Year in Review and Trend to Watch in 2022
As 2021 comes to a close, we at Iconium, wanted share our learnings, insights and thoughts about not just this year — but also the upcoming year. This has arguably been one of the most exciting years in history for the cryptocurrency space, and yet it introduces a limitless amount of possibilities for the year ahead in DeFi, the Metaverse, and more!
Following the Messari report “Crypto Thesis 2022”, let’s look back at some of the most exciting moments for the cryptocurrency market and blockchain industry in 2021.
Looking at the Total Market Cap, we saw it explode to new heights, reaching past $1 Trillion, before stopping around $3 Trillion in November and closing December near $2.2 Trillion.
In addition, Bitcoin and the other cryptocurrencies (CIX 100 Index) have outperformed stock markets and commodities in 2021 as well.
We will share some facts and drivers that led to this growth later on, but it’s important to understand how the market has changed during 2021.
One of the more interesting data points is how Bitcoin Dominance is evolving.
In fact, even if the price of Bitcoin rose approximately 150% YTD, the dominance has almost halved, when compared to the beginning of the year.
On the other hand we can see that Ethereum doubled its dominance in the market, Binance dominance increased by 6x and new coins such as Avalanche and Solana debuted in the market with amazing performances. Looking at the growth of the total Market Capitalization and the composition in terms of dominance of the market, we can say that 2021 was huge for altcoins.
As a result, the composition of the market has changed dramatically and it is now populated by more altcoins compared to 2020, whose dominance (labeled under “Others”) has almost doubled.
According to TripleA’s “Global Cryptocurrency adoption” analysis, as of 2021, global crypto ownership rates stand at an average of 3.9%, with almost 300 million crypto users worldwide and over 18,000 early adopters already accepting crypto payments.
It’s important to note that the usage of cryptocurrency is really different between frontier and emerging countries.
For frontier countries, the usage of cryptocurrency is mostly related to interaction with Centralized Services such as Exchange Platforms and DeFi applications, while P2P platforms are driving adoption in emerging markets.
The next twelve months will tell us whether crypto adoption will continue to grow on these platforms or if new emerging models yet to be discovered will be preferred, but one thing remains certain: crypto adoption has skyrocketed in the last twelve months (an 880% growth, based on the ChainAnalysis’s report 2021) and this is undoubtedly a global trend.
According to a new CNBC survey on US investors with assets greater than $1 million, 83% of the polled investors from the millennial generation have invested in crypto and for 53% of them crypto accounts for more than half of their portfolio.
Looking ahead, this trend is expected to continue with 48% of millennial millionaires planning to increase their crypto investments over the course of next year, while only 6% plan to reduce their crypto exposure.
Another important insight is the generational gap. While most millennials are investing at least 50% of their wealth in crypto, only 25% of the GenX own crypto, with this rate dropping to 4% amongst the older generations. Wealth managers will need to rethink their approach towards younger investors if they want to remain appealing.
As of writing, Bitcoin’s price amounts to $49,282, recording a 150% increase over the beginning of the year after reaching a new all time high of $69,044 on November 10th, 2021.
With inflation skyrocketing, low trust in government and commodities booming as recent trends, this should have been the perfect time for gold to appreciate, but this time it has been taken over by a faster, younger horse: Bitcoin.
Thanks to the easy access and the entry of many institutional players, investors are more comfortable than ever with the “digital gold” and, despite the rally of other crypto, it’s hard to envision a scenario where Bitcoin falls out of favor any time soon.
A few events in particular have gained a lot of media traction, contributing to make the entire asset class and making the underlying technology even more popular:
- In September 2021 El Salvador became the first Country to accept Bitcoin as legal tender, opening the doors of its finance sector to the 70% of the population that still do not have access to traditional banking services.
- Microstrategy was the first publicly listed company to go all-in on Bitcoin. As of writing, the company holds approximately 121,044 BTC, acquired at an aggregate purchase price of $3.57 billion and an average purchase price of approximately $29,534 per bitcoin.
- In late October 2021, Facebook changed its name to Meta, thus declaring its entry into the Metaverse. The move was then mirrored by Jack Dorsey’s company of financial services and digital payments, Square, which in December changed its name to Block, emphasizing the growing importance of blockchain on the platform.
Looking at the flow diverted to protocols on blockchain reveals just how disruptive 2021 has been.
