Will 2022 Be the Year of Ethereum Killers?
For those of you that are still relatively new to trading the cryptocurrency market this may have felt like a choppy past few months, but looking at 2021 in hindsight we see the colossal gains and progress in the industry that have been made.
2021 has truly been the year that cryptocurrency went mainstream. Bitcoin (BTC) has grown 138% from $29,000 in January to an all-time high of $69,000 in November. Ethereum (ETH) started the year at $740 and reached its own all-time high of $4,867 in November, a 558% growth.
Those were just gains in our key market benchmarks, while the gains seen by some of the other altcoins that we’ve come to love have been even more incredible.
Solana has been the bell of the ball this year, leading all other major large-caps with a +10,754%, followed by Avalanche (AVAX) +3080%. These are arguably the two biggest competitors to Ethereum, as they’re each Layer 1 decentralized finance projects that support similar service and dapp (decentralized application) offerings to what’s available on Ethereum’s network.
Cryptocurrencies that are in direct competition for a share of the defi market are commonly referred to as ‘Ethereum Killers’ due to the belief that they will one day make the Ethereum network obsolete.
Obviously, hindsight is 20/20, and knowing what we know now we would have all bought Solana in January. The worst part, those who were already engaging in the crypto space may have gotten a heads-up on Solana that would have actually locked them into crazy 2021 profits.
To demonstrate what I mean (apologies for the vulgarity) here’s a tweet from an “insider”...
What else would you expect from the wealthiest person alive under the age of 30?
This tweet is from Sam Bankman-Fried, the now-famous founder and owner of FTX exchange, and you may notice that it is dated January 9th of this year. Some of you may still not be familiar with FTX, but they are one of the biggest players in the global crypto industry and are continuing to grow at a crazy rate.
Did Sam know something about Solana that the rest of us didn’t? Yes, he knew that he would use the Solana network to develop other projects like Serum (SRM) which enables cross-chain transactions and FTX’s own NFT marketplace
This example goes to show that the best bet in the crypto market is to follow the developers and builders, and not just the money.
Just because a cryptocurrency gets a big investment from a VC or is being promoted by your favorite billionaire doesn’t mean that the coin is going to actually become anything. What really matters is that a given project/cryptocurrency has developers that are actively and excitedly creating new applications, and a growing userbase to use the services that are created!
As we saw in the chart earlier, Solana, Avalanche, and BinanceCoin (BNB) have all drastically outperformed Ethereum, the market’s largest defi coin by market cap for the entirety of 2021. However, as it stands SOL, AVAX and BNB are all below a $100 billion marketcap, while Ethereum is at a whopping $490 billion.
If the price action of Q4 tells us anything, it is that Ethereum’s competitors are only going to keep growing in 2022.
Aside from large-cap defi coins, what other trends from 2021 might inform what will be big in 2022? Let’s highlight some of the biggest trends from this year, and break down how we expect them to play out in 2022:
- Meme Coins - If you’ve traded cryptocurrencies for a little while you’ve likely purchased either Dogecoin (DOGE) or ShibaInu (SHIB) with the hopes of making 100x your investment in coins that don’t actually really do anything.
- We are expecting Meme coins to become less prevalent in 2022 as the mainstream begins to learn about some of the more concrete opportunities in the crypto market. This isn’t to say there won’t be coins that go from nothing to a billion-dollar market cap overnight, that will definitely still happen. What we are saying is that we believe the crypto market’s appetite for blind risk may dwindle as time goes on. The best way of identifying a Meme coin is by asking, “what is the actual product/service behind this project?” and if there is no obvious answer available, there’s a good chance you’ve found yourself a Meme!
- Central Bank Digital Currencies (CBDC) - In order to try and regain some control of the booming crypto industry, nearly every developed country in the world has begun researching the potential for using blockchain technology to create their own CBDCs.
