Heading into the middle session of the first week of the new year, the cryptocurrency market stands at a rather ambiguous juncture. One year ago from the time of writing, the total value of all circulating cryptos was a bit under $967 billion. Right now, it stands at $2.2 trillion, a sizable 128% increase. Still, I have to ask: Can digital assets turn in another outstanding performance?
On one hand, the virtual currency faithful have good reason for their optimism. Primarily, the meteoric rise in total market capitalization intrigued many institutional and high-value investors toward cryptos. Therefore, with so much money now in the arena, it may be unlikely that we’ll see a catastrophic drop. As well, sentiment for speculative investment categories such as buying on margin or initial public offerings remains robust.
But on the other hand, evidence suggests that cryptos are maturing, possibly setting up newcomers who were promised quick riches for disappointment. Therefore, we could see a massive unwinding of valuations as people exit, looking for greener, more exciting pastures. It’s worth looking back to 2017, when the market cap for all cryptos jumped over 31 times between the start of January to the end of December.
In context, a less than three times move in 2021 seems awfully disappointing. Additionally, investors no longer have the luxury of buying established cryptos at a reasonable price. Now, the top digital assets easily command four digit or even five-digit price tags. True, you can always acquire coins and tokens fractionally, but human psychology tends to prefer whole round numbers. It’s not entirely surprising why meme coins took off the way they did.
Even there, the most speculative assets still generally align themselves with the benchmark coins, which then brings the focus back to the whales and institutional players. Will they continue supporting virtual currencies, or should retail stakeholders consider pocketing some profits? Here are key cryptos to watch over the new year:
- Bitcoin (CCC:BTC-USD)
- Ethereum (CCC:ETH-USD)
- Binance Coin (CCC:BNB-USD)
- Solana (CCC:SOL-USD)
- Cardano (CCC:ADA-USD)
- XRP (CCC:XRP-USD)
- Polkadot (CCC:DOT-USD)
Though the excitement and freshness of cryptos has enticed investors over the trailing decade, it’s important to realize that there’s nothing new under the sun. Speculation is speculation — and when it gets out of hand, bad outcomes tend to follow. Therefore, approach any blockchain-based asset with extreme due diligence and strict money management.
Cryptos to Watch: Bitcoin (BTC)
There’s no denying that despite its undulating nature that can take stakeholders from the peak of ecstasy to the drudges of defeat, Bitcoin has been a revelation in 2021. Just prior to last year materializing, BTC was already on a blistering rally — and it continued to deliver into the spring season, where it exceeded the $60,000 mark.
Following a sharp correction, Bitcoin rebooted again, this time skyrocketing into the fall season and taking the price tag on the cusp of $70,000. For now, though, that appears to have been a bridge too far, with BTC struggling to maintain the $60,000 range, then dropping below $50,000 territory. At time of writing, it’s struggling a few hundred bucks above $46,000.
Still, bullish investors are buoyed with the latest news from Cointelegraph, which reported that around 76% of the total circulating supply of BTC is illiquid. In other words, a vast majority of Bitcoins sit in wallets with no history of spending transactions. This implies that there won’t be a massive correction since there won’t be enough BTC to sell.
While positive in that sense, keep in mind that rarity does not always equate to premium valuations. In my view, BTC will still need to swing above $50,000 to avoid triggering selloffs from impatient stakeholders.
Second place usually isn’t the most glamorous position to be. Typically, as the saying goes, nobody remembers the runner up. Then again, under that logic, nobody remembers anybody from third place down, so coming in second isn’t that bad, all things considered. But that’s especially the case if you’re an Ethereum investor.
Sure, everything revolves around Bitcoin. But over the trailing year, BTC is up only 35%. In sharp contrast, Ethereum is up a whopping 244%. At this point one year ago, ETH had barely crossed over the four-digit threshold. Right now, it’s trading just beneath $3,800.
Interestingly, Forbes published an article which mentioned that Wall Street billionaire Thomas Peterffy — a critic of cryptos who once lamented that Bitcoin futures could “destabilize the real economy” — changed his tune, stating that a small position in benchmark cryptos could be a useful hedge against the flailing dollar.
Peterffy also gave a possible price target range for BTC, which extends from zero to a million bucks. While some proponents might find this detail encouraging, bear in mind that previously harsh critics jumping on the bandwagon — what that bandwagon may be — may also be a sign that the market in question is overextended.
Cryptos to Watch: Binance Coin (BNB)
In the world of cryptos, taking the checkered flag in third place may actually be the real path to victory. Statistically, it’s tough to deny the data. While Bitcoin put up a modest performance over the trailing year and Ethereum delivered a strong showing, Binance Coin returned a magnitude that is simply astounding. Up 1,118% in the trailing 365 days from the time of writing, BNB was the coin to have.
Undergirding the popular Binance exchange, looking back through hindsight, it’s now easy to see why BNB soared the way it did. First, you have the low-hanging fruit of extreme bullish sentiment for cryptos. With everyone from your next-door neighbor to heads of blue-chip companies and global celebrities all cheerleading digital assets, it wasn’t just individual coins and tokens that were winners.
