At Crypto Pragmatist, we write in a data-backed way, trying to gain insight into the future from past price action, fundamental changes, and news events. While this data helps us make guesses at the future, these ideas are anchored in the past.
Look at articles from this year like:
- Do Altcoins Really Pump After Big Bitcoin Moves?
- Are We Still Early to Cryptocurrency?
- The Hard Data on Small-Cap Cryptos
All of those articles analyze the past to inform decisions in the present.
But today, in honor of the last Crypto Pragmatist edition of 2021, we’re sharing with you our (somewhat dubious) speculations on how 2022 might play out.
And for what it’s worth, despite the choppy market conditions of late: we’re still very much bullish for next year.
Our 2022 Thesis
In many ways we’re seeing a crypto market that’s much less correlated with Bitcoin than in the past. Previously when Bitcoin dumped or stagnated, altcoins faltered, often bleeding against $BTC and only appreciating in price with a stable or up-trending Bitcoin.
That has changed, with over half of the top 25 cryptocurrencies climbing in price in December despite a downward-trending Bitcoin. Multiple altcoins have been seemingly bear-market resistant; specifically Layer Ones, Layer Twos, and DeFi coins.
If you look at the total market cap growth of all cryptocurrencies over the last 6 months, it’s actually down from the peak in May, so it’s unlikely that crypto has experienced a net inflow of capital over the last six months.
If the trend of sideways movement continues, it’s probable that the next phase of the cycle will be narrative-driven. Capital will be moved around by investors looking to take advantage of new ideas and market momentum. While a rising Bitcoin is still good for everything, it’s no longer the only crypto that matters in regards to broader market conditions.
Our thesis: 2022 will be narrative-driven. Capital will jump from narrative to narrative, leading towards more isolated pumps for altcoins in all types of markets.
And the narratives we’re watching? We outline them below:
The L1 Trade Continues
|L1 gains in 2021|
2021 has been the year of the L1, with Solana, Terra Luna, Avalanche, and more all putting in ludicrous gains throughout the year. Much of this has been in backlash to the dominance of Ethereum, with new users deciding that $ETH isn’t the end-all-be-all of smart contract platforms.
But how high can those L1s go in the near term? Can they launch past the market cap ceiling of $100 billion that only Ethereum and Bitcoin have surpassed? It seems unlikely.
So with the gains of other L1s seemingly capped, it seems likely that money will flow to smaller, more speculative smart-contract platforms: the new competitors that came to market a bit later but are now gaining traction and momentum. Chains like Fantom, Algorand, and Elrond our all much-watches in our list.
Cryptos to Watch:
- Fantom ($FTM)
- Near ($NEAR)
- Cosmos ($ATOM)
- Algorand ($ALGO)
- Elrond ($EGLD)
The L2 Trade Begins
Ethereum is facing serious scaling problems in the form of network congestion and high transaction costs. At this point in time it regularly costs $200 to make a single swap, totally inaccessible for smaller investors. The lack of an easily apparent, immediate solution is an existential threat to the network.
Ethereum’s proposed solutions are Layer Two protocols: cryptocurrencies that sit on top of the Ethereum network and facilitate transactions in a more efficient, cheaper way while using Ethereum as a base layer for security and decentralization.
These so-called-L2s will be a new chance at exponential gains for $ETH investors that missed out on the L1 gains of 2021 by holding Ethereum. As these L2s are quite small in market cap at this point, they represent an opportunity to absorb tremendous amounts of capital from Ethereum and become incredibly valuable over 2022 as activity shifts from the main network to these cheaper solutions.
Polygon was the first major L2, and a profitable investment, climbing an unfathomable 14,000% over the last year. Another competitor, Loopring is up a ‘modest’ 1000%.
In the past month, we’ve seen this same investment opportunity play out with the latest new Ethereum scaling solution: Metis. The token has pumped a ridiculous 276% in the last two weeks despite a slowly bleeding Bitcoin.
Many of the other L2 networks have not yet launched a token, so keep a close eye out for their entrance. Some of these networks may airdrop free tokens as an incentive to participate, so consider playing around on these new protocols to become eligible.
Cryptos to Watch:
- Polygon ($MATIC)
- zkSync (Token TBA)
- Arbitrum (Token TBA)
- Optimism (Token TBA)
- Loopring ($LRC)
- Metis ($METIS)
The Return of DeFi
Curve ($CRV) and Convex ($CVX) have exploded in price this month, with protocols like Abracadabra Money ($SPELL), Olympus Dao ($OHM), Badger DAO ($BADGER) , and Frax ($FXS) all participating in the autonomous accumulation of the two governance tokens.
If you haven’t followed the so-called ‘Curve Wars’, you can check out a Twitter thread I wrote on it below:
The point is that, after relative underperformance over 2021, DeFi is back with a vengeance. In times of uncertainty, the market seeks out fundamental value. The protocol revenue, Total Value Locked, and users secured by DeFi protocols will all be attractive to investors seeking relative safety in uncertain markets.
For the winners, look for cryptos that are performing well in measurable metrics: cryptos with solid teams, strong communities, and meaningful backing. Protocol revenue and cash flow will be king, with successful projects able to produce strong revenue streams that rival the most profitable companies in the world by conventional metrics like P/E.
A key component for success will be token emissions, as many tokens currently create and give out new tokens to incentivize growth. That’s great to gain adoption, but at some point the flywheel has to work on its own. Protocols that can control inflation and produce revenue will win long-term.
Cryptos to Watch:
- Curve ($CRV)
- Convex ($CVX)
- Spell Token ($SPELL)
- Sushiswap ($SUSHI)
- OlympusDao ($OHM)
Metaverse and GameFi
|A screenshot from Decentraland|
Despite Crypto Pragmatist’s DeFi-focus, we strongly believe in a future where crypto is part of world economies, capable of disrupting a wide variety of industries. Based on the state of venture capital funding in the space, it’s looking more and more probable that the first space outside of finance to be disrupted in a meaningful way is the metaverse: the digital worlds in which we participate in and inhabit.
Part of this new digital universe is GameFi: businesses that use the blockchain as a platform for videogames. The biggest one is Axie Infinity, a top 50 crypto. With so many opportunities, so many eager investors, and new models such as play-to-earn, these cryptos could be very successful investments over the next year.
That’s not to mention metaverse cryptos, which are currently receiving enormous amounts of venture capital money. While it’s easy to be skeptical on the idea of digital land being worth many millions of dollars, many see the future of crypto as concerts, conventions, parties, and games all taking place in digital spaces built on the blockchain.
Cryptos to Watch:
- Axie Infinity ($AXS)
- Decentraland ($MANA)
- The Sandbox ($SAND)
- Gala ($GALA)
- DeFi Kingdoms ($JEWEL)
At Crypto Pragmatist, we’re sure of one thing: there are always opportunities in crypto. The hard part is finding them.
We hope your year was enjoyable and profitable! And we’d like to give you (yes, you) our most heartful thanks. Without you, we wouldn’t be able to provide this content: we appreciate your readership more than you could imagine.
We’ll see you next week.