- The public is generally against the idea of CBDCs, as they are viewed as an attempt for world leaders to maintain control of their countries’ currencies and the global financial markets amidst the ongoing cryptocurrency boom. However, CBDCs are looked at very differently in developing countries such as in South America, Central America, and Africa. We have already seen El Salvador become the world’s first country to accept Bitcoin as a national currency, but with the proper development of CBDCs in 2022, we will likely see developing countries drastically improve their domestic financial systems. Expect to see CBDCs deployed by governments in the developing world in order to run programs for welfare, universal basic income, and cross-border remittance payments.
- Non-Fungible Tokens (NFT) - Are they art? Collectibles like your dad’s baseball card collection? Tradable like a cryptocurrency? NFT’s are still a very new and exciting product of blockchain technology that has yet to be defined as to how they will fit into the whole cryptocurrency space.
- We’ve seen NFTs become used for all of the purposes listed above and many more. The primary function behind an NFT is to be able to publicly prove ownership over an asset. An NFT can represent a piece of art that you own, it can represent a ticket to an event, or it can simply serve as proof of ownership of a real-world asset! We believe that in 2022 the world will take the potential of NFTs more seriously and start deploying the technology to prove ownership of real-world assets such as home deeds, car titles, and even personal identification. Keep an eye out for projects that utilize NFTs to allow you to digitize your ownership of physical assets.
- Metaverse - As much as we would love to be able to explain the metaverse in a simple way, we cant. The metaverse trend seemingly went mainstream overnight with Facebook announcing their name change to ‘Meta’, but most of us still have no idea what a metaverse even is!
- The idea of separating yourself from the physical world and getting lost in a digital reality is nothing new, as we’ve already used video games and the internet, in general, to create our own digital world throughout the past several decades. Existing projects like Decentraland (MANA) and the Sandbox (SAND) have already made major gains in 2021 based on speculation that their video game-like worlds will continue to grow in the mainstream. Expect to see new metaverse related plays pop up left and right in 2022, as we expect metaverse’s to go the way of defi where there will be the choice of multiple metaverses for the end-user to decide on, rather than one big Facebook-driven metaverse.
- Initial Coin Offerings (ICO) - An initial coin offering can be very similar to the IPO of a stock, but can be far more lucrative for those that get in early.
- ICO’s are all different, but one thing that almost every ICO has in common is the idea of a whitelist spot. If you are able to receive a whitelist spot for an upcoming project launch, it will allow you to purchase a coin before it’s launched publicly, allowing you to reap the benefits of massive liquidity and positive price action when the rest of the coin’s supply does become publicly available. Small ICO’s are difficult to keep track of due to the decentralized nature of cryptocurrencies, but for the purpose of larger US-based cryptocurrency projects, you should expect regulations to be created in order to create a standard for new project launches, similarly to the SEC’s IPO process.
- Stablecoins - Stablecoins such as USDC, USDT, and UST have become widely used across the digital finance world as 1-to-1 representation of fiat currencies. You can’t send somebody a physical US Dollar through blockchain, but you can send somebody a coin that represents the same value as a dollar. Stablecoins aim to allow the public to transact in the crypto space without having to go through the hassles of traditional banking.
- It is no secret that stablecoins are at the top of the docket for US regulators as we get ready to begin the new year. The biggest fear for regulators is that stablecoins will make the US Dollar obsolete overtime as the global population uses cryptocurrencies more. We believe that stablecoins actually serve as one of the biggest global onramps for the US dollar, allowing traders anywhere in the world to purchase a US dollar stablecoin with extreme ease. Regulations in the US are almost certain, but don’t be afraid of a complete crypto crackdown like we saw in China, more likely are regulations/requirements regarding how stablecoin issuers hedge their circulating supply with actual US Dollars.
- Taxation - Tax season is right around the corner and many new crypto traders are worried about how to properly report their crypto trades.
- Soon enough you won’t have to worry about reporting your trades to the IRS, as they seem eager to file your crypto taxes for you! Licensed and regulated US cryptocurrency exchanges such as Coinbase, Kraken, Gemini and others will likely be required to report all customer transaction records directly to the IRS starting in 2022.
