Bitcoin, Crypto, NFT … How to invest in 2022?

When in 2016 and in this same section I wrote that the future was Blockchain, I must confess that I never imagined the speed, innovation and resources that would be generated in this ecosystem. In the last two years especially, we have attended a true explosion of digital assets, of its usefulness, of the ability to create digital private property, of innovation in decentralized finance or of the important steps taken in the monetization of bitcoin (BTC). In the same way and as I have always defended, bitcoin (BTC) and ether (ETH) are becoming a type of asset class in itself, with very different functions but providing good diversification in a classic investment portfolio. By allocating resources to infrastructure, a part in which the bulk of the position should be placed, exposure to this world is achieved where, in any case, we must always be clear about the objectives and risks involved.

To recap what happened a bit, let’s review the most significant developments observed in the crypto-space in its different layers. The first of these strata (L1) is at the blockchain level, the infrastructure where the registration and execution of all types of operations and stored code take place (as a “settlement”). The Bitcoin Blockchain, the safest public network of the existing ones that aims to ensure that this objective is maintained, has seen solutions aimed at improving scalability on it, being developed in the second layer (such as Lighting or RGB), taking a lot of traction in this weather. For its part, Ethereum, a decentralized platform where the majority of Smart Contracts were initially programmed, has had certain competitors who have begun to gain ground at the cost, of course, of offering less security. But at a time when scalability and lower gas costs have been highly demanded by users, networks such as Solana, Avalanche or the more centralized Binance SC, have been making a hole at the level of basic infrastructure. According to “Defillama.com”, the total value blocked in the different existing protocols exceeds $ 237 billion A figure that, although it deserves certain adjustments, gives us an idea of ​​the growth experienced since, in January 2021 that amount did not reach 23,000 million USD. Within that global amount and always using the same source, Ethereum accounts for 65%, the BSC does not reach 7% and Solana is placed with 5%. In any case, what happened at the infrastructure level has been spectacular, demonstrating the adaptability of the sector to existing needs, while opening the way towards a “Multichain” use of them, which will be the dominant path shortly.

In a second stratum (L2) and from the side of the assets that use that infrastructure, the innovation capacity and the incorporation of new instruments via “tokenization” opens up a truly promising future. The stablecoins (Stablecoin) have reached an amount close to 150,000 million USD (source “The Block”). The NFT market exceeded USD 1 billion traded in a single week in August, and the number of unique buyers or sellers reached 280,000 (source Statista). And tokenization now targets all kinds of assets; from real estate to participations in investment funds and that will have new developments in the market of shares of listed companies, as one of the growth paths.

In the third stratum is where great innovation and imagination is observed, resulting in a large number of protocols of different kinds, developments with and without much sense, and the typical excesses of these phases. On the one hand we have the centralized finance leg (CeFi), which includes Exchanges, deposit and loan platforms, or those that function as “Marketplace” of, for example, NFTs. Coinbase reported 56 million users last month, while claiming to maintain 11% of the total market capitalization on its platform. The volume traded on OpenSea exceeded $ 10 billion at the end of October. Nexo reported having USD 12 billion and more than 1.5 million users. On the other hand and from the leg of decentralized finance (DeFi), protocols such as Curve (with 21,000 million in TVL), MakerDao, Yearn Finance, AAVE or Uniswap continue to innovate in solutions that range from decentralized exchanges (DEX) working on the basis of to the AMM, to protocols that seek to maximize the returns on an investment (as a search engine for the best offers, for example). On the way to what some call DeFi 2.0, where the liquidity mining design is changed, the objective is to achieve easier usability for all parties, opening the entrance to a greater number of participants.

And what to expect for 2022?

Posts to try to identify what can be the big trends and points to take into account for next year, coinciding with what would be the investment theses, we could make a small summary on the following points.

First of all, I would bet on the end of investment in memesBoth on the actions side and on protocols that make no sense whatsoever. Although I have recognized on many occasions that, to the classic profitability-risk binomial used until recently in the investment environment, it was necessary to add the whole ESG issue and the “social” or “communities” issue, the moment of the cycle can be warning that excesses are nearing their end. Not surprisingly, DOGE loses 67% from annual highs and Shiba Inu 61%. Just looking at the concentration data on very few wallets for those tokens should be enough to stay away from these types of casinos. As knowledge spreads among investors, these types of assets should become residual, concentrating the investment amount on those protocols that truly add value.

