This article was written exclusively for Investing.com
- Cryptos are gaining acceptance as market capitalization grows within the asset class
- 2022 could be a crucial year for the asset class
- Solana: fifth largest cryptocurrency
- Cardano: Seventh leading name in the asset class
- Invest only what you can afford to lose: SOL and ADA are liquid for trading purposes
When most market participants think of cryptocurrencies, the asset dominates the conversation and analysis. As the grandfather of the asset class, Bitcoin’s surge was incredible, going from five cents per token in 2010 to nearly $ 70,000 in 2021, sparking a speculative buying frenzy and bringing thousands of new cryptos to market. In 2021, Bitcoin’s value rose 57.81%.
is the second most important cryptocurrency. It even outperformed Bitcoin last year. The value of Ethereum rose 391.75% in 2021. Bitcoin is a medium of exchange, but Ethereum’s flexible platform has spawned many new cryptos that have resulted in outperformance.
At the beginning of 2022, more than 16,650 tokens populate the asset class, with the number of new additions increasing every day. and are in the top ten with a market capitalization of more than 99.9% of the rest of the asset class.
Cryptos are gaining acceptance as the market capitalization of the asset class grows
In 2021, the market capitalization of the cryptocurrency asset class rose 182.18% to $ 2.166 trillion on December 31, from $ 767.482 billion at the end of 2020.
The sharp rise in market capitalization was a function of the increased usage of the emerging asset class. In 2021, more companies started accepting cryptocurrencies as a means of payment. Additionally, the speculative frenzy that has spiked values in recent years continued to push cryptos into mainstream investment assets, with financial institutions allowing clients to invest a percentage of portfolios in crypto assets.
The high-profile support from Tesla CEO Elon Musk and Block’s Jack Dorsey hasn’t hurt Krypto’s profile. Even some top athletes and celebrities were demanding payments in cryptocurrencies in 2021.
2022 could be the make-or-break year
After reaching nearly $ 70,000 per token in mid-November, Bitcoin traded below the $ 43,000 mark on Jan. 11. Ethereum peaked at around $ 4,900 on November 10, but was below $ 3,250 in early 2022.
Cryptocurrencies face persistent bullish and bearish forces in 2022.
On the bullish side:
- The speculative frenzy is likely to continue as token prices stay at the levels that created wealth.
- The number of tokens continues to increase. Demand for cryptos supports the growing number of choices as market participants look for the next token to deliver Bitcoin or Ethereum-like rewards.
- Cryptos have become more established investment vehicles, encouraging market participants to diversify their portfolios to include exposure to cryptocurrencies.
- Confidence in fiat currencies is declining, making cryptos a viable alternative.
On the bearish side:
- Regulators are preparing to take on a more prominent role in monitoring the market to “protect the public”.
- Governments will eventually adopt digital fiat currencies to compete with cryptos from a technology standpoint.
- Cryptocurrencies are threatening the control of money supply by lawmakers and government officials that governments of no epic value will not give up. Money is a root of power, and many government officials view cryptos as a challenge to their control.
At around $ 2 trillion on Jan. 11, its crypto market capitalization is well below Apple (NASDAQ :), the world’s leading publicly traded company. At $ 2 trillion, cryptos pose no systemic risk to the financial system. However, if market cap increases to $ 4 billion, $ 5 billion, or more, governments are likely to get nervous and take action against cryptos. As hedge fund manager Ray Dalio said in 2021, governments have the power to “kill” the asset class, and the more successful it becomes, the more likely they are to “kill” cryptos.
Solana is the fifth leading cryptocurrency
On January 13th, Solana was the fifth largest cryptocurrency. At $ 151.25 per token, SOL’s market cap was $ 47.40 billion.
Solana is a public blockchain platform that uses the proof-of-stake mechanism. Proof-of-stake protocols are a class of consensus mechanisms for blockchains that validators select in proportion to their amount and duration of holdings in a cryptocurrency. Proof of Work, Bitcoin’s mechanism, is energy intensive, while Proof of Stake requires much less computation and less power, making it a more environmentally friendly protocol.
Solana is a potential rival to Ethereum as it offers faster transaction speeds and reduces associated costs.
SOL is another success story.
The graphic shows that SOL tokens came onto the market in September 2020 at the level of 78.0 cents. They hit a high of $ 258.93 on November 5, 2021, days before Bitcoin and Ethereum hit their all-time highs. At $ 151.25 on Jan. 13, SOL was about 42% below its November high and fell more than Bitcoin and Ethereum, which were 38.2% and 34.2% below their respective highs.
Cardano: Seventh place
Cardano is a public open source and decentralized blockchain platform with a proof-of-stake protocol. Cardano has been around since 2015 and can enable peer-to-peer transactions with its ADA cryptocurrency. Cardano’s energy efficiency makes it a more environmentally friendly crypto as the mining is not energy intensive.
ADA was the seventh leading cryptocurrency on January 13th. At $ 1.30 per token, the market cap was $ 43.45 billion.
The graph shows that ADA started trading at 2.6 cents in October 2017 and rose to a high of $ 2.9634 on September 1, 2021. At $ 1.30, the price fell 56% from the high. In early November 2021, ADA hit a lower high at $ 2.2735 and has outperformed Bitcoin, Ethereum and Solana since November.
Invest only what you can afford to lose: SOL, ADA are liquid for trading purposes
SOL and ADA are liquid cryptocurrencies that provide liquidity to traders with market caps on either side of the $ 40 billion mark. However, SOL and ADA face the same risks that all cryptos face, and investors should only deploy capital they are willing to lose, as the potential for significant gains comes with the risk of total loss.
The proof-of-stake protocol, which is taking a greener path for the environment, is likely to be a bonus for the cryptocurrency asset class. However, the bullish and bearish cases for the asset class will determine the path of least resistance in prices in 2022.