This article was written exclusively for Investing.com
- Cryptos are gaining acceptance as the market caps grow within the asset class
- 2022 can be a make-or-break year for the asset class
- Solana: fifth leading cryptocurrency
- Cardano: seventh leading name in the asset class
- Only invest what you can afford to lose: SOL and ADA are liquid for trading purposes
When most market participants think of cryptocurrencies, Bitcoin is the asset that dominates the conversation and analysis. As the grandfather of the asset class, Bitcoin’s rise has been incredible, moving from five cents per token in 2010 to nearly $70,000 in 2021, creating a speculative frenzy of buying and prompting thousands of new cryptos to come to the market. In 2021, Bitcoin’s value appreciated by 57.81%.
ETH/USD is the second leading cryptocurrency. It did even better than Bitcoin last year. Ethereum’s value skyrocketed by 391.75% in 2021. Bitcoin is a means of exchange, but Ethereum’s flexible platform has given birth to many new cryptos, leading to outperformance.
In early 2022, more than 16,650 tokens populate the asset class, with the number of new entrants rising each day. Solana and Cardano are in the top ten, with market caps higher than 99.9% of the rest of the asset class.
Cryptos Gaining Acceptance As Asset Class’s Market Cap Grows
In 2021, the market cap of the cryptocurrency asset class increased by 182.18%, to $2.166 trillion on Dec. 31 from $767.482 billion at the end of 2020.
The substantial increase in the market cap was a function of increasing use of the burgeoning asset class. In 2021, more companies began accepting cryptocurrencies as payment vehicles. Moreover, the speculative frenzy that lifted values over the past years continued to increase, pushing cryptos into mainstream investment assets, with financial institutions allowing clients to invest a percentage of portfolios in crypto assets.
High-profile support from Tesla CEO Elon Musk and Block’s Jack Dorsey did not hurt crypto’s profile. Even some top-tier athletes and celebrities demanded payments in cryptocurrencies in 2021.
2022 Could Be Make-Or-Break Year
After reaching nearly $70,000 per token in mid-November, Bitcoin was trading at below the $43,000 level on Jan. 11. Ethereum peaked at around $4,900 on Nov. 10, yet it was below $3,250 at the beginning of 2022.
Cryptocurrencies face continued bullish and bearish forces in 2022.
On the bullish side:
- The speculative frenzy is likely to continue as token prices remain at levels that created fortunes.
- The number of tokens continues to rise. Demand for cryptos supports the rising number of choices as market participants look for the next token to deliver Bitcoin- or Ethereum-like rewards.
- Cryptos have become more mainstream investment vehicles, encouraging market participants to diversify their portfolios to include cryptocurrency exposure.
- The faith in fiat currencies is declining, making cryptos a viable alternative.
On the bearish side:
- Regulators are preparing to take a more significant role in supervising the market to “protect the public.”
- Governments will eventually roll out digital fiat currencies to compete with the cryptos from a technological perspective.
- Cryptocurrencies threaten legislators and government officials’ control of the money supply, which is not something governments will surrender without an epic value. Money is a root of power, and many government officials view cryptos as a challenge to their control.
At around the $2-trillion level on Jan. 11, the crypto market cap is well below Apple (NASDAQ: AAPL ), the world’s leading publicly traded company. At $2 trillion, cryptos do not pose a systemic risk to the financial system. However, if the market cap rises to $4 billion, $5 billion or more, governments are likely to become nervous and crack down on 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 Fifth Leading Cryptocurrency
On Jan. 13, Solana was the fifth leading crypto. At $151.25 per token, SOL’s market cap stood at $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 select validators in proportion to their quantity and duration of holdings in a cryptocurrency. Proof of work, Bitcoin's mechanism, is energy intensive, while proof of stake requires far fewer computations and less power, making it a more environmentally friendly protocol.
Solana is a potential rival to Ethereum as it offers faster transactional speeds and lowers associated costs.
SOL is another success story.
The chart shows that SOL tokens came to market in September 2020 at the 78.0-cent level. They reached a high of $258.93 on Nov. 5, 2021, a few days before Bitcoin and Ethereum reached their all-time highs. At $151.25 on Jan. 13, SOL was about 42% lower than the November high, falling more than Bitcoin and Ethereum, which were 38.2% and 34.2% lower than their respective highs.
Cardano: In Seventh Place
Cardano is a public blockchain platform that is open-source and decentralized, with a proof-of-stake protocol. Cardano has been around since 2015 and can facilitate peer-to-peer transactions with its cryptocurrency, ADA. Cardano’s energy efficiency makes it a greener crypto as mining is not energy intensive.
ADA was the seventh-leading cryptocurrency on Jan. 13. At $1.30 per token, its market cap stood at $43.45 billion.
The chart illustrates that ADA began trading in October 2017 at 2.6 cents and rose to a high of $2.9634 on Sept. 1, 2021. At $1.30, the price fell by 56% from the high. In early November 2021, ADA reached a lower high, at $2.2735, and has underperformed Bitcoin, Ethereum and Solana since November.
Only Invest What You Can Afford To Lose: SOL, ADA Are Liquid For Trading Purposes
SOL and ADA are liquid cryptocurrencies offering liquidity for traders with market caps on either side of the $40-billion level. However, the same risks that face all cryptos are inherent in SOL and ADA, and investors should only expose capital they are willing to lose as the potential for substantial rewards comes with the risk of total loss.
The proof-of-stake protocol that embraces a greener path for the environment will likely 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 of prices in 2022.
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