If 2020 was an exceptional year for Bitcoin and the crypto ecosystem, 2021 has already started very well. The sharp price drop due to the coronavirus is already forgotten, and major digital assets are breaking valuation records in 2021. But between the fundamentals of Bitcoin, decentralised finance or NFTs (non-fungible tokens), it’s not always easy to know which cryptocurrency to invest in. Coinhouse offers a selection based on the research of its experts to help you make the right choices in 2021.
Interest in cryptocurrencies continues to grow
The beginning of the year was marked by a sharp rise in the prices of the main digital assets. At the same time, the interest of private individuals was confirmed, with Google searches once again on the rise. However, this new bull run has seen a massive influx of professional investors and other investment funds.
In this context, it is important to identify the ‘leading’ projects in each sector of the exciting and complex world of cryptocurrencies. While competition is useful for technological development, it is likely that many projects will disappear and only a few will be able to prevail in a particular field. We have therefore selected different themes and around 20 crypto projects that we believe will be important to count on in 2021. This will help you to know which cryptocurrency to buy in 2021.
Digital assets to invest in first
Despite the plethora of crypto projects coming out every month, some stocks remain essential in building a well-balanced portfolio. Bitcoin and Ethereum remain the best known and most valued assets in the market. While they are not without their challenges in the coming years, owning them in 2021 is strategic.
Bitcoin remains the undisputed king
Bitcoin is increasingly becoming an institutional investment vehicle. With Tesla’s announcements and recent news of banks offering more and more services for professional investors, the price is on a long-term upward trend. Bitcoin’s value has already doubled since January 1, and the uncertain economic situation is working in its favour. Slowly but surely, Bitcoin’s characteristics are allowing it to establish itself as a legitimate investment vehicle. Regulatory developments will continue to be monitored, but the asset has proven its resilience in the past.
Ethereum, the most actively developed project
Ether, the native asset of the Ethereum network, has strong potential in 2021. The asset has appreciated less than Bitcoin in 2020. However, there are many more projects and developments, the uses are becoming more widespread and it is also starting to interest institutional players. Above all, the Ethereum blockchain is at the origin of two phenomena that will be very fashionable in 2021: decentralised finance applications (DeFi), whose disruptive potential on the entire finance ecosystem is increasingly recognised, and NFT technology (for non-fungible tokens), which makes digital objects unique and non-reproducible. In addition, a version 2.0 of Ethereum, currently being deployed, will make the use of the network more efficient and cheaper. In our opinion, you should definitely have ethers in your wallet in 2021.
Major cryptocurrencies to consider
A handful of crypto-currencies manage to exceed 10 billion in capitalization in 2021. Among them are projects of varying degrees of youth, which have real potential but are also open to criticism. We advise against allocating a larger share of your portfolio to them than to Bitcoin and Ethereum. On the other hand, depending on your own opinion and research, you can decide whether or not you want to invest a portion of your capital in these projects.
Ripple, the cryptocurrency of banks?
After a difficult end to 2020 for Ripple, marked by a lawsuit from the SEC, the US market regulator, the company that issues the XRP token remains under threat of having it reclassified as a security, a type of asset more strictly regulated than a cryptocurrency. From a technical point of view, the price of the asset is often subject to sudden movements, which makes long-term investment very risky. On the news side: the arrival of Spark, a sidechain that could allow Ripple to have its own smart-contracts, seems to give a second wind to the asset’s price in 2021. In summary, then, XRP is not the cryptocurrency we would advise to choose first. Since 2017, its performance has often underperformed that of Bitcoin.
Polkadot, the project that meets the interconnection needs of blockchains
Polkadot is a recent project, launched at the end of May 2020. It is a network that allows different blockchains to be coordinated in a single infrastructure. The interest is important in terms of interoperability, allowing them to communicate with each other while respecting different rules.
Polkadot’s success depends largely on its ability to generate interest and gain traction, as well as the willingness of existing blockchain projects to migrate to its infrastructure. If the founders’ gamble comes to fruition, the project has a strong potential to grow in 2021.
Investing in alternative cryptocurrencies to Ethereum?
If Ethereum is today the undisputed leader of smart contract technologies, its competitors have multiplied in recent years. You will find projects like EOS or TRON, which date back to 2017, but which today lack traction and do not seem to be technologically convincing. So we don’t think these are the crypto-currencies to invest in 2021. On the other hand, other projects could develop and assert themselves as viable alternatives to Ethereum.
Among them, the Tezos project (XTZ) uses proof-of-stake to validate its transactions, which consumes almost no electricity, and the validation of smart contracts is particularly enhanced by a mechanism called “formal proof”. A growing number of projects and companies are currently considering its use, particularly in France. It is therefore one of the projects to be considered.
Another highly capitalised project is Cardano (ADA), which is experiencing some price traction and has a fairly active community. The project is still in the experimental stage but could see concrete developments in 2021. The ADA token has appreciated in the first quarter of 2021. Investing in Cardano in 2021 can therefore be considered for investors who like to anticipate the possible success of ambitious projects, but there is no guarantee at this stage that this investment will prove fruitful in the long term.