The total TVL has undergone exponential growth, amounting today to $230 billion (+1.300% in only one year!).
In addition has been completely transformed by the rise of a number of chains which, just one year ago, amounted to less than 3% of the market’s TVL.
The data is clear, the competition amongst layer 1 is stronger than ever.
For Ethereum, 2021 was a strong year. The explosion of DeFi and NFTs led the network to congest, leading to an exponential rise of transaction fees that prompted competitors to enter the market and users to find cheaper and faster solutions.
In terms of TVL dominance, Ethereum lost one third of its in favor of other protocols:
- Binance Smart Chain: CZ was one of the first to ride this wave, launching an EVM chain that enabled all Binance users to easily access a cheaper DeFi experience when compared to Ethereum, but with a cost in terms of decentralization. The success of this chain was immediate, with the TVL in dollars moved from $120 million at the beginning of 2021 to $17 billion as of today
- Terra: The exponential growth of UST, the success of Anchor and TeFi Autumn, led Terra to be the most successful chain built on Cosmos. The TVL in dollars has passed from $50 million at the beginning of 2021 to $14 billion as of today.
- Solana: The growth of Solana was incredible, and it currently seems to be the fastest blockchain in terms of transaction execution. It officially launched in March and in less than 9 months has managed to attract more than $12 billion in TVL.
- Avalanche: The success of Avalanche is one of the most recent, since the exponential growth mainly took place in Q3/Q4 2021. The integration of C-Chain with most of the top tier exchanges led the chain to easily onboard users and liquidity. The TVL in dollars amounts to $19 billion.
2021 was definitely the year of NFTs, let’s look at some highlights:
- Beeple sold an NFT for $69 million at Christie’s
- Visa bought a CryptoPunk for $150,000
- OpenSea crossed $10 billion in all-time sales volumes
- Pak’s Nifty Gateway drop set a new world record as the largest-ever sale by a living artist ($91 million)
In addition, we saw the growth of an incredible market that is getting more complicated, professionalized and institutionalized, everyday.
We cannot talk about NFT though, without saying a few words about metaverse:
- Facebook rebranded to Meta
- Adidas launched its own metaverse in The Sandbox
- Nike acquired RTFKT (sneakers and collectibles studio for the metaverse)
- Disney announced they aim to use Disney+ as a platform for the metaverse
- Epic Games announced a $1 billion funding round in April to support future metaverse growth opportunities
NFTs and the metaverse have one thing in common, and it experienced an exponential growth during 2021: Gaming.
The case of Axie Infinity is incredible, as the protocol generated more than $500 million in revenue in the past three months. While Axie’s growth is finally showing signs of slowing down, the play-to-earn gaming trend it pioneered is here to stay. The amount of money these platforms have raised is insane, and they’re set up for a full cycle of iteration and development, regardless of whether the sector’s frenzy subsides next year.
In addition, a16z poured $150 million into Mythical Games, Enjin announced a $100 million gaming fund, FTX and Lightspeed invested $21 million in Faraway Games…all on the same day.
These are all signals that a new digital era is beginning, where digitalization of the virtual environment, people and economy will take life.
Crypto, aka Web 3, looks unstoppable. In this new era the typical centralized services run by Web 2 corporations have been overcome by the decentralized, community-governed features already seen in Web1, combined with modern functionalities which enable a brand new internet owned by builders and users, orchestrated with tokens.
Tokens align network participants to work together to pursue the growth of both the network and the tokens themselves. In this way, the value created no longer falls into the hands of a single entity, but becomes widespread and owned by the entire community.
Implications are pervasive and they will lead to one of the biggest revolutions of our times, maybe bigger than the Internet itself.
It is now clear that banks, trading desks and major asset management firms will enter the crypto industry, and this is expected to happen sooner rather than later. But CeFi companies have already gained a large lead and TradFi is likely to enter the scene very late.
While these entities are still stuck in the decision of whether to enter this market, CeFi ecosystems are granting the users the possibility to earn interest on savings, borrow money, and more with a single crypto debit card.
The institutional knowledge and human capital base of these players has lagged behind the faster, smarter and larger systems built by native crypto companies, which have been able to carve out a dominant position in an extremely tight time frame.
