The end of 2021 is almost upon us, and it seems as though all time highs in the crypto market are going to elude us until at least 2022. I thought it appropriate to step back and take stock of the all that has happened in the relative short time I’ve been a crypto investor. While I did make a few speculative investments years ago, and but for Mt. Gox would have gone deeper into Bitcoin in 2013, it wasn’t until July 2020 when I really began investing in crypto in earnest. It’s a frightfully short time to attempt to understand such a complicated and fast moving industry. Truly I can say I’ve yet scratched the surface of all there is to know, and look forward to learning more in the new year.
In 2021 we saw the growing popularity of NFTs, DAOs emerged as a nascent organizing property for web 3 projects and Defi started to mature – albeit in fits and starts between hacks and poorly implemented solutions like Iron Finance’s TITAN that quickly went to $0 despite billionaire Mark Cuban aping in.
Though if you’re looking for a broader market overview you could do worse than Messari’s 2022 Crypto Theses, which I won’t repeat here as anything I say will be less complete and without the benefit of a full research team. As you read through the report though, keep in mind that they pay scant attention to either Cardano or Elrond for some reason known only to the team at Messari.
Beginning My Crypto Investment Journey
Before I share my crypto investment plan for 2022 it is useful to understand where I began and where I am now. Everything I share is from my own perspective, which embodies my unique journey, appetite for risk and goals. These are more than likely different from your own. As must be said each time, none of this is financial advice, though I hope by sharing you’ll learn something new – or at least find a new perspective on something you already know. If you’re truly at the start of your journey I encourage you to read my post – How to Get Started In Crypto. It lays out not only how to get started, but also why I make many of those recommendations.
When I began investing in earnest in July 2020 I used small investments in different projects to encourage myself to learn more. There’s nothing like having skin in the game to sharpen your focus and deepen your hunger for learning. As I gained knowledge and confidence in these projects I would invest more, or on occasion discover that the project wasn’t worthy of investment. Usually by this time the project had already appreciated substantially and I could exit for a decent profit. Much of which I ascribe to the luck of investing in mid 2020…
A few of these less well informed wins include
- 150x on DOGE. I invested a meme amount on the meme coin and was fortunate to close out my position before Elon’s fated SNL skit marked the top. It never made sense to me why it would have any value, and I still shake my head that it’s in the top 20 along with SHIB.
- 25x on BNB, which I closed out once I fully understood the primary use case for BNB was gas on the Binance Chain, a centralized knockoff of Ethereum replete with rug pulls.
I also had a few early investments that were reaffirmed and added to as my research matured.
- 125x on MATIC. It became clear that not only were they solving a core scalability problem on Ethereum, they were also moving with tremendous speed and skill. Whenever I’ve reevaluated MATIC I’ve always added to my investment and still hold all of my investment today.
- 15x on ADA. At least from my initial investment, I’ve added on heavily as high as $2.50, so it’s not my most profitable crypto investment, despite the early gains.
- 10x on HBAR. A very novel approach for a smart contract blockchain based on directed acyclic graphs. While centralized, it has big name sponsors like Google and IBM.
My 2021 Crypto Investment Thesis
As my understanding of crypto matured in early 2021 I began to form a core investment thesis that would drive most of my future crypto investments throughout the year. My thesis was:
- Smart contract platforms (SCPs) would be a sound investment to support the growth of defi – and as it turns out NFTs, though that was not in my original thesis. In particular layer 1 SCPs, and layer 2 SCPs built on Ethereum. This drove my investments in ATOM (6x), Solana (5x), AVAX (5x), DOT (3x), EGLD (3x), ALGO (3x), STX (3x), ETH (2x), XTZ (2x), and my very strong investment in ADA (currently only 2x right now given continues investment), as well as continued investment in MATIC.
- Yield earning platforms would win marketshare in crypto from consumers and institutional investors. This drove my heavy investments in CEL (2x) and VGX (2x). VGX in addition has proven quite fruitful for the interest rate boost on BTC, ETH and USDC. I’m hoping that in 2022 CEL finally brings that same utility to US users, and the expansion of Voyager beyond the US holds promise. My distaste for tokenomic shenanigans and high inflation kept me away from CRO, which has also done very well this year.
