Forget about Bitcoin — let's take a look at what the future holds for the top altcoins.
As we approach the end of 2021, I’m reminded of a beautiful quote that one of my colleagues shared with me right before flying off for his New Years’ vacation — “This is just the beginning.” No, he wasn't referring to his upcoming holiday vacation. He was just feeling proud of getting into crypto early.
The year 2021 was a defining milestone in the journey of the entire industry as a whole. It’s an understatement to say that there were ups and downs (mostly ups?).
Ethereum itself underwent a period of change — from a mere cryptocurrency issued as block rewards for its still-running PoW chain Ethereum 1.0 to an intrinsic value-accumulating asset. In other words, its value was not just subject to the underlying blockchain, but also to the world of decentralized finance that it helped (and is still helping) shape.
The same can be said for altcoins in 2021. While many of them lack any fundamental value, some of them managed to amass an incredible following along with some crazy price action.
But how will the next year look for altcoins? Will it stand out like this one?
In this article, I would like to outline some of my own predictions for Ethereum (and some altcoins) for the year 2022.
With that out of the way, let’s start with Ethereum.
From 2020 to 2021: Ethereum’s Rise
Ethereum has emerged as a powerful base stack for the entire world of decentralized finance (DeFi). This feature of the cryptocurrency was already being utilized in the DeFi summer of 2020, as several protocols emerged atop Ethereum. Protocols like Maker and Compound were probably the safest bet for investors who were entering the world of DeFi and crypto in 2020.
The number of active addresses on Ethereum in 2020 saw much faster and upward growth as compared to that in 2021.
This propelled several L1s — who were already in the background but without much market share — to the forefront. All of these L1s began to gain market share as people realized that there could potentially be an easier, efficient and cheaper way of doing transactions.
This eased some pressure off of the Ethereum network, leading to lower fees. And if we look back over the year, despite some decline in market share, the majority of the biggest NFT projects are based on Ethereum — from collectibles to games. This is probably why it reigns supreme as one of the highest-performing networks in the world. Even today, Ethereum is the most commonly prevailing chain on which some of the biggest DeFi applications exist (by TVL).
Despite all the naysayers attempting to “abandon” Ethereum, it has emerged as one of the most resilient networks in the industry with the longest-lasting DeFi applications.
Thanks to Ethereum’s long-standing resilience, several institutional players are now moving to DeFi. And since their initial steps are being taken with caution, most of them are heading towards the more traditional sources of APYs in the industry — lending. Thus, Compound, Aave and several other lending protocols are catching their attention.
Layer 2 Growth
Ethereum’s Transition to PoS
While there are several other factors that will also influence Ethereum’s growth in 2022: we’ll briefly look at them in the next section.
Ethereum's Rise in 2022
Several algorithms have attempted to predict the price rise of Ethereum in the year
The year 2021 was a starting point for many users who were looking to utilize an emerging class of investment vehicles. The several applications that emerged in 2021 were fueled by the rising growth. While it’s possible for this growth to sustain itself into the next year as well, there are chances of a fallback in the growth of the number of users. This could be due to a couple of reasons:
- Regulation. While several governments (especially the U.S.) have clarified that they do not intend to ban cryptocurrency, there are users in other countries who are banned from accessing it in different ways.
- The amount of losses that users have sustained in the year 2021 itself. While it was definitely a year of infinite growth, some traders have also experienced huge losses as several levered positions have been liquidated.
Moreover, thanks to the fee-burning mechanism that Ethereum is now following, we can expect a steady growth in the price. This is obviously subject to several other market indicators as well (both fundamental and technical).
An independent analyst on Twitter who goes by the handle @galaxyBTC has predicted that ETH will go into “parabolic” mode soon. He was referring to the ETH/BTC chart that he had been “publicly” charting for years.
ETH recently reached its all-time high (ATH) when it peaked at $4,859 on Nov. 10, with Bitcoin hitting its own peak at $68,789. While both the assets fell off from that high pretty quickly, Ethereum has managed to (loosely) stay above the $3,500 range ever since.
The correlation between Bitcoin and Ethereum cannot be ignored. And if truth were to be told, there are several Bitcoin maximalists that are still rooting for the cryptocurrency to have its own DeFi. While that may be a bit hard to implement, what we do know is that the long-term sentiment for Ethereum is bullish.
Altcoin Predictions 2022
Now that I have laid out the entire picture for Ethereum, it’s time to move to other cryptocurrencies.
To keep it crisp and concise, I will only explore some of the top eight altcoins by market cap (the remaining two are Bitcoin and Ethereum) and I won’t go in extensive detail for each. I’m deliberately skipping XRP and USDC.
There are two surprise coins that I analyze for you as well. Read on :)
Binance Coin (BNB) is the native cryptocurrency of the Binance Smart Chain network. The cryptocurrency has been one of the best-performing coins of the year 2021, returning over 1,300%! These returns are much bigger than its closest competitor, Bitcoin.
There are a couple of reasons behind the insane growth of the cryptocurrency. One of them is the popularity that BSC (Binance Smart Chain) has gathered through 2021. With rising gas costs on Ethereum, BSC has been a go-to for many users because of its insanely low fees and quick speeds. (This obviously comes at the cost of decentralization.)
There is no doubt that the rising market capitalization is fueled by the massive rise in the number of users of the stablecoin. However, as we have seen over the past few months, some traders are now switching to algorithmic stablecoins because they are not centralized like those of Tether’s and Circle’s.