Genesis Global Trading has originated loans in crypto for over $100 billion in less than 2.5 years, while Coinbase Institutional managed to include among its clients 10 of the top 100 hedge funds in the world.
Ethereum’s blockspace congestion and high fees paved the way for the Layer 1 competition. In this rally, Do Kwon’s Terra has undoubtedly won the first prize, with a staggering 170x return.
Born in Korea, Do Kwon spent years in Canada and graduated with a bachelor’s degree in computer science from Stanford University in California. He then took a software engineering job at Microsoft, but quickly got bored and in 2016 and founded his first company, Anyfi, aimed at relaying bandwidth to those without internet access through the use of a mesh network. Kwon then raised $1 million in grants and his experiment with distributed networks was actually his first contact with the crypto world.
In early 2018 Terraform Labs was incorporated. The 29 year-old founder not only set up a fully open financial ecosystem, but succeeded in building the most successful algorithmic stablecoin to date in UST, the fifth-largest stablecoin and still growing.
According to Crypto Fund Research the growth of crypto assets under management by institutional investors continues to grow and reach new all-time highs. We have seen a lot of investment in the Seed to Private stages. According to Dove Metrics there were over 890 funding rounds for a total of $18 billion!
We all know that community is vital for each crypto project and in most of the cases it is composed of retail investors, and 2021 was definitely the year of the IDO. Tons of launchpads launched this year, enabling projects that are entering the market to easily reach a large number of potential users/investors.
On the other hand, retail investors get the opportunity to invest small sized tickets in new and promising projects. For example, another way for projects to launch their token is to airdrop them. Airdrops are often used as a marketing tool in order to raise awareness for the coin or token that is being distributed, as well as a method of diversifying the number of holders of that asset.
The way in which airdrops typically work is that in order to be eligible, a user must hold a certain amount of the asset in a public wallet at the time of the snapshot, or be an early adopter of the protocol. Uniswap pioneered the entry in the market through an airdrop last year, and after that lots of projects followed the example: 1inch, Paraswap, ENS, DyDx, BOBA and so on.
After examining the milestones hit during the last twelve months, it’s time for some bold predictions..What can we expect from 2022?
- Bitcoin: Bitcoin’s rally seems to still have wide margins of growth. One of the indicators currently most supportive of the bullish thesis is the MVRV (Market Value to Realized Value). Made popular by Coin Metrics, this indicator uses 2 variables: market capitalization and realized market capitalization. In a nutshell, as the index approaches 1.5, Bitcoin is considered underpriced, while a value above 3 indicates a good time to sell. As of today, the indicator stands at 1.9.
- Despite the 2020 run, trading on DeFi still amounts to less than 1% of the market capitalization of global banks. While fierce inter-protocol competition has led to stagnant pricing for some of the major protocols, Ethereum’s gas fees still remain very high and there are technical and regulatory risks ahead, DeFi still manages to offer the best risk-reward opportunities when compared to the rest of today’s market.
- While Ethereum will continue to struggle with its scalability and high fees, the proliferation of competitors in Layer 1 suggests that we are rapidly approaching a multi-chain future, which will allow users to benefit from less fragmented liquidity through simplified access to bridges.
- NFT and metaverse will continue to lead the crypto gaming industry and the incumbents will embrace this technology. We expect that Ethereum will lose market share in this sector in favor of NFT-focused blockchains with lowest transaction fees. Given their nature as non-fungible and illiquid assets, it comes hard to ascribe any sort of reliable “market cap” to the NFT sector. However, given the design space that NFTs have opened up for the crypto economy, the long-term size and scope of this segment will be scary big during next year.
- DAOs will become more and more complicated, and will have to focus on treasury management and revenue sharing across token holders. We expect more tools to appear in the market and facilitate DAOs creation and management processes.
- Access to crypto assets will be easier for emerging countries, and we expect more countries to follow in El Salvador footsteps, embracing cryptocurrency as legal tender.
- The demand for stablecoins will continue to grow, with algorithmic stablecoins gaining ground on FIAT-collateralized ones.
- Many other public listed companies will start investing not only in Bitcoin, but also altcoins as a way to diversify their portfolio.
Year after year, season after season, we’re more and more excited to be part of this space, and to play our role by supporting the projects building the blocks for the world of tomorrow. We wish you happy holidays and a very bullish start of the year.
From the Iconium Team
