2021 was another year for the crypto record books, with the total market cap of the sector surging nearly 300% over the last 12 months.
Bitcoin (BTC) is up an impressive enough 179% over the last year, but this pales alongside the rampage of altcoins such as Solana, Ethereum and Cardano.
|Retrospective review of cryptos in 2021 (12-month returns)|
|Bitcoin (BTC)||Store of value||179%|
|Solana (SOL)||Smart contract platform||10 725%|
|Binance Coin (BNB)||Smart contract/CeFi||1 933%|
|Cardano (ADA)||Smart contract platform||855%|
|Ethereum (ETH)||Smart contract platform||685%|
|Polkadot (DOT)||Smart contract platform||479%|
|Uniswap (UNI)||Decentralised exchange/DeFi||391%|
* DeFi = decentralised finance; CeFi = centralised finance
The number of cryptocurrencies increased to more than 10 000 as of November, which is double that as of April 2020.
The rise of smart contract-based cryptocurrencies
As can be seen from the table above, when broken down into the different types of crypto assets, smart contract cryptocurrencies did much of the heavy lifting in 2021.
Smart contracts are contracts written into computer code that are self-executing and require no human intervention – for example, the ability to borrow money at roughly 5% a year using cryptocurrencies as collateral. No credit approval is required, nor are you required (in many cases) to disclose your name. A host of other financial applications and transaction types, such as self-executing insurance contracts, have also become available on smart contract networks like Ethereum.
Ethereum was the first crypto network enabled for smart contracts, but others like Solana, Cardano and Polkadot have made impressive strides over the last year in the race for dominance of a market which currently accounts for more than $100 billion in ‘locked-up’ funds.
Binance Coin is the native currency of the Binance Smart Chain, which offers an alternative to Ethereum and other DeFi platforms. It offers users much lower costs than Ethereum, with pretty much all of the same functionality.
Yet, the Binance Smart Chain gives up something for its speed and low costs – decentralisation.
Binance is a private company, whereas Ethereum, Bitcoin and others are decentralised. Binance chooses who qualifies as a ‘validator’ on its blockchain and only uses 21 validators. Founder Changpeng Zhao likened Binance to a ‘CeDeFi’ or centralised DeFi. The Binance coin is also used as a utility token on the Binance trading exchange. This accounts for the extraordinary rise of the BNB coin over the last year.
Stablecoins account for three of the top 20 cryptos
Another theme observed in 2021 was the emergence of stablecoins – backed by currencies and real world assets – as a major force in the crypto space.
Stablecoins account for four out of the top 20 cryptos as measured by market cap. They include USD Tether, with a market cap of $75 billion, USD Coin (USDC) with as market cap of $40 billion, Binance USD ($13.6 billion).
Each of these stablecoins is backed 1:1 by the US dollar or US dollar equivalents. They are used by crypto traders and investors to park profits in more stable assets during periods of crypto volatility.
Institutions jump on board the Bitcoin train
In November 2021, Bitcoin’s most famous corporate backer, Michael Saylor of MicroStrategy, announced that his company had purchased another 7 002 BTC, bringing its total holdings up to 121 044 BTC (worth $6 billion).
Institutional investors precluded from investing directly in BTC can take a punt on MicroStrategy – which is ostensibly an IT firm, but in reality has become a proxy for Bitcoin.
“This is not a speculation, nor a hedge. It is a deliberate corporate strategy to adopt the Bitcoin Standard,” Saylor told Real Vision CEO Raoul Pal in an interview. Saylor has become an evangelist for Bitcoin, and has on numerous occasions pointed out the detriment of holding cash on your balance sheet.
Says Brett Hope Robertson, investment analyst at crypto investment platform Revix: “Institutional adoption is still in its infancy, but it’s not as if fund managers aren’t drooling over BTC’s compound annual returns of about 200% a year. Most are simply precluded from this new asset class in terms of their investor mandates, and by its lack of regulation, which they hope will change in the coming years.”
Some of the world’s largest fund managers have started to nibble at cryptos, including the world’s largest investment house, BlackRock, as well as Morgan Stanley Investment Management and more than a dozen other fund managers.
Blackrock also owns a 14.56% stake in MicroStrategy.
A more common way for institutional investors to gain exposure to Bitcoin is through Grayscale Bitcoin Trust, a publicly-traded instrument backed by investments in Bitcoin. With $35 billion under management, Grayscale allows investors with a minimum of $50 000 to gain exposure to Bitcoin without having to worry about issues such as custody and security.
US regulators have been reluctant to grant approval to exchange-traded funds (ETFs) with a direct exposure to Bitcoin, but in October approved the ProShares Bitcoin Strategy ETF as one of several futures-backed Bitcoin ETFs now either approved or under consideration.
Meanwhile, corporate adoption of Bitcoin continues to grow, led by Saylor, former Twitter CEO Jack Dorsey’s investment company Square, Ross Stevens of Stone Ridge Asset Management, among others. Tesla CEO Elon Musk became something of a Bitcoin supporter during the year, though that’s open to question given his decision to sell a small portion of the Bitcoin acquired by Tesla earlier in the year.
The rise of gaming-focused cryptos
A subset of cryptos that is fast gaining public attention is that of gaming-focused coins like Axie Infinity (AXS), Decentraland (MANA), The Sandbox (SAND), Gala (GALA) and Enjin Coin (ENJ).
“Some of the most exciting projects in the crypto space are happening in the gaming arena,” says Hope Robertson.
“Gamers are being offered ways to interact with fellow players while earning money, and there are some ingenious concepts behind this new crop of cryptocurrencies coming out of this sub-sector.”
A look at the table below shows some startling returns from gaming cryptos over a 12-month period. For example, Axie Infinity is a blockchain-based trading and battling game that is partially owned and operated by its players. Inspired by popular games like Pokémon and Tamagotchi, Axie Infinity allows players to collect, breed, raise, battle and trade token-based creatures known as Axies. It was created in 2018 and has built an astonishing market cap of nearly $7 billion in less than three years.
|Gaming cryptos – 12-month returns|
|Axie Infinity (AXS)||Gaming||11 152%|
|Decentraland (MANA)||Gaming||4 000%|
|The Sandbox (SAND)||Gaming||12 527%|
|Gala (GALA)||Gaming||50 972%|
|Enjin Coin (ENJ)||Gaming||1 766%|
Decentraland (MANA) is a virtual reality platform powered by the Ethereum blockchain that allows users to create, experience, and monetise content and applications. It allows users to purchase plots of land that they can later navigate, build upon and monetise, and though it only launched in 2017, it has built up a market cap of $6.8 billion. The Decentraland ‘metaverse’ comprises more than 90 000 pieces of land offered up for purchase and development in a virtual world.
All in all it’s been an amazing year for cryptocurrencies, with many new and exciting sectors being built.
But what does this all mean for 2022?
Stay tuned for part two of this series to find out.
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