3 Cryptos That Will Have the Biggest Impact in 2022 — for Good or Bad

Do you hold any of these high-impact cryptos?

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Key points

• Ethereum, Ripple, and Tether all have an outsized impact on the crypto market.
• All eyes will be on Ethereum’s upgrade, which could bolster or bring down investor confidence.

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The cryptocurrency market has had a tough start to the year. The total market cap dropped below the $2 trillion mark for the first time since September, and many major cryptocurrencies have lost around 15% or more.

Some warn this is the start of a bear cycle. Others say this is normal for cryptocurrency and volatility is part of crypto investing. What’s for sure is there are still a lot of unknowns in the crypto market for the coming year, from increased regulation to the impact of the Federal Reserve’s anti-inflation measures.

Some coins will also have an outsized impact on the rest of the industry. Here are three cryptos to watch:

1. Ethereum (ETH)

Ethereum was the first crypto to introduce smart contracts, small pieces of code that make it possible to build applications on the blockchain. As a result, it dominates the market and hosts the lion’s share of applications. However, it has been a victim of its own success, as the network struggles with congestion and high transaction fees.

The reason Ethereum will have a huge impact on crypto in 2022? It’s in the process of an upgrade to Eth2 to resolve some of its scalability and other issues.

If the upgrade goes well, it will boost Ethereum and likely the wider crypto market. Conversely, if there are significant delays or technical troubles, not only will that impact the price of Ethereum and some of the tokens in its ecosystem, it may also reduce investor confidence in the whole industry.

2. Ripple (XRP)

Ripple is a money transfer network aimed at financial institutions. It is in the midst of a legal battle with the Securities and Exchange Commission, which has ramifications for a number of other cryptocurrency projects. As a result of the ongoing legal skirmish, XRP has been delisted from most U.S. cryptocurrency exchanges.

It all comes down to how cryptocurrencies are categorized. The SEC believes many cryptocurrencies are operating as unregistered securities. Securities need to follow strict rules in terms of reporting and trading. The rules for most cryptocurrencies, which are currently viewed as commodities, are more relaxed.

When it comes to Ripple, the SEC argues XRP is a security because it fulfills the criteria of an investment contract. It cites a 1946 Supreme Court case called the Howey Test. According to this, an investment contract is where, “A person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party.”

Ripple argues the SEC failed to provide fair notice about what was classified as a security, and that its lack of clarity has created confusion in the marketplace. If the SEC wins its case against Ripple, it will set a precedent and the SEC may pursue similar actions against a number of other cryptocurrencies.

3. Tether (USDT)

Tether is a stablecoin that’s pegged to the U.S. dollar. However, the crypto heavyweight — currently the third largest crypto by market cap — has come under fire from a number of quarters. Most damning was the New York Attorney General’s Office, who said, “Tether’s claims that its virtual currency was fully backed by U.S. dollars at all times was a lie.”

The issue is that Tether should have $1 in reserve for every USDT it issues. Tether has a $78 billion market cap, according to CoinMarketCap. But only a small percentage of its reserves are held in cash. According to its latest statement, around $31 billion of that money is held in something called commercial paper — a type of short-term debt. Bloomberg says that makes Tether the seventh largest holder of this type of debt. If there was a run on Tether, or some of those loans failed, it could have an impact on both crypto and the entire financial system. Jim Cramer thinks the risk is so high he warned viewers toward the end of last year to sell their crypto.

Regulators believe Tether and several other stablecoins operate like banks so they should have to follow bank-like regulations. Stricter stablecoin regulation is a priority in the U.S. and will likely be introduced in the coming months. It will be interesting to see how Tether handles those regulatory changes and whether investors react and move their money into other stablecoins.

Pay attention to these coins

This is still a relatively new and evolving industry, and the coins above exemplify some of the biggest risks: technical, regulatory, and operational. As an investor, it is important to pay attention to the bigger picture as well as any individual cryptos you’re considering.

It is understandable to want to invest in cryptocurrencies, especially given the incredible gains some have seen this year. But don’t let those gains blind you to the risks. Make sure you only invest money you can afford to lose, and that crypto only makes up a small portion of your overall portfolio. Most of all, don’t ignore these three cryptos. Even if you don’t hold any of them, each one could buoy up or weigh down your crypto investments.