Second, there will continue to be a brutal growth at the infrastructure and protocol level that are interoperable, across the NFT segment. It is important to note that I am referring to the supports of the business models, not to the specific bets that are currently being made on certain NFTs, where the sole purpose is to sell it more expensive. There is enormous potential for the development of all kinds of value-added businesses or services, with different objectives and where the big brands are already beginning to disembark because, deep down, they open up new revenue streams and are capable of achieving greater interaction. with your customers and fans. The issue of communities and how they are endowed with value is key in this approach. For example in layer 2 applications, Immutable X it would be one of the cases worthy of study.

Photo: Wall Street facade advertising the ProShares ETF. (Reuters)

In this section and because I do not extend myself much, we cannot stop commenting on the brutal development that we will continue to see in Blockchain gaming, with the NFTs and the economies created within the games, “play to earn” included. Axie Infinity reached $ 2 billion in sales at the end of August, with an average number of daily players of 1.5 million. We will now see how the large gaming companies are going to join (some are already in it) to this new form of business, causing further development thanks to the use of augmented reality and AI being, in the end, a new source of momentum for the development of everything related to the Metaverse.

Third, it will be the turn of the derivatives already structured products. Despite the fact that they already represent more than half of the average volume traded in cash in crypto assets, let’s not forget that the world of derivatives represents in the classical environment, a nominal amount of more than 560 trillion USD. The arrival of institutional investors and financial elites, aware of the income generated in this part of the market, will launch to develop all kinds of structures focused on different clients. From simple derivatives (which already exist), to guaranteed products referenced to bitcoin (BTC), going through structures where it is sold volatility systematically, the capacity for creativity is immense. The key, as before, is through the infrastructure where this new model is already being built.

Fourth, we will continue to witness the growth and development of the DeFi environment in all its versions, fueled by innovation and the arrival of new talent. Without going any further and also related to the previous point, the perpetual futures trading (without expiration date and subject to the so-called financing rate) on the DyDx platform it exceeded the volume traded on Coinbase for a few days in September. And all this is not only about innovation focused on finance, but it opens the field to different uses such as impact investing (EthicHub), subscription management (Revuto) or decentralized identity for DeFi investors (Site).

Fifth and hand in hand with the regulation, which I have not mentioned yet but which represents another of the great trends to develop in 2022, the total take-off of the “tokenization” of the financial market will take place. The European DLT-based infrastructure regulation proposal (thanks to Joaquim Matinero for its explanation) opens the way for trading and settlement on DLT, the investor is protected and sets the conditions of how the provision of financial services using DLT should be, as well as the requirements to be met. The way is clearly open. In the end we will achieve immediate settlement, reduction of compensation costs, less bureaucracy and coordination with regulators and supervisors. A clear example of how progress is being made on this issue can be found in Société Générale Forge, with several bond “tokenizations”, some derivative (autocall) and the use of a previously tokenized bond on Ethereum as collateral.

Photo: EC.

Lastly, and despite the fact that there are a lot of other points to be developed, we will be witnessing the definitive transition to a “Multichain” environment. The aforementioned struggle in which the different networks seem to have entered at the L1 level, will end up converging towards a rational and proper use from the same. Ethereum will maintain its leadership as a decentralized and higher security Blockchain. And other networks such as Solana, Polygon, Terra or Avanlanche will be used when security is not so important, but cost or speed of execution is. In the end it will be the user who, in this model of multiple networks and using simpler applications than the current ones, you will move from one Blockchain to another based on your specific needs.

This is how things are and even though I think we are very close to the end of the bullish cycle in bitcoin (BTC)Before it is time to visit new historical highs not too far from the previous ones, the options and possibilities that open up in the digital asset environment are enormous and we are still in the initial stage. Adoption has transferred the investment focus to expand into new business models. NFTs, off the speculative side and not without having certain challenges such as the regulatory one, they present one of the greatest opportunities for those who know how to open their mind and launch into new applications and functionalities. The Metaverse is not from Facebook and although it will be one of the great drivers, it opens up new options to develop all kinds of businesses and ideas. In 2022 we will witness, from my point of view, the great differentiation between value and price. Don’t get caught last or you’ll miss out on the first.

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Bitcoin, Crypto, NFT … How to invest in 2022?

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