2021 Was the Year of the Alts

Insights, news and analysis for the professional investor

By Lawrence Lewitinn, Managing Editor for Global Capital Markets

January 9, 2022

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The first week of January is now behind us, along with New Year's resolutions. Nonetheless, it's always a good time to reflect on what the previous year wrought and what it could mean in 2022.

The CoinDesk 2021 Annual Crypto Review, published on Thursday, is the must-read report of the week, offering some terrific insights into all the ground-breaking developments that took place last year. That includes the crypto's market cap exceeding $1 trillion, El Salvador's adoption of bitcoin as legal tender and the cryptocurrency's implementation of the Taproot upgrade, the banning of crypto in China and miners moving to other countries, Ethereum's move closer to proof-of-stake and the rise of NFTs.

As a result of the NFT boom, one of the most significant events last year was the spectacular growth of altcoins. Ethereum's high gas fees caused many to look elsewhere for cheaper transactions. They found it with the likes of Solana and others.

Nonetheless, changes are coming for both the Bitcoin and Ethereum networks. The former is seeing increased activity in the Lightning Network while the latter, as mentioned above, is changing the way its consensus is achieved. That means 2022 could turn out to be more Empire Strikes Back rather than a New Hope. Will there be a Revenge of the Jedi? That remains to be seen.

– Lawrence Lewitinn

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The Briefing

It's tempting to say 2021 was the year bitcoin finally went mainstream and just leave it at that. There's another story, however, that can't be understated: the spectacular rise of "altcoins" or "alts" – that is, cryptocurrencies that aren't bitcoin (and sometimes ether, depending on your definition) – thanks, in part, to the NFT boom.

As the CoinDesk 2021 Annual Crypto Review showed, bitcoin's year played out like something unimaginable even three or four years ago: A sovereign nation, El Salvador) adopted it as legal tender, and there was an upgrade to make it more transaction-friendly. Bitcoin traded close to $69,000 in 2021, and its market cap broke above $1 trillion at one point.

For reference, when CoinDesk began publishing in 2013, the total value of bitcoin was little more than $1 billion and each coin was trading at around $120 or so.

A notable feature is the decline of bitcoin dominance – meaning its share of overall crypto market cap – last year, from 70.2% to 40.1%.

But that doesn't necessarily mean bitcoin has lost its luster. It just means there's a lot more going on in crypto than just bitcoin these days.

To be sure, bitcoin added $330 billion in value in 2021 to close out the year at $875.9 billion, according to data from CoinMarketCap.

On the other hand, ether returned 426% to investors in 2021. Its year-end value was $438 billion, meaning the market essentially added even more value to ether – $355 billion – than it did to bitcoin.

Yet the really big market value gains last year were in the combined capitalizations of all the other cryptocurrencies out there – the altcoins. Taken together, these thousands of cryptocurrencies closed 2021 valued at $934 billion, or 40.1% of the total market cap of the entire crypto complex. That year-end figure is a gain of $791 billion, a 550% increase.

In other words, the market has decided that it likes bitcoin more than it did a year ago, but it really, really likes ether and the alts.

Continue reading the column here.

– L.L.

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Chain Links

Bitcoin continued its nosedive below $43,000 and is now 39.6% off November's highs. TAKEAWAY: 2022 is off to a slow start, with risk assets across the board down year to date. Crypto markets are trending toward closer correlation with equities as investors appear to be bracing themselves for the Federal Reserve's decision on speeding up its pace of measures to combat inflation.

Crypto crime hit an all-time high of $14 billion during 2021, Chainalysis reported. TAKEAWAY: While crypto crime was at new highs in nominal value, it made up less of a percentage of overall transactions than ever before. This statistic could support the idea that new users are adopting real-world crypto use cases, from Bitcoin to decentralized finance (DeFi) and NFTs. Regulators around the world are looking to step up actions against crypto scams and exploits as the market grows larger.

JPMorgan highlighted Ethereum losing DeFi market share due to postponed scaling. TAKEAWAY: The banking giant appears to link Avalanche and Solana's rise to the lack of scalability on Ethereum's mainnet. As fully implemented sharding is likely pushed back until 2023, the bank believes alternative smart contract chains will continue to have the opportunity to gain DeFi market share. Its analysis shows that institutions are gaining further interest in the crypto sector beyond Bitcoin and Ethereum.

Digital asset bank Sygnum raised $90 million in a funding round that valued the company at $800 million. TAKEAWAY: Sygnum looks to expand its service offerings for institutional clients to include yield-generating products and asset management funds. The market for regulatory compliant and institutionally focused financial services companies is still relatively untapped within the crypto industry.

Avalanche-based algorithmic money market Wonderland made a seed investment in Polygon-based decentralized betting application BetSwap as investment decentralized autonomous organizations (DAOs) become more common. TAKEAWAY: The DAO structure has become an effective community-built fundraising model for token investments throughout crypto. As venture capital sentiment falls, more emerging products may look to raise from DAOs that add value through an active user base and developer support. While still relatively unregulated, DAO investments may continue to further advance in the depths of crypto.

– Teddy Oosterbaan

2021 was an extraordinary year for the cryptocurrency and blockchain industry. Bitcoin and ether prices touched all-time highs; traditional businesses bought NFTs like CryptoPunks and Bored Apes; China banned bitcoin mining and it survived. Thanks to all of this, most people have at least heard of crypto by now.

In the CoinDesk 2021 Annual Crypto Review, CoinDesk Research summarizes the key themes and metrics that highlight the year's progress in cryptocurrency markets. Read the report here.