2021 market trends: Which of the five major sectors has outstanding performance and which has sluggish prices? Wu said that the year-end review (2)

Wu said the author   |   Brother Ping

Editor of this issue   |   Colin Wu  

Looking back at 2021, we can basically divide it into three stages based on the overall market trend, and each stage happens to have its own corresponding dominant narrative:

Before May: The market narrative at this stage was still dominated by the "institutionalization of Bitcoin." Tesla, Meitu, MicroStrategy and other companies rushed into the market; Canada launched the first Bitcoin ETF in North America (Purpose Bitcoin ETF), and Coinbase was listed on the Nasdaq.

May to the end of July: Under the guidance of various uncertainties, the market began to plummet and retreat. PoW mining violated the trend of carbon neutrality, and Musk "turned against" it; the domestic mining ban caused a sharp drop in Bitcoin computing power; the epidemic situation improved, macroeconomic indicators hinted at inflation, and the expectation of a Taper rate hike made people panic.

From the end of July to now: Hotspots are flourishing, the market has reached new highs, macroeconomic factors and the year-end holiday curse have once again led the market astray, how will this year end? The rise of the new public chain L1, Axie has set off a GameFi craze, the Metaverse, DeFi 2.0, Web3.0, the fundamentals on the Bitcoin chain and the market have diverged...

After understanding this market stage division and the corresponding market hotspots, it may be more helpful for us to review and understand the market conditions of the mainstream hot sectors in the industry throughout the year.

Bitcoin

As of December 19, 2021, Bitcoin's annual return was about 63%, with the highest increase of about 130% and the maximum retracement rate of 52%. It can be said that the trend of Bitcoin this year is still relatively bumpy.

On February 8, Tesla officially announced the purchase of $1.5 billion worth of Bitcoin, extending the life of the Bitcoin market driven by arbitrage of the Grayscale Bitcoin Fund in 2020; the market reached its peak directly under the impetus of Coinbase's direct listing on Nasdaq, and then under the political correctness of global carbon neutrality, Tesla's backlash against Bitcoin's PoW mining, coupled with the uncertainty of macro-control, the market ushered in the 519 halving market.

With the sudden plunge and continued decline of the market, we can clearly see from the on-chain data that long-term Bitcoin holders (LTH) are frantically accumulating funds; soon, the total holdings of long-term Bitcoin holders broke through the previous high, and the Bitcoin market also hit a new high under the market rotation of various sectors. Interestingly, the time point of the approval of the first Bitcoin futures ETF in the United States is currently a peak of the market. Buy the Rumor, Sell the News!

At present, Bitcoin has retreated nearly 30% from its high point. In view of the future macro-control expectations, the overall market sentiment seems to be negative, but the on-chain data (supply of long-term Bitcoin holders & Bitcoin balance on exchanges) are relatively optimistic, which is also the main reason why optimists are bullish on the market outlook.

Looking back at Bitcoin in 2021, it has unlocked many achievements. Recognition by corporate institutions, approval of the US Bitcoin Futures ETF, entering the trillion-level asset level, becoming a national legal currency (El Salvador), etc.

In terms of price, although the expectation of $100,000 cannot be achieved this year, and the performance of the earnings is far behind that of the hot sectors, perhaps this is the fact that we need to get used to. The volatility of Bitcoin prices will gradually converge, and the price correlation with the sub-sectors within the industry will gradually break away. In the coming 2022, with the implementation of the Taper rate hike policy, we will witness whether Bitcoin remains in the risk asset category or has really become an inflation-resistant value storage asset category.

As for the fundamentals, what we can look forward to further is perhaps only the approval of the US Bitcoin spot ETF and recognition by more countries.

Ethereum

As of December 19, 2021, Ethereum's full-year return was approximately 431%, with the highest annual increase of approximately 557%, and the maximum retracement rate during the 519 period was as high as 57%.

Last year, the Ethereum ecosystem was hit by the DeFi boom, and this year it has reached a new level, with NFT, GameFi, DAO, and Web3.0 sectors all very popular. EIP1559, which was activated on August 5, made up for the shortcomings of the ETH economic model and completed ETH's value capture of ecological prosperity. At the same time, there has also been qualitative progress in the scalability L2 solution.