- Self custody Bitcoin as a hedge against inflation and unlawful government asset seizure. While I’ve made relatively little profit from my Bitcoin investments (1.5x), and many of my privacy coin bets like XMR have been flat, the purpose of these investments has still been served. They provide resilience the rest of my portfolio lacks.
- Cardano launchpads and new Cardano projects would take off as the overall ecosystem blossomed. This is my biggest miss of 2021. OCC is down 50%, all my Cardano projects – COTI, SDAO, AGIX, ERGO are also in the red. While I only invested a comparatively small amount, the failure across the board indicates that my thesis was incorrect. I’m HODLing what I have, but won’t be adding any more.
Across my entire portfolio of investments that include equities and real estate I had originally targeted crypto at 5%. Given the very strong performance it quickly rose to become 25% of my portfolio.
My Current Crypto Holdings
As my thesis suggests, almost 90% of my holding are in smart contract platforms, utility tokens and Bitcoin.
Breaking this down further, you can see how Polygon makes up an outsized portion of my investments, followed closely by Bitcoin and then Cardano. Elrond had a very nice run a while back and was my top holding briefly, but it has since dropped in price, and I’ve exchanged even more EGLD for MEX to continue yield farming
I also pay attention to where my crypto is held. This helps diversify my risk profile (the details of why call for a full article on it’s own), and also allows for yield earning opportunities from the likes of Celsius and Voyager. I believe it’s important to hold at least 30% of your crypto in self custody. I’m a little below that as a few of my investments on exchanges have done well recently, so more future investments will be put into self custody.
Crypto Thesis In 2022
So what’s in store for 2022? Noone truly knows, but here’s a few things I think will come to pass.
- Smart Contract Platforms will continue to garner attention and investment, but the gains will be more muted than in 2021. I think we’ll start to see consolidation into fewer projects as strong projects attract more developers and higher total value locked, while weaker projects struggle to maintain momentum. Bridges between platforms will become more important. Unfortunately we will likely see a few more bridge hacks throughout the year, but platforms that enable bridging like Cosmos and bridging projects like Ardana should create value. SCPs that aren’t focused on bridging to as many chains as possible could well struggle.
- Yield platforms will breakout once we have legal clarity. The token price will better reflect its promise, and all platforms will build in additional utility over 2022 that make holding their tokens more attractive. In the search for both yield and an inflation hedge, yield platforms are poised to grow. Voyager’s expansion outside the US, and Celsius finally delivering on their long-promised platform improvements could be the catalyst for large gains. Also look for novel yield generating platforms like Terra to attract more attention, though a FOMO flight from UST to other crypto investments should the bull run resume could dampen the returns on LUNA.
- Defi will mature and fewer investments will chase degen-making returns. Thoughtfully architected and sustainable defi platforms will become more common. Elrond and Cardano are poised to lead this move to maturity, and 1,000x cheaper gas fees will make defi more accessible. Though an FTX backed defi marketplace on Solana would be a very effective counter, and look for defi on L2 chains / side chains like Polygon to vastly eclipse defi activity on Ethereum. Regulation could dramatically reshape the entire defi market in the US.
- Bitcoin will grow through increasing institutional and government adoption. While we’re unlikely to see $500,000 Bitcoin in 2022, it’s role will grow in importance as one of the few inflation hedges readily available. More companies and government adoption will create a supply squeeze for available Bitcoin. If we see a strong market downturn it will also benefit from a flight to safety.
- Gaming and Metaverse are where the next 100x coins will be found. It will be like panning for gold though, as many projects fail or fail to deliver on their promises. Those with great and sticky games or platforms will do really well. I expect to see major studios beginning to dabble in both crypto gaming / play to earn as well as the metaverse. This could upend the egalitarian opportunities in this space. The price of metaverse tokens will more begin to more closely match its delivered utility than its promise.
- Enterprise utility will emerge as another growing use case for blockchains. Projects like Verasity are already making inroads with novel solutions to very real problems faced in advertising. Look for more web3 solutions to problems faced by web2 companies.
Smart Contract Platform Predictions
- Solana: VC investors will take some profits in Solana in 2022 which could cause short term price suppression. Developer and dapp growth will continue, but further blockchain issues could hamper broader adoption. Centralization will remain a concern, partially mitigated by FTX’s huge support for Solana.
