Huobi predictions for 2022: Bitcoin bear market, DeFi and DAOs rise

    23 Jan 2022

    The exchange Huobi has predicted a bear market in 2022 for Bitcoin as central banks tighten their monetary policies and the market sees a liquidity crunch. On the other side, DeFi and cross-chain interoperability will continue to expand and adapt, with DAO governance eventually becoming a significant driver of activity.

    Another major entity in the crypto sector is predicting a gloomy year for Bitcoin. Huobi exchange foresees a bear market for the top cryptocurrency in 2022 as liquidity crunch ensues the following tightening of monetary policies by the Federal Reserve and other central banks. However, on a positive note, DeFi will continue to grow and evolve, and DAO governance will become a significant driving force of growth for on-chain activity.

    2021 was the crypto industry’s biggest year ever, DeFi, NFTs, cryptocurrency adoption, blockchain use, and more factions seeing incredible growth. Web 3.0 and the metaverse also brought blockchain technology to the limelight. Regulators are also catching up, with 40 countries promulgating over 150 separate regulations for crypto as per the “Global Crypto Industry Overview and Trends” report by Huobi Research in partnership with Blockchain Association Singapore.

    And while many of these sectors will continue growing in 2022, it may be a bleak year for Bitcoin. In its report, Huobi noted that the U.S Federal Reserve has started to engage in tapering, a process in which it pulls back on the liquidity it has been injecting into the market, signifying a diminishing return on dollar liquidity.

    “Although it does not inherently change the direction of liquidity, it is likely to alter the direction of fund flow or the degree of mismatch in assets. Highly risky assets like Bitcoin, are theoretically more sensitive to the change in dollar liquidity,” Huobi notes in a report.

    Back in 2013, the Fed took a similar step, followed by a bear market that lasted for two years. While the market has dramatically changed and there’s more liquidity and more BTC owners now, Huobi believes that a similar move cannot be ruled out.

    However, despite the gloomy forecast on Bitcoin, Huobi predicts that there will still be plenty of growth in other sectors of the crypto industry.

    One of these is DeFi, a sector that shot up from $19 billion in January 2021 to close the year at $250 billion in total value locked. In 2022, we will see the sector evolve into DeFi 2.0.

    “DeFi 1.0 is inefficient in capital turnover, liquidity, and consumption, which limits growth potential,” Huobi says.

    For DeFi to grow, we must have better liquidity, higher profitability, more cross-chain interoperability, and more products.

    “DeFi 2.0 projects, represented by OlympusDAO and Alchemix, have progressed for the first time. DeFi 2.0 projects will be more adaptive to market changes due to advantages in the form of liquidity, profitability, and the potential of innovation. More DeFi 2.0 projects will likely appear,” Huobi suggests.

    DAOs will also become a significant on-chain governance mechanism, Huobi predicts.

    “In the future, there will be demand for the management of DAOs and funds they oversee. Specifically, the management of DAO funds could connect with various DeFi applications, facilitating a venue for treasury management,” the exchange predicts.

    As reported earlier, Bitcoin lost over 8.7% Friday and dropped below $38,000 to its lowest level in 6 months; following the Federal Reserve signaled its intention to withdraw stimulus from the market, riskier assets like cryptocurrencies have suffered.

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