Going into 2021 many retail investors are wondering whether to invest in bitcoin or other coins. Looking at some of the bigger market capitalized coins we can devise a strategy for investing during 2021. The main premise I want to present to you is focusing on the increasing influx of institutional money into the crypto space. Small investors will do well following where big money is flowing in to.
We can analyze the top coins to deconstruct where small retail investors should put your money for the largest future multiple returns.
- Where is institutional money buying in?
- What cryptocurrencies are they likely to target?
Until now Bitcoin early adopters and investors have been primarily small retail. New cryptocurrency money products have been created such as Grayscale Bitcoin Trust (stock ticker symbol: GBTC, a Bitcoin investment vehicle), Ethereum investment trust (ETHE), Grayscale digital large cap fund (GDLC) and Grayscale Litecoin Trust (LTCN). Traditional stock market investors have gained exposure to cryptocurrencies within their stock portfolios. This has been extremely bullish for the larger market cap cryptocurrencies. Institutional access to cryptocurrencies has only just begun, throughout 2021 and beyond more institutional money will flow into cryptocurrencies.
Market capitalization for all cryptocurrencies increased from $130 billion at the beginning of 2020 rising to $880 billion by the end of the year surpassing the previous market capitalization all time high seen during the late 2017 bull run (at $830 billion USD). With institutional investors buying Bitcoin and ongoing decentralized finance (DeFi) continuing to mature and develop, the total market capitalization will head ever higher over the next few years.
Institutional buying of Bitcoin and the "fear of missing out" or "forward momentum" (FOMO) has pushed Bitcoin to new all-time highs to start 2021. Bitcoin recently passed $33,000 USD per coin. Bitcoin acts as a store of value and is used for transactions paired with other capital currencies on exchanges. The relentless buying of Bitcoin by institutional investors coming in to the crypto-space is resulting in a supply shock. Institutional investors will avoid the scarcity and oversold nature of bitcoin and move to other alt cryptocurrency coins.
Institutional investors are looking for projects that they can add to their portfolios and balance sheet that are stable, have significant partnerships with established businesses, and possess significant future growth prospects. Thus, institutional investors will selectively choose the projects they will invest in. The most obvious of these is Ethereum and its related DeFi projects. The power of Ethereum is obvious as there is currently over $14 billion USD locked up in Ethereum and DeFi is continuing to grow over time.
Institutional investors are aware of the increasing use case and benefits of DeFi cryptocurrencies.
Which coins will institutions buy in to for 2021 and beyond?
Some of the likely project areas that big institutional players will target when they enter the crypto-space include:
Ethereum has different functionalities than bitcoin. Ethereum is used to power other projects, being used mainly for gas fees and transactions. It enables decentralized applications and the decentralized finance sector is developing rapidly around it. Ongoing ETH 2.0 development will allow it to scale to thousands of transactions per second. The move to proof of stake as a consensus mechanism will reduce gas fees significantly. Institutional investors are aware of the ongoing Ethereum developments and it will be one of the coins they forward momentum (FOMO) in to.
- Chainlink (LINK)
Chainlink runs on Ethereum and its use case as an oracle that will provide data feeds for a myriad of other Block chain projects makes its use case truly unique. Institutional investors having done the research will realize the diverse utility of LINK. It is a project they will target and invest in. Chainlink as an oracle provides data to other projects outside of blocked chains and it will get more partnerships and institutions will buy into the project. The strength of Chainlink is obvious reflected in the overwhelming number of partners it has attracted in the last two years.
- Others (Tellor, Band)
- Polkadot (DOT)
- Kusama (KSM)
A parachain is a simplified blockchain that attaches to a main chain like Polkadot (DOT) or Kusama (KSM) that takes advantage of the main chain’s existing infrastructure, wider network exposure, protocols and security. Polkadot is a growing project and supports Ethereum and is a good choice as it institutional investors will buy in to Ethereum DeFi projects. Kusama will be auctioning off its parachain slots in the coming months and it will be able to host a hundred different blockchains attached to it. Both DOT and KSM will do well throughout 2021. The hundred parachains added to Kusama over time will power it to all time highs.
