In 2022, The Top Crypto Investments Are :

Are you able to decipher the alphanumeric string?

It’s the encrypted version of the term ‘Bitcoin,’ the cryptocurrency that traded at $46,578 (35 lakh) per unit on December 20, giving it a $881 billion market valuation. That’s 3.36 times Pakistan’s GDP, 2.72 times Bangladesh’s, and 10 times Sri Lanka’s. With a starting price of $1 in 2009, Bitcoin is still the most costly cryptocurrency in history. If an investor had put $100 into Bitcoin in 2009, it would now be worth $4.67 million (around 35 crore)!

This non-linear compounding is what has generated a crypto bazaar that is open 24 hours a day, 7 days a week, with over 15,700 currencies and a market valuation of $2.37 trillion. Coins and tokens in cents and even smaller fractions are included.

Bitcoin, Ethereum, Cardano, Dogecoin, Litecoin, Bitcoin Cash, Filecoin, Ethereum Classic, Monero, and Helium are among the top ten cryptos that have captured the interest of investors, with a market valuation of $1.45 trillion (See: The Top 100). According to Crebaco, a crypto research and analytics business, India’s homegrown crypto exchanges provide a basket of 500 currencies to pick from. When Bengaluru-based Unocoin launched the country’s first crypto exchange in 2013, it ushered in a new era of cryptocurrency investment in India.

According to Crebaco, cumulative investments made by Indians in cryptos since 2013 were about $1 billion as of March 2020, and are now valued close to $8 billion (60,000 crore). However, a group of leading Indian exchanges, including WazirX, ZebPay, CoinDCX, CoinSwitch Kuber, and others, published an advertisement in a leading pink daily, claiming that tens of millions of Indians have invested $80 billion (6 lakh crore) in crypto, in compliance with the Blockchain and Cryptocurrency Committee of India’s self-regulatory code of conduct under the Internet and Mobile Association of India. However, Crebaco’s founder and CEO, Sidharth Sogani, feels the figure is exaggerated. “It needs to be volume, not value invested,” he continues, “since Indians’ average investment is too low.”

Even as governments and central banks struggle to comprehend the magnitude of digital assets, their returns have shown to be more than simply inflation beaters. Bitcoin has returned 60.40 percent year to date, outperforming other asset types such as real estate and gold (See: More than an inflation hedge).

In fact, the classic inflation hedge, gold, has lost its lustre this year, returning a negative 8% return. Money should have flowed into gold when central banks unleashed liquidity by cutting interest rates to near zero. However, this was not the case. Central banks have injected nearly $25 trillion into the global economy since the global financial crisis in 2008, with over $9 trillion in the epidemic era alone. Cryptocurrencies, on the other hand, grabbed the spotlight from gold.

According to Morgan Stanley, gold’s market capitalization has traditionally ranged between 5 and 15% of global GDP, increasing to 10-15% during economic crises when demand for safe haven assets surges and re-inflationary measures are implemented. According to the analysis, if Bitcoin were to capture half of gold’s demand, which is driven by its use as a store of wealth, its market cap might reach $6 trillion by 2025, which is more than 2.5 times its present worth.

And there’s a good reason behind it. “Bitcoin has outperformed gold during this inflationary time.” “Bitcoin and other digital currencies are often viewed as inflation hedges, owing to their restricted supply, which is unaffected by their price,” explains Nigel Green, CEO and founder of deVere Group, an independent financial advice organisation.

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For example, unlike other digital currencies and tokens, only 21 million units of Bitcoin are programmed to ever exist, but the quantity of other digital currencies and tokens may expand depending on demand and supply. It accounts for a significant portion of the crypto market valuation, which is unsurprising.

Beyond Bitcoin, the crypto basket has more to offer, with some intriguing and others duds.

The Big Basket

The crypto world is divided into 26 categories, including store-of-value tokens like Bitcoin and Litecoin, yield-farming tokens like Aave, decentralised finance, and non-fungible tokens. Stablecoins, on the other hand, derive their value from conventional assets. USDT, for example, is based on the US dollar, while gold GLC is based on the price of gold. Cryptocurrencies like Siacoin were launched to fund unique initiatives targeted at addressing real-world issues like Cloud storage.

Indians, on the other hand, seem to be enamoured with meme coins, which may be inspired by anything from the original to the bizarre. Dogecoin, the first meme currency, debuted in 2020 and was inspired by a famous Japanese Shiba Inu dog meme. Despite the fact that there are over 250 meme coins, Sogani advises investors to avoid them since they have no actual value. “Most meme currencies have no use case,” he argues, adding that investors should limit their exposure to 1-5 percent of their whole crypto portfolio.

What would be interesting to observe is what kind of security investors would have under the regulation, given that crypto criminals stole a record $7.7 billion from consumers in 2021 via a scam known as “rug pulls,” in which creators quit cryptocurrency projects and depart with customers’ money. When in the case of Squid, a meme currency whose price soared from $0.01235 to $2860 before plummeting to nothing as crypto owners disappeared with over $3 million in retail investor funds. Despite the fact that Tesla CEO Elon Musk has been a major proponent of Dogecoin, claiming that it has promise, its volatility has been unsettling.

