cipher expert and host of website, Crypto Corner, O.J. Jordan, predicts that VR technology is finally ready to thrive, while Han Koning, co-founder of blockchain platform, Digibyte, believes most people would prefer owning virtual assets over being active in the metaverse.

According to Melanie Subin, director of consulting for research and analysis organisation, The Future Today Institute, a large proportion of people will be in the metaverse in some way by 2030. However, Holochain executive director, Mary Camacho predicts that rapid growth is unlikely in 2022, as the metaverse still needs time to develop an identity while taking “baby steps” in the right direction.

Along with the emergence of decentralised web browsers and increased acceptance of blockchain technology, NFT growth is a key signifier of these baby steps. Matthew Pearson, co-founder of global blockchain talent bench, StudioBloc.io, believes that c-suite executives need to care about NFTs as, eventually, the metaverse will play a huge role in business life.

Implications for cryptocurrency exchanges

These five trends have critical business implications that mean that the crypto sector, including Australian crypto exchanges, is likely to thrive in 2022. It all comes down to leveraging the right technology to provide the best possible user experience for crypto traders.

The ability to access and deposit funds within seconds is critical for crypto traders, so offering customers speed, accuracy and functionality should be a top priority. This can be achieved by providing users with a variety of online payment options and access to banking systems.

Crypto exchanges with agility and innovation at their core will meet and surpass user expectations as their customer base grows. By improving operational efficiency and creating more time to focus on the priorities of a growing business, exchanges that maximise automation and integration will be at a significant competitive advantage as the industry grows and gains complexity.

To do that, it’s essential that crypto exchanges partner with a payments provider that can handle increasingly complex payment flows. For example, since partnering with Zai, CoinJar is able to clear customer deposits within 60 seconds, and this improved customer experience has reduced the time it takes to turn corporate prospects into clients by 50%.

For more information on how Zai can help your crypto exchange succeed and grow in a competitive marketplace, download the guide below on how the right payment technology can help your company scale with ease. 

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