For the year 2022, Tether could see a healthy decline in the market cap as the more mature crypto users turn into algorithmic stablecoins like DAI and UST.
Tether might still be one of the biggest cryptocurrencies in 2022 — but the legal line of questioning against centralized issuers’ of stablecoins could lead to its downfall.
For crypto, and perhaps even DeFi, Solana has been the darling of all innovations. The L1 project has probably seen some of the greatest leaps ever made in the history of blockchain networks just in 2021 alone.
If there’s one chain that is proving to be a shoulder-to-shoulder challenge to Ethereum, then it is Solana — the native cryptocurrency of the network has returned over 100x.
The DeFi infrastructure on this rapidly-growing L1 has also seen massive strides. The TVL on the chain has quickly shot up to $11.4B. Several new exchanges have also emerged on the platform, and even some NFT projects have amassed an incredible following.
And when it comes to investments, the L1 project has seen millions of dollars coming in from various non-Web3 sources as well. For instance, recently Reddit’s co-founder invested $100M for a decentralized social media on Solana, and $100M was also invested by FTX to be utilized for blockchain gaming.
The number of users on the network have also seen a massive boost.
This effect is likely going to flow into the next year. Thanks to its incredible features and decentralization, Solana stands as a promising competitor to the Binance Smart Chain. As such, we can expect the cryptocurrency to gain massive traction (hopefully north of 100%) in the next year.
Cardano has been a slightly uninteresting L1 in 2021, primarily because the developments on the network have been slow — although they seemed to have happened on time. The DeFi ecosystem on Cardano is thin; smart contract functionality on the network has only recently launched; the number of users on the network are low; etc.
Cardano has not been known in 2021 for a burgeoning DeFi ecosystem. However, it may come as a surprise to you to see this chart below.
Cardano’s native cryptocurrency, ADA, has not seen too much exciting price action this year (despite the fact that smart contracts functionality was only recently introduced). Hence, it might be out of the question for the coin to reach $2 in the first half of the next year.
Luna has been one of the most exciting projects of 2021. The unique minting mechanism between $LUNA and $UST (the stablecoin) is the base behind the success of the stablecoin.
Terra has emerged as one of the most powerful competitors to DAI. It’s most recent Columbus-5 upgrade has also helped in enabling cross-blockchain communication via Cosmos’ IBC.
The future is multichain and Terra is building its own interoperable ecosystem to fulfill that dream. DAI has no doubt been one of the most popular algorithmic stablecoins, given that it has always fulfilled its promise of being actually stable, despite several blows to the underlying network. Moreover, the recent regulatory takedown of other centralised stablecoins has largely left coins like DAI untouched.
Thus, we can expect Luna to make massive strides in the next year as well. This will be complemented by the decline in popularity of centralised stablecoins — but I’m not expecting either Luna or DAI to amass a dominant market share soon.
Polkadot is one network that never fails to surprise us. There’s a certain sense of familiarity with the network, given that it also comes from one of Ethereum’s co-founders. And perhaps that is what makes some of the recent developments on the network quite interesting.
Perhaps one of the most important aspects of the network has been the ongoing parachain auctions: auctions for 100 parachains that will then be connected to the network’s central relay chain. Polkadot aims to be the “Layer 0” for blockchains and the central chain for various DeFi applications. This is in contrast to Ethereum’s infrastructure, which aims to direct its users and developers to move to optimized scaling solutions.
And all of this has a healthy impact on the price action of the $DOT token as well. $DOT has seen some interesting price action in the last few months, especially as the first batch of the parachain auctions were kicked off.
As we progress into parachain auctions, we can expect some healthy price action for $DOT.
Where should we start for Polygon? Let’s start with the price. Like Solana, the $MATIC token has had an almost unnatural 100x rally year-to-date (YTD).
Several users have confused the Polygon chain as a rollup. It’s not. The Polygon PoS chain is EVM-compatible because it is connected to Ethereum via a group of MATIC stakers on Ethereum. It isn’t a rollup, because it has its own separate validators. It shouldn’t be confused as a sidechain either, because validators on Polygon often relay the state-changes in the network to Ethereum.
What Polygon really is, is a functional Layer 2 solution for all Ethereum users who do not wish to compromise on the security and resilience the network provides. This is why the network has managed to amass a dominant position in the market.
It’s possible for the $MATIC token to make some healthy gains in the next year — but I doubt it will hit the two-digit mark anytime soon.
Thanks to its recently launched Avalanche-Ethereum bridge, users can now easily transfer Ethereum-based assets to Avalanche. Developments like these have been enough for the network to gain popularity in the wider crypto world. Its native token is currently valued at $102, and it is the 11th biggest cryptocurrency on CoinMarketCap.
While the price at the end of 2021 is obviously down, the token has managed to go through an exciting price action through the year 2021.
There are two themes that I’ll leave you with as we end 2021: composability and interoperability.
The former has been the focus of several DeFi protocols that are now aiming to offer their users different ways of compounding the yield on their assets (a theme we have now commonly started referring to as DeFi 2.0). The latter has been the objective of several emerging L1s and L2s as they have managed to acquire dominant market share within the network.
The crypto space has moved fast. The year 2020 was that of base-layer protocols. The year 2021 was that of protocols building atop these base layer protocols. And the year 2022 is going to be about all of these protocols building on top of each other and having interoperability.
As the industry has matured, several of its cracks and faults have come out. As it matures further, we can see some incredible developments that will help shape the future of DeFi itself.
DeFi’s future is as exciting as it could ever be. And I can’t wait to see the best of it.
Happy New Year!