Enterprise blockchain solutions
- Unibright (UBT)
Unibright (UBT) is an enterprise blockchain solution providing a way to automate and greatly simplify smart contract generation for enterprise companies. The UBT framework makes it easy for companies to adopt and integrate blockchain technology. UBT is being adopted by Coca-Cola providing an accurate decentralized ledger solution for its bottling distribution and payment systems.
- Morpheus (MORPH)
For shipping of goods across borders, it's critical — both functionally and legally — to have verifiable, consistently accessible documentation for every shipment. Morpheus.Network is a supply chain software-as-a-service (SaaS) platform that uses a reliable, distributed, verifiable storage and retrieval of international customs and shipping documentation. Adoption by businesses will ensure continued growth of this token's value.
- Ampleforth (AMPL)
Ampleforth is a cryptocurrency and DeFi protocol with an adaptive money supply maintained by a smart contract. The supply of AMPL token adjusts regularly to match demand. The system prints more tokens with increased demand and reduces tokens with less demand. AMPL is pegged to the US dollar providing a stable asset for collateral
Decentralized exchanges (DEX)
- Uniswap (UNI)
Uniswap (UNI) is the largest automated market maker (eg, decentralized exchange or DEX) in the DeFi space.
- Synthetix (SNX)
Synthetix use case allows it to create tokens that track the price of different assets such as cryptocurrencies and real-world assets. Users can generate “synths” that represent assets by locking their SNX as collateral in to the Synthetix smart contract. Synthetix tokens include fiat currencies, commodities, cryptocurrencies and cryptocurrency indexes. Synthetix is involved with derivatives markets and is also a project that will catch institutional investors interest.
- Loopring (LRC)
Recent Loopring updates improved its structure to become an automated market maker (AMM). A much needed function across exchanges for market consistency to avoid arbitrage situations. Loopring created its own custom solution of zk roll-ups, allowing for over 2,025 transactions per second, costing less than a fraction of a penny each.
- Others (Hegic, dHedge)
dHEDGE allows anyone to act as a virtual, permissionless hedge fund, giving users the ability to create portfolios, using the Synthetix protocol.
Liquidity pools (borrowing and lending)
- Aave (v2.0) (AAVE, LEND)
Aave is looking to optimize transaction flows reducing the number of transactions needed. And allowing for debt trading, collateral trading, lending and borrowing on margin. Aave is working towards bringing tokenized mortgages into their ecosystem, which is a market worth tens of trillions of dollars every year globally. Planned upgrades to Aave will catch the eye of institutional investors.
- Warp (WARP)
Warp allows liquidity providers the ability to lock up their LP tokens as collateral to borrow a number of stablecoins at favorable interest rates with incredibly low probability of liquidation. Warp within its first week attracted millions in LP token deposits.
There are many cryptocurrencies that will increase as overall market capitalization increases. Small investors will see good multiples realized by solid projects such as LTC, BCH, EOS and others that are listed in the top 50 for coin market capitalization’s. However, I believe that the forward momentum of institutional money coming into the space will see some Ethereum DeFi projects such as Chainlink, Synthetix, Polkadot, and other DeFi related tokens achieve higher multiples or return on investment.
Institutions for the most part will restrict their investments to the top tier of market coins like Bitcoin and Ethereum and a small number of "bluechip" DeFi projects supported by Ethereum such as Chainlink, Synthetix or projects providing real world enterprise business solutions. It is likely that institutions will target or in invest in the burgeoning digital versions of financial fiat products that they are used to dealing with. It is unlikely they will invest in lower-capitalized alt coins that retail investors are speculating on.
Continue to watch where institutional money flows into. Small retail investors will do well buying into the same projects being supported by larger institutional players in 2021.