Crypto investors were tested in 2021.
At the beginning of the year, the total market capitalization of all cryptos was $2.2 trillion. However, by the end of the year, that figure had dropped to just below $800 billion.
The boom in the sector in 2021 gave way to a bear market of extraordinary proportions, leading to the downfall of several key industry players. Additionally, the actions of central banks to reduce their easy money policies forced the crypto market lower.
Yahoo Finance’s bitcoin (BTC-USD) quotes page ranked eighth on Yahoo’s trending quotes page this year, behind the S&P 500, Dow, Nasdaq, and a few other stocks such as Tesla, Apple and Amazon.
In 2021, the top-tier tokens like Ethereum (ETH-USD), Avalanche (AVAX-USD), Solana (SOL-USD), Polygon (MATIC-USD) and Cosmos (ATOM-USD) emerged as the winners in the battle for extraordinary returns.
Ethereum (-68% YTD)
Ranking tenth in the best performing cryptocurrencies in 2021, Ethereum (ETH-USD) is off by 70%. It outperformed bitcoin by 355% earlier in the year.
The second largest crypto, XRP, has performed well in the mid-term. The only success story in 2021 was the transition to proof of stake, which made the Ethereum blockchain 99.95% more energy efficient and deflationary.
The Ethereum core development team have stated that the Shanghai protocol upgrade, which will include staked ETH withdrawals, could be live as soon as March 2023.
Bitcoin (-65% YTD)
The world’s largest cryptocurrency fared better than the smaller ones, but it was not impervious to the market wash in 2021.
Bitcoin (BTC-USD) is currently trading at $16,500, which is 76% lower than its November 2021 peak of $68,789.
Alex Thorn, research head at Galaxy Digital, told Yahoo Finance in April when bitcoin was trading at $41,000 that he does not believe the market has changed its view on bitcoin. He views it as both an option on a future in which crypto is treated as digital gold and a protest against the lack of credibility of central banking.
Data from crypto analytics platform Glassnode reveals that 12 bitcoin investors have recouped $213 billion in realized losses since its November 2021 peak.
Dogecoin (-60% YTD)
The original “meme” coin owned by retail investors was the most affected by the sell-off that began in the second quarter.
Dogecoin (DOGE-USD) was 64% lower than its original May 2021 peak, which was reached when Elon Musk appeared on Saturday Night Live in the end of 2021.
Thomas Thorn’s team at Galaxy Digital published an article on DOGE at its peak in 2021, citing a “lack of development effort” and “no serious long-term narrative or use case”.
However, Thorn’s team also noted that Dogecoin had a “fair launch”, meaning it did not include a pre-sale or VC fundraiser, which can be red flags for outside buyers.
The cryptocurrency has outperformed most others during the fourth quarter, largely due to Elon Musk’s announcement that he had purchased Twitter, leading users to speculate that this purchase could have some benefits for Doge holders.
Ethereum Classic (-54% YTD)
Down 53%, Ethereum Classic (ETC-USD) also benefited from the speculation leading up to the merger.
Thomas Dunleavy, senior market researcher at Messari, noted that the small-cap token had appreciated in value ahead of Ethereum-related software upgrades.
Skeptical investors viewed Ethereum Classic and other offshoots of the second largest cryptocurrency as a hedge or insurance policy in case the upgrade failed.
BNB (-53% YTD) and OKB (-17% YTD)
Tokens associated with exchanges such as OKB (OKB-USD) and BNB (BNB-USD) have performed better than most cryptocurrencies this year.
BNB is the token associated with Binance, while OKB is the token of the OKX ecosystem. However, as the recent FTX crisis showed, when the FTT token exchange crashed, the value of these tokens can change rapidly based on the management of their corresponding crypto exchange.
Exchange tokens can provide holders with specific benefits, such as lower trading fees and the ability to vote on exchange decisions. Exchange tokens are also almost always linked to the success of the crypto exchange as a business, serving in part as corporate capital.
Monero (-42% YTD)
The tension between transparency and privacy for cryptocurrency transactions returned as a background to 2021.
Unlike Bitcoin and Ethereum, Monero (XMR-USD) provides users with less objectionable transaction privacy by default