Sogani feels that crypto rules would help in this regard, as they will require Indian exchanges to be more aware of the hazards associated with digital currencies. “Right present, there is no legal requirement for swaps,” Sogani explains. Players like Crebaco, on the other hand, provide services where currencies are assessed similarly to credit ratings for knowledgeable and tailored investors. While Bitcoin, Ethereum, and Litecoin are rated AAA, Solano, Cardano, and the other eight currencies are rated AA. The remainder are graded A, BBB, or unrated.

When cryptos become institutionalised, it will also benefit investors.

What was once a broad excitement among regular investors is now a haven for finance’s stodgy boys. The total asset under management of crypto fund providers was $73.04 billion as of the first week of December, with Grayscale, the largest digital asset manager, owning $50.99 billion, CoinShares having $5.88 billion, and 3iQ of Canada holding $2.65 billion in assets.

Green thinks that in the next years, institutionalisation will only accelerate. “The ‘inflation shield’ will attract increased investments from large institutional investors to the crypto market, along with cash, experience, and reputational pull.” “This will push prices much higher,” he predicts.

However, compared to the $7 trillion-a-day currency market, Nikhil Kamath, founder of hedge firm True Beacon, says there are still no fundamentals driving cryptos. “It’s going to be a crazy ride.” The main distinction is that, unlike cryptos, fiat currencies are still supported by governments.”

Also, in order for an asset class to achieve acceptance, it must be regarded as providing value to a portfolio, and cryptos have a lot to prove in this regard. According to Goldman Sachs strategist Christian Mueller-Glissmann, a small allocation to Bitcoin in a standard 60/40 portfolio since 2014 would have resulted in strong outperformance, owing to higher risk-adjusted returns for Bitcoin compared to the S&P 500 and US 10-year bonds, as well as relatively low correlations between Bitcoin and other assets. But there’s a catch: the analyst notes that the outperformance was mostly due to a few sporadic Bitcoin rallies, so it’s too early to say how much value it adds to a well-balanced portfolio.

A glance at the Top 100 cryptos in the following table demonstrates why trust will be difficult to come by. Only the bold would invest in the face of such vast and erratic returns, particularly by those outside the top ten. “This kind of volatility will only appeal to traders and first-time investors who believe they can quadruple their money in a short period of time,” Kamath believes.

While certain exchanges are presently providing Indians the option to invest in cryptocurrencies, other start-ups are taking advantage of their inexperience. There are no regular fees or charges since there are no restrictions. Furthermore, the rates of cryptos may differ from one player to the next.

Ashish Singhal, co-founder of CoinSwitch Kuber, stated in a prior interview with Fortune India in August that the firm uses a differential pricing method based on the amount of the investment ticket. “An investor who invests a lakh receives a different price than one who invests a hundred,” Singhal had added. To summarise, CoinSwitch provides its consumers with a set rate that does not fluctuate, and they must “just click purchase” at that rate. As a result, the individual who invests a fractional amount will still purchase at the top of the price range. Not to mention the commissions and fees he ends up paying, which aren’t disclosed to the buyer in the first place. In addition, Sogani claims that Indian currency rates are on average 5% higher than foreign rates. Cryptocurrency volatility is five times that of gold, which makes it all the more dangerous. Indeed, in the run-up to the December US Federal Reserve meeting, cryptos were very volatile as a result of a selling spree. “The current selloff was driven by a broader risk-off attitude that also damaged global stock markets as rising inflation encourages central banks to tighten monetary policies, putting the liquidity that benefited multiple asset classes at danger,” argues Green.

Cryptos, according to Edward Moya, an analyst at Oanda, which provides currency data and FX exchange rate services among other things, were ripe for a selloff since they had been the best-performing asset class for the third year in a row. “It’s been a terrible few weeks for cryptos, with profit-taking on the rise, big hacks, and strong momentum selling by high-frequency trading systems and algos,” he adds.

However, Moya thinks that in the next year, cryptos would first look to the Fed to see whether they made a policy error. “If the Fed utterly misreads inflation and needs to deliver an expedited rate hike cycle, it might result in panic selling of risky assets, including a large crypto drop.” Cryptos should have another successful year if the Fed is able to deliver a couple of rate rises while inflation begins to decline,” he believes.

Surprisingly, Bitcoin’s supremacy has waned – it used to own more than 80% of the whole market cap, but now it has less than 50%. Green feels that Solana, a new currency on the street, will do well in CY22. “It will surpass both Bitcoin and Ethereum next year owing to its superior high transaction speed — processing over 2,500 transactions per second vs. 15 for Ethereum — at a cheaper cost without sacrificing decentralisation,” says Green. Even if Bitcoin underperforms Altcoins next year, Moya believes it will still beat gold.

For the time being, investors would be better off investing in cryptos based on their real-world uses rather than being seduced by cheap unit costs, according to Sogani. Flip over to discover what the Top 100 crypto playbook looks like for investors looking for that extra bit of alpha in their portfolios.

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