A recent CoinMetrics survey indicates that when the new high season begins, it will take place in a manner that is somewhat different from the 2017-2018 market.
According to the writers of the study, the arrival of institutional investors and their investment in Bitcoin (BTC) and Ether (ETH) have radically altered the cryptocurrency business environment. Real-world utility tokens, Layer 2 technology or enticing sting environments will outperform the broad pre-2017 limit tokens.
Bitcoin and Ethereum dominate but L2 tokens will catch up
Institutional inflows have strongly identified Bitcoin and Ethereum as the preferred blockchains Layer 1 (L1) and this is reflected in the market price behavior after 1 December 2020. As seen in the chart below, the only L1 coins to outperform BTC and Ether during that time were Cardano (ADA), Dogecoin (DOGE) and Decred (DCR).
Competitor L1 blockchains from previous runs, such as Litecoin (LTC) and Bitcoin Cash (BCH), have underperformed relative to BTC and both continue to see their marketcap share declining as discussion transfers payment power to value results.
So-called ‘Ethereum Killers’ like Tron (TRX) and EOS have struggled to live up to their lofty promises and are dogged with questions about block supplier collusion and consolidated networks.
Polkadot is the most stand-out L1 blockchain that has arisen over the last few months and what sets it apart is the team’s decision to promote rather than control the overall development and interoperability of the blockchain ecosystem. This explains why the altcoin hit 85 percent in 2021.
Today’s successful projects offer staking and DeFi integration
This is where this high season continues to diverge from the last one. Stakeholders, governance tokens and the convergence of DeFi are the key factors in this sector, as consumers continue to be more interested in the growth and direction of each product.
The Decree (DCR) is a prime example of this new trend. Built in the picture of Bitcoin with a limited supply of 21 million tokens, the network blends PoW and PoS to provide all participants of the group the chance to get interested and receive incentives.
The built-in governance system allows token holders a clear voice in the future of the project, and the announcement of the Decred Decentralized Exchange (DCRDEX) on October 21, 2020 caused the DCR price to increase from $1.68 to a record peak of $67.80 on January 8.
Cardano advocates for its importance as a blockchain L1 by the implementation of sketches and talks by founder Charles Hoskinson about taking DeFi to developed countries until the smart contract functionality is completely implemented. These innovations have led to a 100% rise in the price of ADA since the beginning of 2020.
DeFi governance tokens give investors a voice
The DeFi bubble has become extremely enticing to investors searching for more hands on how to communicate with new blockchain ventures.
The sector is a strong driving force on the industry, and after Dec.1 Uniswap (UNI), AAVE, Synthetix (SNX), MakerDAO (MKR), SushiSwap (SUSHI) and Curve (CRV) have all outperformed Ether and BTC. Notice that all of them have sewing and governance features.
Perhaps the 2018 bear market, which accompanied the euphoric 2016 to 2017 surge, has produced a more discerning investor who needs to be more interested in the production of the project than to purchase in-depth the scarcity of white papers and high-quality claims made by unknown developers.
As can be seen in the chart above, the total value locked in DeFi continues to grow and recently hit an all-time high of $25 billion, a figure larger than the market cap of many of the top projects combined.
Cryptocurrencies that offer real world use cases that meet the sector’s demands and the ability to govern project decisions have emerged as the most desirable features for today’s retail investor.
Institutions may have chosen Bitcoin and Ether as their preferred investments but the battle for Layer 2 dominance between tokens that function as Ethereum alternatives is clearly where retail investors are placing their attention and this is what will drive the next altseason.
by Jordan Finneseth
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