- Crypto ETFs - The SEC continues to maintain its tumultuous relationship with the cryptocurrency and blockchain industry, which was evident in the hurdles that were raised in order to slow down the approval of a spot Bitcoin ETF. Unfortunately, Gary Gensler still refuses to publicly provide clarity as to how the SEC will approach cryptocurrency market regulation in the future, having still not declared whether cryptocurrencies qualify as securities or not.
- With the approval of several Bitcoin futures ETFs in Q4 of 2021, we are expecting to see spot Bitcoin ETFs in the next few months. Grayscale has offered a long list of different cryptocurrency trusts that are publicly traded OTC, but these trusts don’t accurately track the day to day price action of the cryptocurrency that they correspond to. Grayscale is most likely to be the first provider approved for a spot crypto ETF, with the first SEC review of their current spot Bitcoin ETF application taking place in the first week of January.
- Crypto/Blockchain IPOs - Even without spot cryptocurrency ETFs, plenty of companies with exposure to crypto/blockchain have been able to IPO this year. The ability to trade public companies with exposure to crypto allows investors to decide whether they want to try trading pure cryptocurrencies on a crypto exchange, or if they are more comfortable trading exposure plays in the stock market.
- We expect both more crypto-related IPOs, as well as existing public companies to expand into the crypto industry in 2022. We already have several crypto ‘sectors’ that are establishing themselves in the stock market including Blockchain/Mining stocks (HUT, BITF, MARA, RIOT), Financial Service Providers (SI, HOOD, SBNY), and even companies that hold cryptocurrencies on their balance sheets (TSLA, MSTR, OSTK)
- Chinese Crypto Ban - China banned cryptocurrency exchanges, then banned cryptocurrency trading, then crypto mining, and finally they just banned the industry as a whole. Why? The Chinese government does not want the global emergence of the crypto industry to threaten their implementation of the Digital Yuan.
- China did successfully create Fear, Uncertainty, and Doubt (FUD) in the global crypto market for a short period after each of their public crypto bans, but it seems like China’s direct influence on crypto markets is gone. Don’t expect China to be able to create a direct impact on the crypto market in 2022.
- Bitcoin Supply - Bitcoin is limited to a total supply of 21 million units, so once the full supply is in circulation there will not be any more BTC created. As it stands, nearly 90% (just below 19 million BTC) of the total Bitcoin supply has been released into the circulating supply.
- As time goes on it gets exponentially harder to mine Bitcoin, meaning we won’t have to worry about the other 10% of the coin’s supply being fully released into circulation for at least another 100 years. This increase in difficulty and decrease in the rate of new coins entering circulation is the core tenant that has kept Bitcoin deflationary, which makes the coin look even better in contrast to the US Dollar which has been printed at an unfathomable rate this past year.
As sure as we are that many of 2021’s crypto trends and themes will carry over to 2022, we also know that there are trends that will come about that we couldn’t even attempt to predict right now. As it stands, Web3 appears to be the big buzzword going into the new year, which will likely provide the most mainstream crypto industry exposure yet!
Many of you may be concerned about a disaster scenario for crypto-based on seasonals and on Bitcoin’s current standing in its previous 4-year market cycle. It may very well be true that 2022 could see global equity markets (including crypto) struggle if not completely crash, but we urge you to consider that there is still fuel in the tank.
Over $1.5 trillion of value has entered the global crypto market in the past year, with new projects and ideas being built into existence every day. For the past several months we have heard plenty of negative sentiment regarding the crypto market in 2022, and everybody was expecting December to be the make-or-break month for the market. Now that we are coming to the end of December we can see that most of the crypto market has maintained its October trading range, with strong support at key long-term moving averages which has us hopeful that there will be an explosive breakout in Q1 of 2022!
Will we see Ethereum dethrone Bitcoin as the largest coin by market cap? Or will we see some of the ‘Ethereum Killers’ actually leap ahead of Ethereum? At this point, only time will tell, but we are very excited for the new trading and investing opportunities that the crypto market is bound to create in 2022.
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