Looking ahead to next year, the most anticipated event is bound to be the PoS merger. By then, combined with L2 solutions such as Rollup, to what level Ethereum's throughput can be improved, and how Ethereum's ecological applications and liquidity funds will evolve are all issues that everyone is looking forward to.

Multi-chain L1s

Judging from the performance of returns alone, perhaps the new public chain is the biggest winner. The above figure shows the performance of the mainstream new public chains since December 19, 2021. The specific ranking is Terra (Luna, 112x), Solana (SOL, 99x), Fantom (FTM, 82x), Harmony (ONE, 50x), BSC (BNB, 13x), Cosmos (Atom, 3x), Polkadot (DOT, 2x).

The industry has currently formed a multi-chain structure centered on Ethereum, but the ecology of the new public chains is similar, and the main method is to attract liquidity funds through ecological incentives.

Looking ahead, we expect that some potential risks of new public chains will gradually surface. In the bull market, especially in the early stage of the mainnet launch, these problems are not obvious and are even easy to be ignored. As the network data status accumulates and the market gradually returns to rationality, the problems will gradually be exposed. After all, these new public chains have not really experienced the test of time.

Metaverse & GameFi

In the second half of this year, under the leadership of Axie Infinity, the GameFi track has exploded. As the leader of the track, Axie (AXS) has achieved a full-year return of 167x as of December 19, with the highest return of 300x during the period.

On October 28, Facebook announced that the company changed its name to Meta, focusing on building the world of the Metaverse. This news once again ignited the Metaverse track, and Decentraland (MANA) and The Sandbox (SAND), as the leaders of the track, also ushered in an exponential surge. As of December 19, MANA's annual return was 31x, and the highest return during the period was 47x. SAND's annual return was 119x, and the highest return during the period was 175x. And their main gains were basically completed within one month after Facebook's announcement.

Although the projects in the Metaverse and GameFi tracks in the crypto industry have achieved impressive returns this year, these tracks are currently in their early stages and are mixed with good and bad companies. Most projects may not survive a cycle, but with the continuous influx of capital and talent, these tracks are expected to move from niche to mainstream.

DeFi

As we all know, the pace of the crypto industry changes very quickly. The DeFi sector, which was very popular a year ago, is now called Old Money. The DeFi sector, which has lost its market popularity, has also performed very poorly, and some project tokens can't even outperform Bitcoin.

The above chart shows the performance of mainstream DeFi tokens since December 19, 2021. The specific ranking is: MKR (317%), UNI (221%), BNT (155%), AAVE (104%), LINK (68%), YFI (47%), COMP (41%), and BAL (30%).

If we look at the exchange rate trends of these mainstream DeFi tokens and ETH, the situation is even more unbearable!

Although the concept of DeFi 2.0 emerged in the market in the second half of this year, mainly referring to the DeFi protocol with micro-innovations in terms of capital efficiency and liquidity, unfortunately, it has only become a hot topic and has now become obscured by the crowd.

Of course, mediocre performance does not mean that these DeFi protocols are declining. You know, these DeFi protocols have long been an indispensable liquidity infrastructure for the industry. One of the reasons for this year's mediocre performance is that there are many local hot spots in the market. Not only did hot money not flow into the DeFi sector, but funds within the sector even flowed out; another possible reason is that the valuation of the DeFi sector is pre-positioned, and value discovery has been completed in advance.

Summary & Outlook

In general, we have caught the bus of the bull market in 2021, and there are also various sub-sectors that have become rich quickly, and the industry infrastructure has also been qualitatively improved. Looking forward to 2022, will the macro-control expectations such as the Taper rate hike end the bull market that has lasted for nearly two years? If we enter a bear market, will the industry still be as dead as before? In the context of a relatively complete industry infrastructure and the initial construction of ecological applications, will there be more innovative applications? Can the concept of Web3.0 explode? What interesting sub-sectors will Web3.0 derive from? Is it social, art, games, DAO, or?

We will have to wait and see…