Cryptocurrency investors were on edge when 2021 rolled in. The price of leading token Bitcoin (CRYPTO:BTC) was up 309%, and Ethereum (CRYPTO:ETH) had climbed 459% over the previous year. But the last massive surge in 2017 was followed by an ice bath in 2018. Was the crypto market headed for another sharp correction in 2021?

As it turns out, the positive market momentum of 2020 carried over into strong gains in 2021. Both Bitcoin and Ethereum shot higher, followed by thousands of altcoins getting their first taste of mainstream success. It's been a rocky road with lots of speed bumps, but the general market trend has pointed steadily upward.

The 2022 calendar will answer some important questions that were left unanswered in previous years, setting the course for cryptocurrencies and their investors for the long run. Here's what to expect.

Crypto market predictions for 2022

It's impossible to say exactly what will happen to the cryptocurrency market in 2022 and beyond. Questions are far more numerous than answers. But by keeping an eye on a few overarching tendencies of crypto, you will be able to make better investing decisions as the market continues to evolve.

Three particularly important details need to be followed:

As these issues develop and are resolved, the long-term future of the cryptocurrency sector will take shape. A clearer picture should emerge by the end of 2022. Even so, a series of baby steps that started with Bitcoin's 2009 creation is likely to continue for many more years.

Bitcoin has been boosted by a tweet from Elon Musk that Tesla will accept the cryptocurrency when it is mined using cleaner energy
Bitcoin has been boosted by a tweet from Elon Musk that Tesla will accept the cryptocurrency when it is mined using cleaner energy AFP / Justin TALLIS

Why cryptocurrency could be the future of money

In one best-case scenario for 2022, regulators around the world will come up with a global framework for crypto regulation. The Biden administration has put together a highly qualified team to steer the cryptocurrency regulation process led by U.S. Treasury Secretary Janet Yellen and the chairman of the U.S. Securities and Exchange Commission, Gary Gensler. Yellen has been tracking this sector for years, although sometimes taking a skeptical view. Gensler taught classes on bitcoin, blockchains, and other cryptocurrency topics at the Massachusetts Institute of Technology in 2018.

With highly knowledgeable people setting the tone for future regulations, there's real hope that a workable system can be developed for investors, consumers, cryptocurrency businesses, and traditional banks. Informed regulators will understand crucial and meaningful issues such as the differences between a value storage system such as Bitcoin and a sophisticated ledger with smart contracts such as Ethereum.

As government entities hammer out a legal framework and taxation system, cryptocurrencies could find their way into the digital wallets of U.S. consumers on a large scale. But even though Bitcoin became legal tender in El Salvador in 2021, the U.S. isn't likely to follow suit anytime soon.

However, many retailers are likely to start accepting payment in cash-like digital currencies such as Bitcoin, Ripple's XRP (CRYPTO:XRP) , or Litecoin (CRYPTO:LTC) . The increased use of crypto should spur regulatory agencies and politicians to take action, and the blockchain systems should also benefit from widespread usage.

These processes will percolate through the crypto market in 2022 and beyond. Investors can't stand uncertainty, so even an overly strict regulatory framework is likely to be an improvement over today's ramshackle oversight.

Why cryptocurrency may not be the future of money

A brighter future could be delayed in several ways:

  • Policymakers drag their feet and fail to reach a sensible regulatory framework in 2022.
  • They could decide that currencies such as Bitcoin and Litecoin only serve illegal activities and bad actors, and none of it belongs on U.S. soil.
  • Retailers might balk at the unpredictable value of digital currencies and insist on traditional cash or credit card transactions instead.

Under any combination of these circumstances, the digital currency revolution could be delayed by several years. And, assuming it finally does arrive, it might look very different from the Bitcoin-led sea change that gained momentum in 2021. In the very long run, it seems unlikely that any government or group of nations will stop the cryptocurrency idea entirely, but they can slow down the movement and steer the final product in various directions.

These risks might sound hypothetical, but they are very real. In the end, the cryptocurrency community must get along with regulators around the world. Failing to do so can throw massive roadblocks in front of the digital currency sector's progress.

That's why you shouldn't bet the farm on Bitcoin, Ethereum, or crypto in general. The next heart-stopping market move could still be a negative one with echoes of the 2018 crash. Informed investors want to build a diversified portfolio for the long run that is able to withstand dramatic setbacks in any particular sector.

This article first appeared in The Motley Fool.

Anders Bylund owns shares of Bitcoin, Ethereum, Litecoin, and Ripple. The Motley Fool owns shares of and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy.