What the top crypto execs predict for the industry in 2022: Regulation and a Big Tech ‘brain drain’ – CNBC

Sam Bankman-Fried, CEO of cryptocurrency exchange FTX, at the Bitcoin 2021 conference in Miami, Florida, on June 5, 2021.

Eva Marie Uzcategui | Bloomberg | Getty Images

Cryptocurrencies have had yet another wild year.

Bitcoin, the world's largest digital asset, has seen a roughly 65% gain since January with some ten to twenty percent swings in between. It brought in a crop of new, individual investors along the way as payment giants like PayPal started letting users trade crypto. More billionaires and institutional investors dove in to help legitimize the asset class.

The industry now sprawls well beyond bitcoin. NFTs, blockchain-based videogames and "Web3" are top of executives' minds heading into next year. Regulation remains as the biggest uncertainty.

Here's a look at what some of the industry's most influential executives had to say.

The 29-year-old founder and CEO told CNBC he doesn't expect legislative action to be the immediate answer for "regulatory clarity." Especially since it's "pretty hard right now to get things through Congress."

It's just as likely to be cobbled together from a series of statements, enforcement actions, and "other indications" to set the guardrails," Bankman-Fried said.

The CEO is still bullish on Solana as an alternative to Ethereum. But it's possible that a new blockchain pops up as the "Holy Grail" that would eventually be able to host a million transactions per second. Right now, he said there are "very few even trying to get that point."

"There will be substantial fleshing out of the crypto regulatory systems over the next few years."

"Most banks have effectively decided internally that they will be entering the crypto ecosystem. But how and when they do it is going to depend a lot on the details of regulatory structure."

"There's enormous worry about stablecoins right now. But it's pretty straightforward to address. You have attestations, or you have an audit from a regulator."

"The thing that people are worried about with stablecoins is are they stable? If you can address that, you've addressed most of the worries about it from a customer protection and a systemic risk perspective. It's not that hard to do. So I'm cautiously optimistic that that's where we're going."

Jeremy Allaire, Co-Founder and CEO, Circle

David A. Grogan | CNBC

The CEO of Circle is calling for more use of dollar-pegged cryptocurrencies, or stablecoins, by e-commerce firms, consumers and financial institutions. Circle, which is set to go public via SPAC, operates its own stablecoin called USDC.

Allaire expects to see more institutional adoption and celebrity trendsetters lending their brands to crypto through NFTs. DAOs, which rely on crowdfunding, may even "challenge venture capital investors on some of the largest and hottest deals in crypto," he said.

The biggest threat? "Incoherent and inconsistent, hastily formed regulations and policy," Allaire said.

"Even in an environment where the Fed raises interest rates, investors and businesses will be hungry for the high-yield opportunities offered through digital assets. So expect to see institutional adoption of digital assets balloon directly, through ETFs, or custom yield-generating products."

"There is bipartisan recognition that blockchain and crypto technologies represent a U.S. competitive advantage, especially if properly regulated, so new legislation and laws will come quicker than many people expect."

"In 2022 stablecoin adoption will continue its upward trajectory. We believe that dollars on the internet will soon be as efficient and widely available as text messages and email."

Brian Brooks, chief executive officer of Bitfury Group Ltd., speaks during a House Financial Services Committee hearing in Washington, D.C., on Wednesday, Dec. 8, 2021.

Stefani Reynolds | Bloomberg | Getty Images

Brian Brooks, the former Acting Comptroller of the Currency, said there's now consensus among lawmakers in Washington that crypto is here to stay. He expects more blockbuster funding rounds after a record 2021, continued mainstream understanding of the crypto space.

For example, not all "crypto" are currencies, or meant to act like currencies, he said.

"Retail adoption is there and will continue to accelerate, but for those established Wall Street firms and other financial services companies that are not already involved in the crypto ecosystem, it is a matter of "when" not "if".

"The need for clear regulatory action that creates a sustainable framework to allow crypto and Web 3 to grow in the United States will reach its tipping point."

"The level of activity and innovation occurring in the space is too great to ignore, as is the risk to American competitiveness in technology and capital markets."

Chad Cascarilla, CEO of Paxos.

Adam Jeffery | CNBC

Paxos is the company powering PayPal's crypto offering behind the scenes. CEO Charles Cascarilla also expects more action in the stablecoin market. His company offers its own dollar-pegged coin, USDP. The CEO is one of many warning that the U.S. has a lot to lose if it gets regulation wrong.

"Big tech and finance players like Venmo, Interactive Brokers and Mercado Libre entered crypto in 2021. There will be even more and bigger players joining the onslaught next year."

"2022 is the year of the stablecoin. Consumer wallets enabled stablecoins for the first time this year. Money is a product and it needs to be updated for how people live today. Regulated stablecoins like USDP are the answer."

"Regulatory clarity, consistency and certainty will foster Safe blockchain innovation in the US. This technology presents many opportunities for American market primacy in the long-term if we get this right, and there are many risks if we get it wrong."

This year marked an industry milestone of the first futures-based bitcoin ETF. But Grayscale and others in the industry are looking to take that a step further.

It's looking to convert the world's largest bitcoin trust, GBTC, into an ETF and CEO Michael Sonnenshein is optimistic for an approval in 2022. He's also seeing investor interest beyond bitcoin, and "tension" between Big Tech and start-ups.

"We're entering into 2022 without a [spot] Bitcoin ETF, but believe that in the coming year the SEC and other regulators will continue to dig in on this issue. We remain optimistic that they will allow for an even playing field -- and give investors the optionality between both spot and futures-based ETF products for getting exposure."

