In early November 2021 the total market capitalization of cryptocurrencies peaked at $3.1 trillion before falling back to $2.3 trillion by the end of the year. That’s still nearly triple its size at the end of 2020 ($777 billion).
Bitcoin’s (BTC) dominance fell from 70% to 40% over that period, as we witnessed the explosion of the crypto economy, including decentralized finance (DeFi)/decentralized applications (dapps), non-fungible tokens (NFTs), play-to-earn gaming, and Metaverse-related opportunities.
All this reflects a broadening landscape no longer focused predominantly on BTC. That said, the “original cryptocurrency” still holds a special place in the asset class: eight years after the first crypto exchange traded fund (ETF) application went to the Securities and Exchange Commission (SEC), the U.S. finally got approval for a in October 2021.
Looking ahead, 2022 promises to be equally exciting. One closely watched event will be the of the Ethereum Mainnet with the Beacon Chain, which may happen in H1 2022. Ethereum (ETH) is the second-largest cryptocurrency by market cap. Significantly, it is moving from a proof of work (PoW) to a proof of stake (PoS) consensus model, which should introduce greater efficiency to the network. As more ETH-centric scaling solutions (like layer 2s) are introduced, we think the need to use or switch to alternative blockchain networks could decrease, potentially reducing volatility for the whole asset class as the competition for layer 1s begins to moderate.
This report takes readers on a tour of the crypto horizon, summarizing the most important market developments we are tracking from our institutional practice. We cover key developments for BTC, ETH and other altcoin protocols, and highlight key events for 2022. We also look at exchange volumes, DeFi, stablecoins, the regulatory environment, and our investment activity via Coinbase Ventures.
The rapid expansion of the crypto market brings Coinbase new horizons: unified developer docs at Coinbase Cloud; custody services to Facebook’s NOVI venture; the launch of the Coinbase NFT marketplace; and, on the regulatory front, the introduction of Coinbase’s Digital Asset Policy Proposal (DAPP).
We hope you find the report useful. If you have questions about our work or want to understand how Coinbase’s institutional practice can help your firm engage with the crypto markets, please contact us at .
David Duong, CFA, Head of Institutional Research