Cardano (CCC:ADA-USD) is up 664% year-to-date through Dec. 22. There’s no denying it made buyers of its cryptocurrency a lot of money in 2021.
I believe the perfect storm could be developing in 2022. That’s because if Cardano doesn’t deliver a repeat performance in the year ahead, investors will be pretty bummed about their lot in life.
Cardano in 2022
InvestorPlace’s Tezcan Gecgil recently discussed what to expect from ADA-USD in 2022. My colleague concluded that the third-generation blockchain platform had excellent long-term potential.
I, too, feel this way. Here’s what I said about Cardano in November: “I hope he continues to bang the drum for fundamental analysis in the cryptocurrency industry. If Cardano follows its North Star, I do not doubt it will be worth a lot more than $52 billion in five years.”
I have yet to buy any crypto coins. However, Cardano is my leading candidate should I finally take the plunge in the coming year.
However, it is something else that Gecgil said that caught my attention and made me think about a possible doomsday scenario.
Cardano to the Rescue
My colleague quoted a 2022 outlook for cryptocurrencies:
“According to the Global Cryptocurrencies 2022 Outlook, ‘Some normalization in stock-market returns and a continued decline in U.S. Treasury bond yields may shine on Bitcoin and Ethereum in portfolios.’”
It’s true. Wall Street is very subdued about stock prices in 2022. According to Fortune’s survey of analysts, the top growth predictions for the S&P 500 were from Goldman Sachs (up 11.7% in 2022) and JPMorgan (10.6%). That’s half the returns in 2021.
On the bearish side of things, Bank of America sees the index gaining less than 1%, while Morgan Stanley predicts a 3.7% decline in 2022.
“For markets, shifting central bank policy means that the training wheels are coming off, so to speak. After 20 months of unprecedented support from both governments and central banks, this extraordinary aid is now winding down. Asset classes will need to rise and fall or, for lack of a better word, pedal under their own power,” Fortune reported Morgan Stanley chief cross-asset strategist said about equities in 2022.
So, if stocks don’t deliver in 2022, it’s up to cryptocurrencies like Cardano to provide the alpha.
What If It Doesn’t?
Over the past five years, the S&P 500’s delivered annual returns of 23.78% (2021 YTD), 16.26% (2020), 28.88% (2019), -6.24% (2018), and 19.42% (2017). That’s an average of 16.5%.
Let’s assume that an investor at the beginning of 2017 put 95% of their $100,000 portfolio in the index and 5% in Cardano — it actually launched in September 2017, but we can use that just the same — and both holdings are still held today.
A $90,000 investment in the index is worth $193,140 at the end of 2021, while a $10,000 investment in Cardano is worth $406,698 today [based on October 2017 price of $0.26 and Dec. 17, 2021, price of $1.22].
Together, the two assets are worth $599,838 at the end of five years, a compound annual growth rate of 42.6%. That’s impressive.
Of course, the odds are good that once ADA-USD started making its descent in 2021, the investor started trimming their Cardano holdings, rolling them into stocks, most likely at the height of their valuation.
In this instance, the investor loses in 2022 on their equities, and Cardano doesn’t climb anywhere near its 2021 return of over 600%.
In that scenario, the investor’s not going to look nearly as bright as they did in 2017 through 2021.
Now, multiply the 2022 downturn for both stocks and Cardano over the four years between 2023 and 2026, and you’re going to have one heck of a frustrated investor.
The Bottom Line
It’s entirely possible that investors will see little to no returns in 2022 from both stocks and cryptocurrencies. If that happens, there will be a lot of unhappy campers bitching and complaining on Reddit about their lot in life.
The pressure is on Cardano to deliver a repeat performance in 2022. But, unfortunately, the odds could be against it.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.