Instead, selling access to the best party in town carried an unprecedented premium. When you can basically have two of these things in one entity, you’ve got yourself what turned out to be a sure thing in 2021.
Moving forward in 2022, BNB’s technical profile looks much healthier than other cryptos. My biggest concern, though, is that if the broader blockchain market doesn’t hold up, Binance Coin could face serious volatility.
Aside from the heightened monkey-see, monkey-do effect that bolstered cryptos globally, alternative digital assets like Solana made a name for itself as a possible “Ethereum killer.” Unlike Bitcoin and early virtual currencies, Solana’s efficiency and ability to scale with strong security measures offers myriad potential applications. Put another way, the network underlining SOL is utilitarian.
Therefore, we’re entering a new era in the blockchain. No longer are people satisfied with cross-border transactions. Through Solana-based applications, users look forward to decentralizing multiple components of the traditional “analog” economy.
Further, upstart projects like Solana are buoyed by the fact that as Ethereum becomes evermore popular, the transactions that occur within its network have become onerously expensive. This dynamic sets up would-be ETH rivals well, as alternative networks like Solana’s promise security, scalability and cost efficiency.
While that sounds great on paper, Business Insider India reported that the SOL network has gone down for the third time in less than six months. At this point, it’s unclear if the failure stemmed from excessive traffic or if it was due to a nefarious incident, such as a distributed denial of service (DDoS) attack.
Either way, investors will want to be extremely diligent here. If Solana’s fundamentals aren’t up to snuff, it’s liable for a steep correction.
Cryptos to Watch: Cardano (ADA)
Several months ago, Cardano — an altcoin with a cult following prior to the massive rally last year — was the world’s third-most valuable cryptocurrency by market capitalization. But as I write this, ADA has given up some valuable positions, now sitting in sixth place.
Although Cardano couldn’t hold onto third place, it wasn’t for a lack of effort. When cryptos started to flex their muscle early last year, well-known personalities and celebrities bid up the ADA price. Considering that it was trading in literal penny stock territory one year ago, the altcoin has done tremendously well. But now, it’s in what many of my InvestorPlace colleagues call a “show me” phase.
Yes, Cardano is up 408% during the past 365 days. But to continue the uptrend, ADA needs some quick technical victories. As things stand now, the altcoin is trading beneath both its 50-day and 200-day moving averages — near-term and long-term gauges of market health, respectively.
Presently, the 200 DMA is at $1.82, and this is the price that ADA needs to challenge soon. Otherwise, jittery stakeholders could sell out of their positions, depending on what happens with Bitcoin. Such an action could see ADA dip below a buck.
One of the most controversial cryptos because of lingering questions about its blockchain protocol, XRP has always been a curious figure. Unlike most other decentralized digital assets, XRP is not mineable, meaning that distributed actors cannot participate in the coin’s supply and demand dynamics. Naturally, this led to criticism, since decentralized distribution represents the core spirit of the blockchain.
It may have been that this questionable aura surrounding XRP caught the attention of the Securities and Exchange Commission (SEC), which alleged that Ripple Labs, the company behind the XRP coin, skirted laws governing unregulated securities. As my colleague Tezcan Gecgil pointed out, we recently passed the lawsuit’s one-year anniversary.
Also, Gecgil mentioned the existence of rumors that the outcome of the court case could favor Ripple — and by logical deduction, XRP. To be clear, this is just “chatter,” as my colleague put it. But given the ugly precedent that an unfavorable ruling toward XRP could have on the burgeoning industry of cryptos, it’s not unreasonable to think that Ripple could avoid the legal bullet.
As a stakeholder, I’m going to have some bias toward XRP. However, the chart pattern for the coin has been relatively stable over the past month, implying that most people also anticipate a positive outcome for Ripple.
Cryptos to Watch: Polkadot (DOT)
One of the first — if not the first — blockchain projects to be labeled an Ethereum killer, Polkadot enjoyed serious fanfare earlier in 2021. However, as last year died down, so did relative enthusiasm for DOT. Don’t get me wrong, Polkadot remains incredibly popular. Still, it’s fair to say that other utilitarian blockchain networks have stolen DOT’s thunder.
Part of that could be the current transaction speed comparison. Right now, Polkadot can process 1,000 transactions per second, which is significantly faster than Ethereum, which is at about 30 transactions per second. However, this rate pales in comparison to Solana, which can process 65,000 transactions per second.
Still, Polkadot remains in the running fundamentally because of Solana’s aforementioned reliability issues. If it also turns out that the latest incident is related to security woes, that would cynically add more credibility for DOT. But more importantly, Polkadot’s team believes that as the network continues to develop, it can support up to a million transactions per second. That might be a gamechanger.
Now, I say “might be” because the underlying network and community must provide value for developers. Therefore, the race to kill Ethereum may involve more than just any one technical metric. As well, DOT appears to be charting a bearish head-and-shoulders pattern so extreme diligence is a must.
On the date of publication, Josh Enomoto held a LONG position in BTC, ETH, ADA and XRP. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.