"This was certainly a year when we thought people were diversifying beyond Bitcoin and Ether. We're starting to see that investors are going to specific protocols and projects, and an increasing mindshare among investors that the universe of crypto assets is only broadening."

"There will be an expanded conversation around the tension between some of these centralized platforms that are today managed by social media and e-commerce giants, and established tech companies versus some of these up and coming decentralized platforms."

Robinhood started as a stock-trading start-up. But in its second quarter as a public company, it got more than half of total revenue from crypto trades. Of that, more than 60% came from Dogecoin transactions. As the asset class becomes more important to the company's bottom line, executives have said they're moving slowly on adding new assets to the platform, until there's more regulatory clarity.

"2021 was the year crypto went mainstream."

"Whether through NFTs or their token of choice, more people engaged in crypto in what was a breakout year."

"Crypto has long had a HODL mentality, and that extended to NFTs in 2021 where JPGs replaced photos all across social media. The infrastructure investment from 2017 is ready for primetime, with multiple layer L1s and L2 platforms flourishing in 2021. With more crypto enthusiasts to cater to, 2022 will see companies focus more on design and user experience to ease that transition from web 2 to web 3, and we'll continue to see major brands continuing to get involved."

If you've ever perused crypto Twitter, you probably know "Pomp." With more than 1 million followers, the investor is known for his bullish calls on bitcoin and said the asset has transitioned from a contrarian idea, to a "consensus idea on Wall Street in 2021." He expects more adoption next year from legacy companies buying bitcoin for their balance sheets, and eventually building dedicated business units.

Pompliano also highlighted moves in the bitcoin mining industry after China made the activity illegal, bitcoin's potential for global payments, and a "brain drain" underway from Big Tech and Wall Street.

"Bitcoin mining transitioned from a largely international activity to a US-centric activity in 2021. It would not surprise me to see new all-time highs in the bitcoin hash rate in 2022, along with continued market share growth for the US as a whole, along with Texas as a single state."

"We saw a major social media platform, Twitter, embrace the Lightning Network for payments in 2021 via Strike's API (I'm an investor). We also saw a nation state, El Salvador, embrace the Lightning Network for payments. We should expect multiple large Fortune 500 companies to embrace the Lightning Network in 2022 for payments."

"The brain drain from legacy technology and finance industry will continue. Young people, and increasingly the most skilled people, want to focus their talents on the industry where they can have the greatest impact. Crypto has been growing at an incredible rate, both in terms of new jobs, new companies, funding, economic value created, etc. This transition has only begun and will likely accelerate in 2022."

While this was a busy year for the crypto trade association in DC, "2022 is going to be way busier," Bond said. She also expects the SEC to come out with more enforcement actions.

"The Biden administration has been in office for a year. We're now presented with a window where something can get done on a bipartisan basis. And that will advance the industry and it will provide guardrails for market integrity and consumer protection."

"While final legislation may not actually take place, take effect in 2022. I think the direction of travel is going to be clear, and what we're doing in 2022 is setting the stage for 2023, 2024 and beyond."

"The balance is going to be one finding a policy framework in which the industry can flourish and the U.S. can benefit where consumers can also be protected."

The crypto exchange, founded by Tyler and Cameron Winklevoss, climbed to a $7 billion valuation this year and is among the dozens with a bitcoin ETF application in the works. Its COO, Noah Perlman, sees crypto payments going mainstream, more non-tech companies embracing the Metaverse, and more women jumping into a male-dominated market.

"More retail companies with household names will expand their crypto offerings, further legitimizing digital currencies as a form of payment and as an asset. Credit card companies such as Mastercard and Visa that offer crypto rewards will become more prevalent, which will make investing in digital assets as easy as swiping your card at a store."

"It's no surprise to see tech giants Apple, Meta, Snap, Alphabet, and Microsoft build out their Metatverse ecosystem, but we expect this trend will target other industries as we've seen with Nike's acquisition of RTFKT and Adidas launching an NFT collection called "Into the Metaverse".

"The profile of the typical crypto investor will change significantly in 2022. Previously, the typical crypto investor was a man in his 30s making more than $100,000 per year. We already saw some significant demographic shifts in the past year. According to Gemini's 2021 State of the US Crypto Report, 63 percent of U.S. adults are crypto-curious, meaning they don't yet own crypto but report interest in learning more or holding digital assets soon."

"We'll see an approval for a spot bitcoin ETF most likely in H1."

Ethereum has had a break-out year but new, alternative blockchains are popping up as platforms to build NFTs and other apps. Avalanche is among the new challengers to Ethereum. The president of Ava Labs, a former hedge fund trader, predicts a shake out of "speculative" assets, and a "brain drain" as software developers leave Big Tech in search of next wave of computing. He also expects bitcoin's market dominance to keep declining.

"We will continue to see inflows into smart contract platforms, DeFi, Gaming and metaverse. The winners will be the ones with strong growth of users, use cases and transaction activity. Speculative assets with no network effects will be the losers."

"BTC still has strong interest from both institutional and retail investors. Let's not forget that it has had a 10 year lead time compared to other platforms so it still has the biggest brand name out there. On the other hand, it's dominance over the crypto market is declining and will continue to do so."

"While these smart contracts platforms do compete with each other for developers, the real competition is with traditional web 2.0 companies like Google and Facebook. We are seeing tremendous interest from web 2.0 developers who want to now build on decentralized systems because they find web 3.0 to be a lot more creative and exciting."

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What the top crypto execs predict for the industry in 2022: Regulation and a Big Tech 'brain drain' - CNBC