Solana (SOL) is another rather recent crypto project that may be worth investing in. Its price has already gained more than 600% since August 2020. The project promises to be able to process more than 50,000 transactions per second, with validation times of less than one second.
Among Ethereum’s competitors with a chance of capturing market share, Avalanche (AVAX) is well placed. This young project relies on the use of multiple chains and fast transactions to attract users. The number of validators and partnerships in this network is growing, but it still needs to attract liquidity to become a real force in the ecosystem.
If the project does not fall too far behind Ethereum 2.0, it may prove to be a very good investment for 2021.
Investing in cryptocurrencies from credit and exchange platforms
The year 2020 saw the explosion of decentralised finance (DeFi). The sector continues to grow in 2021 and now includes several projects that may be worth investing in. Platforms focusing on credit provision and those enabling decentralised exchanges between cryptoassets are seeing their valuation and assets under management explode.
Among the leading projects in this sector, MakerDAO (MKR) is one of the very first projects in decentralised finance. Originating from the stable asset DAI, and offering credits based on ether and other assets, the platform is growing rapidly and attracting more and more attention. A wise investment choice in 2021.
Another heavyweight is Aave, which is an investor-to-investor lending platform that allows investors to deposit or borrow assets for fixed or variable interest rates. The AAVE asset has been growing rapidly in value since 2020 and assets under management exceed $5 billion. We believe the project still has potential for investment in 2021.
Uniswap (UNI) is another project that is now a staple of the DeFi. It allows you to exchange just about any asset on the Ethereum blockchain for another, and pays investors who provide it with liquidity. Simple, but very effective. Uniswap is definitely one of the crypto-currencies we recommend investing some of your crypto-capital in 2021. Its best-known competitors are Balancer, Curve and Sushiswap, even if their volume and valuation is lower, they could still prevail against the market leader.
Investing in cryptocurrencies that meet specific needs
When you ask yourself: ”Which cryptocurrency should I invest in?”, also ask yourself: ”Does this project provide a concrete solution to real needs?” While many cryptocurrency projects are just riding the trend, others are led by very serious teams that address real market needs.
The need for decentralised finance services has seen the emergence since 2020 of platforms offering tokens based on cryptoassets, but also on equities, precious metals or gold, allowing investors to gain exposure to these usually hard-to-find assets in the blockchain ecosystem.
In this area, Synthetix (SNX) is now the most widely used derivatives platform. With more than USD 2.2 billion under management, it is successfully growing in this market and offers the widest variety of derivatives.
There is also UMA, which is the first platform to have offered futures contracts on crypto asset valuations since September 2020. New products are being developed. If you believe in the potential of derivatives issued from blokchains, it may be worth investing a small amount of capital in these two projects.
Among the outsiders in this sector is Opyn, a platform that has created derivatives on Ethereum, mainly options. Although it remains difficult to use for novices, its use could develop in cooperation with platforms offering complementary services.
Hegic also offers options on Ethereum, but with a simpler interface and lower valuation. Both projects are much more experimental and remain high-risk investments in 2021.
Investing in cryptocurrencies that address Ethereum’s drawbacks
One of the fundamental issues holding back the development of the Ethereum ecosystem is the cost of transactions on its blockchain. There are several cryptocurrencies that are attempting to address this issue by creating platforms isolated from the main blockchain on which a large number of transactions can be executed, without paying a high commission price or saturating the main blockchain.
Loopring (LRC) is well positioned in this market. The platform allows investors to access a growing number of decentralised finance protocols and projects without going through the main blockchain and with a simplified interface. It is one of the crypto-currencies to invest in in 2021 until Ethereum’s scalability issues are resolved. There are competitors to Loopring: Diversify, Optimism, Matic Network and ZkSyncm but it is still very difficult to know which of these projects will stand out in the future.
Investing in NFTs: a special case
This is the trend that is all the rage in the market in 2021. NFTs, for ”non-fungible tokens”. Often created from the Ethereum blockchain, NFTs are different from the crypto-currencies analysed above. Indeed, each NFT is unique and cannot be reproduced, unlike bitcoins which are fungible: one bitcoin can be exchanged for another and has the same value. These tokens are creating a craze for digital art and collectibles. Thanks to the properties of the blockchain, NFTs become unique digital objects that can have significant monetary value. Owning an NFT gives you “digital ownership”: no one can cancel your ownership of an NFT or recreate one exactly like it.
The field of NFTs is still very new. Like collectors in “real life”, it is best to be familiar with a sector or discipline to buy an NFT that is related to it. There are also cryptocurrencies linked to NFT-issuing platforms such as FLOW or SAND. There is no doubt that this phenomenon will continue to grow in 2021.
Finally, we would like to point out that other projects that we have not mentioned may be promising in 2021. But a paradigm shift seems to have occurred in 2020: projects that were well established in 2017, such as Bitcoin Cash or Litecoin, are now losing momentum, having shown little technological innovation, in the face of the surge of interoperable decentralised finance projects offering new investment vehicles, and on which we believe the market will focus.