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?).
One thing that stood out among everything that happened was the emergence of an alternative financial system wholly based on the blockchain — DeFi. Thanks to Ethereum (and some other alternative layer ones) this was made possible.
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.
Before we begin the article, let’s just add the disclaimer that none of what’s written below is financial advice. The following are just the opinions of an author and should be viewed as such. Please be reminded that this industry is based on DYOR. Before you take anything to be gospel, DYOR.
With that out of the way, let’s start with Ethereum.
From 2020 to 2021: Ethereum’s Rise
The annual gain for Ethereum has been close to 300%. In December of 2020, the crypto was sitting at a mere $700. Notwithstanding the summer market crash of 2021, Ethereum managed to hit its envious $4K mark by the end of 2021. As of writing, the ETH/USD pair is a few hundred dollars below at $3,600. With its market cap soaring to almost $500B, it is just half of Bitcoin (whose market cap is at a whopping $1T).
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.
Ethereum had successfully been used as the base layer for several DeFi applications in 2020 and even in early 2021. However, it was soon made evident that while the network was super powerful and had much to offer, it had its limitations. One of these limitations was the rising gas costs on the network. There were times when users were paying more in gas than the amount that they were transferring in the first place!
Gas Fees on Ethereum, 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.
Another crucial factor that plays well into Ethereum’s rise was the implementation of EIP-1559 (which splits gas fees into two parts and burns the first i.e., the base fee). This has further helped support Ethereum as an inflationary asset, an effect predicted to only be amplified once we transition to PoS as the process of mining (and thus, rewards) is removed.
Institutional Adoption
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.
The DeFi ecosystem has itself grown by over 20x in the year 2021 alone. This growth has been fueled by the rising interest in these protocols even from the more cautious institutional players.
Layer 2 Growth
While several alternative L1s have emerged in the year 2021 alone, there are also some Layer 2s that are now dominating the market. The penultimate quarter of 2021 has seen the rise of several zero-knowledge (ZK) rollups. Arbitrum One and Optimism have led the race. The TVL, too, has seen a sudden spike — Optimism’s TVL currently sits at $347M.
Ethereum’s Transition to PoS
This brings us to the current state of the Ethereum network, which runs on a PoW consensus mechanism. While the Ethereum mainnet follows PoW, the Beacon Chain (utilizing PoS) has already shipped. The two chains are working independently at the moment, as the “merge” of these two chains happens next year. And when it does, users will be able to utilize the PoS chain as well and the entire network will shift 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
There are several factors that will influence the rise of Ethereum in 2022 — and there are several algorithms that have already predicted the extent of this rise. While the long term outlook for the cryptocurrency is definitely bullish, it would be exciting to see how that will compare with the insane growth of 2021.
Several algorithms have attempted to predict the price rise of Ethereum in the year
2022; however most of them are only taking into consideration several technical factors. Some of these algorithms have predicted a rise of about 70% to $7,000, while some are debating if the price can indeed reach the five-figure mark by the end of next 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.
Thus, it is hard to predict a five-figure rise of the cryptocurrency by the end of 2022. I predict a healthy 70-80% gain from where the market stands currently. This can go up as well, subject to the changes in the network and especially after the success of the merge.
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
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.)
The second reason is the emergence of several staking programs that Binance has introduced on its own exchange. Currently, Binance offers about 6.27% APY for staking your BNB. This is greater than staking ETH on even some of the biggest pools, whose APY ranges from 4.3% to 5.4%.
The third reason is the growing popularity of the exchange itself, which has seen a massive number of users already join the exchange. For most of the entrants to the world of crypto, Binance, along with a handful of other exchanges, have served as crypto onramps. Since Binance offers various services (from trading to staking), it has created a successful business model that invites the users and does its best to lock them in for longer periods.
All of these factors will play into the popularity of the Binance Coin. The coin is issued as part of mining rewards. As per the most recent update, BSC is working to introduce a fee-burning mechanism for BNB as well. While we are a few months away from its full implementation, if it does happen, it will help BNB further accrue value over the long-term. Moreover, the cryptocurrency has managed to maintain the third-biggest crypto by market cap — which could be sustained moving into the next year too. A healthy gain of 50-200% can be expected in (at-least) the first half of the next year.
Tether
If Ethereum is the base layer for the entire DeFi ecosystem, then Tether is the base asset. Tether has functioned as a reliable stablecoin for millions of users who intend to avoid the massive volatility that other cryptocurrencies come replete with. While it makes no sense to predict the value of Tether, because it is only going to remain consistent, I would like to explore its popularity and its current position in the market.
The stablecoin has managed to stay afloat despite the various criticisms it has received for having inadequate reserves of its pegged fiat currency, USD. Currently, the stablecoin has a market cap of $78B. This is 85% greater than the market cap of its closest competitor, USDC.
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.
Solana
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.
Solana’s current market cap is $54B — and given that the network has managed to attain this level despite having launched less than two years ago speaks a lot about the network itself. As Ryan Selkis writes in his Crypto Theses 2022, we shouldn’t look at Solana as just some L1 trying to outcompete Ethereum — we should look at it as a useful chain that is trying to solve the many problems of other networks at the base layer itself. As such, Solana could be considered a necessary technical evolution in the cryptocurrency space, rather than just a challenger to Ethereum’s L1 dominance.
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
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.
The blockchain’s development is often dependent on the peer-reviewed research that the network is based on — it is perhaps this academic focus that has led to the blockchain’s slow growth. Currently, Cardano has a market cap of $45B.
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.
Terra Luna
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.
Recently, the launch of the blockchain bridge Wormhole V2 has meant that the algorithmic stablecoin is now also coming to Solana and Ethereum — this rapid growth has worked in favor of $LUNA as well, which has seen some exciting price action throughout the year. With a market cap of $30B, the cryptocurrency has managed to position itself as a leader in stablecoins.
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
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.
To successfully conduct parachain auctions, users “bond” their DOT tokens to the network. As new parachains are added, new bonds are formed, and if the community decides to remove a parachain, then that bond is broken.
As we progress into parachain auctions, we can expect some healthy price action for $DOT.
Polygon
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).
Probably the biggest achievement for the L2 is the fact that it has managed to cross Ethereum in the number of active wallet addresses on the network.
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 recently also launched its Polygon SDK, which is a framework for developers to build new blockchains.
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.
Avalanche
2021 was the year for several blockchains to emerge against the backdrop of a congested Ethereum. Avalanche is one such blockchain that promises over 4,500 transactions per second — a thousand times faster than the current PoW Ethereum. The project is led by a Cornell computer science professor, Emin Gün Sirer. The blockchain is composed of several different blockchains, all of which use PoS to help achieve maximal transaction throughput.
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.
The high transactional throughput and finality definitely play in Avalanche’s favor. But the year 2022 will be a test for the network — when the merge happens, we will see if most users will go back to the Layer-1 Ethereum.
Closing Thoughts
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!
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