- Cardano: The launch of DEXes on Cardano will be a make or break moment for adoption and if unsuccessful would narrow the opportunity for Cardano to have an impact outside of Africa. If the DEX launches are successful and the Hydra scaling solution launches with high quality in early 2022 then the future for Cardano is bright.
- Elrond: Will continue to grow the number of wallets and new native token launches on it’s Maiar DEX. The launch of lending and borrowing services will further bolster its desirability, along with the Elrond team’s strong focus on usability. Lack of 3rd party DEXes and wallets, along with unproven scalability at sustained high tps are risks to watch for. I don’t think either are likely to slow down Elrond’s adoption though.
- Polygon: Polygon has made many aggressive moves to acquire privacy and zkrollup technology. Along with their Uniswap integration I believe they’ll go from being one of many scaling solutions on Ethereum to the scaling solution on Ethereum. A successful Ethereum 2 launch is essential for Polygon’s continued growth, if Ethereum falters on ETH 2 this would harm the entire ecosystem and Polygon in particular.
- Ethereum: Even if ETH 2 launches as planned, more total value locked (TVL) and transactions will continue to migrate to layer 2, rollups and side chain solutions. Even with Proof Of Stake ETH2 will be unable to scale sufficiently alone. Work will need to be done on the usability of ETH based solutions that rely on non-ETH scaling solution (like Polygon).
- Avalanche: In the increasingly crowded SCP space I’m hard pressed not to see Avalanche being squeezed from all sides. Some high profile defi projects helped propel it in late 2021, it’s unclear if more will come in 2022. Ethereum has the moat and is solving scalability with layer 2s, Solana has higher TPS layer 1 and strong VC support while being tied to FTX, Elrond has usability with equally high layer 1 TPS and Cardano is the decentralized option with strong governmental relationships.
- Bitcoin based smart contracts: My dark horse for 2022. Stacks already has smart contracts as an L2 on Bitcoin, and Block (formerly Square) has intimated that they will be building more aggressively on Bitcoin. Could we see the security and decentralization of Bitcoin with the programmability of Ethereum and the speed of Solana? That would indeed turn the SCP market on it’s head.
- Polkadot: It’s difficult to see DOT succeeding. It’s parachain auctions don’t seem to be generating the attention of other projects, and it’s concerning that this didn’t create momentum for the project. As a “layer 0” it would seem ideally positioned to take advantage of the move to cross-chain, but IMO the mechanics of slot auctions, limited slots and limited time rental for the slots makes this long term unattractive as a cross-chain compatibility solution.
- Other players: Many will become more niche plays. Algorand, Tezos and others haven’t captured the broader market, and the crowded space will force them to focus on niche verticals. This would be a very good thing in my opinion, as the move to cross-chain interoperability will allow for highly optimized and industry specific solutions to be built.
How I’m Planning to Crypto In 2022
- Consolidate to high quality projects. I spent much of the last 18 months investing in many different projects as a way to better learn the space. While most of my investment is concentrated – 8 coins make up 75% of my portfolio – I have too many coins (55!) to comfortably keep track of.
- Defi for the sweet sweet yield while I try to avoid the less sweet impermanent loss. I will focus my attention on tier 1 DEXes on Cardano (e.g. Sundaeswap) as well as new projects launching on Elrond’s Maiar DEX. I’ll also look for lending opportunities (Elrond and Liqwid Finance on Cardano).
- Self custody more Bitcoin by DCAing every day. Bitcoin is a pristine store of value, and will grow even more valuable as payment rails (Lightning) and smart contract L2s (Stacks) are built on it.
- HODL and earn from Voyager and Celsius. Sometimes the best thing to do when investing is…nothing.
- Look for projects solving enterprise needs and invest in a few that have potential.
- Learn, have fun and share what I learn with our community. I ❤️ y’all, thanks for being part of my journey so far!
I’m going to stay out of gaming and metaverse tokens. I know many will do well here, and equally as many will watch their investments wither away. I’ve also made my NFT play already – investing in Elrond the ecosystem and some of the early tokens. I’ll hold on to these and see how this goes, but I won’t be investing substantially more in NFTs
Here’s what my current crypto investment distribution looks like:
What Do You Think?
Let me know in the comments below. What do you think 2022 holds in store for the crypto industry?