- Crypto has seen the market mature over the last few years
- Some coins remain in the lead
- Major changes coming for Ethereum
Cryptocurrency markets have sold off quite drastically to begin 2022, as financial uncertainty has increased. Being a rather new financial asset, it should be no surprise that crypto markets have suffered at the hands of a major “risk-off” couple of months, but it should also be noted that crypto is starting to show signs of correlation like many other financial markets.
For example, for the fourth quarter of 2021, and the first quarter of 2022, Bitcoin has had a -90% correlation to the VIX. In other words, Bitcoin is being treated very much like a risk asset, much like some commodities. As the market matures, we should see more clarity as to how it will react to bigger pressures. As online trading of crypto continues to expand, through regulation and sheer liquidity we should see a more predictable outlook.
Bitcoin is by far the biggest cryptocurrency in the world, with a market capitalization of well over $800 million. Bitcoin has been around since 2009, with the majority of the public recognizing it, and thinking of it as the blockchain. Even though Bitcoin has had a rough couple of months to kick off the year, it still has gained roughly 7500% over the last five years.
Unlike Bitcoin, Ethereum is used for program development offering smart contracts. Smart contracts are small applications that operate when specific conditions are met, such as payment from one person to the other. It provides a “trustless system” to automate processes. Ethereum has also been an explosive growth story, gaining nearly 25,000% over the last five years or so.
Ethereum is the second-largest cryptocurrency market, with a market capitalization of roughly $500 billion. Ethereum is currently working on its second generation, and therefore is moving from “proof of work”, which takes significant resources to mine the currency to “proof of stake”, which is much more efficient, and should drive down fees for using the system.
Solana is a newer cryptocurrency, being launched in 2020. Since then, it has gained almost 13,000%. It is developed to help powered decentralized finance (DeFi) systems, decentralized apps (DApps), and smart contracts. Solana has a bit of a unique mechanism to facilitate transactions, using both proof of stake and proof of history to verify transactions. Solana has a market capitalization of almost $50 billion.
Polkadot is an interesting coin and has seen a lot of inflows as a result. Most cryptocurrencies will either use their own blockchain or perhaps “piggyback” on top of others such as Ethereum. However, Polkadot aims to simplify blockchain as the whole use for Polkadot is to create a cryptocurrency network that will connect all the various blockchains, thereby simplifying the entire process. Polkadot can be thought of essentially as a “middleman”, something that blockchains desperately need to see mass adoption. Polkadot has seen its price grow almost 600% in its first two years of existence.
Ripple should be thought of as both a utility play and a bit of a “lottery ticket.” This is because the founders of Ripple are currently in court against the Securities Exchange Commission in the United States. The crux of the argument is whether or not the owners sold Ripple as a security, or if it is a utility. As things stand at the time of writing, it does look as if Ripple is making headway in the case, opening up the possibility of transactions in the United States. It is because of this that although Ripple could end up being one of the more explosive gains for the year, it should be thought of as simply a high alpha play.
Ripple facilitates exchanges of different currency types, including both fiat currencies and other cryptocurrencies. Currently, the most common use for Ripple is transactions between some of the world’s largest banks. If you include the United States in the mix later this year, the growth in Ripple should be rather explosive. Over the last five years, Ripple has gained 10,000%, even though it sold off so drastically after the lawsuit was announced.