A Look Back at 2021 for Crypto Investors

Insights, news and analysis for the professional investor

By Lawrence Lewitinn, Managing Editor for Global Capital Markets

January 2, 2022

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Bitcoin (BTC) - $47,161.86

Ether (ETH) - $3,755.22

Prices as of 1/2/22 @ 14:50 p.m. UTC

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This is an abbreviated Crypto Long & Short because it's the beginning of the new year and you should be taking it easy. Although, quite frankly, no one takes it easy in crypto. Ever.

Questions? Feedback? We'd love to hear from you – simply reply to this email.

Happy New Year!

– Lawrence Lewitinn

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The Briefing

December was a fantastic month for investors. Okay, not crypto investors; most of them were miserable over the past 30 days.

You know who did have a good month, though? Those who put their money in boring old large-cap stocks. Mom and dad, who may have peppered their Gen Z kids with questions about crypto over Thanksgiving, outperformed their offspring in the following five weeks.

The S&P 500 gained 6% in December, while bitcoin and ether lost nearly 19% and 20%, respectively. The CoinDesk DeFi Index (DFX), which has had a pretty good run over the past few days, was still off by close to 17%. Gains were not exclusive to U.S. large cap equities. The Nikkei and the FTSE 100 also eked out positive returns for the last month of 2021.

Crypto and Equity Indices Returns (Dec.)

And looking at the CoinDesk 20, which are the top digital assets by volume, all of them were down substantially save two – Polygon (MATIC) and Cosmos (ATOM) – which had exceptional returns.

Still, crypto investors should take heart: 2021 was fantastic in many instances. Returns on bitcoin came in at nearly 60%, while ether shot up 387%. The S&P wasn't so shabby, gaining shy of 28%.

Crypto and Equity Indices Returns (2021)

One important point for portfolio managers, though: volatilities were still astounding with crypto compared to stocks.

Bitcoin, Ether and Equity Indices Volatilities (2021)

That means risk-adjusted returns were a mixed bag. Sharpe ratios may have been great when it came to ether, but bitcoin's returns could have been outdone with lower volatility by buying and holding a large-cap stock index ETF with, say, a little more than 2x leverage at the start of the year.

But what fun is talking that trade to mom and dad?

Happy New Year!

– L.L.

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Chain Links

Polygon disclosed a critical bug that left over $20 billion in MATIC tokens at risk earlier this week. TAKEAWAY: A white-hat hacker under the alias Leon Spacewalker discovered the potential vulnerability after only 801,601 MATIC tokens were drained. Polygon resolved the vulnerability with a controversial network hard fork, which is now live and healthy. The disclosure may be a sign that even the best-funded projects within the crypto industry are stretched thin on security.

Bitcoin remained below $50,000 awaiting $6 billion end-of-year options expiry on Dec. 31. TAKEAWAY: The bitcoin derivatives market appeared to be slightly skewed long, tempting call option sellers to push the spot market lower. The "max pain point," or the price at which the most contracts expire worthlessly, sat at $48,000. Expiration may allow the market to choose a clear direction.

"Long-term bitcoin holders" increased their BTC holdings by 16% over 2021. TAKEAWAY: Even as the crypto market hit new highs, long-term holders accumulated, showing conviction in the future of the asset. Classified by Glassnode as an entity holding BTC for over 155 days, long-term holders currently own over 70% of the BTC supply.

The U.S. Securities and Exchange Commission announced that former Senate aide Corey Frayer will be appointed to oversee crypto-related regulatory issues. TAKEAWAY: Regulators across the United States have recently looked to wrap their heads around crypto assets. Gary Gensler has made it abundantly clear that the SEC would like crypto to fall under its oversight, and the SEC appears to be looking at the Senate for additional power over the industry. Frayer served as aide to Senate Banking Committee chair Sherrod Brown (D-Ohio). News of his appointment was first reported by Bloomberg Tax last week.

Gold finished 2021 as its worst year since 2015, shocking investors looking for a store of value. TAKEAWAY: The most actively traded gold futures have fallen 4.7% throughout a year filled with high inflation and record-breaking markets. Some analysts believe that the crypto craze may have drawn attention away from gold and other commodities, as some investors look to bitcoin as a hedge against soaring prices.

– Teddy Oosterbaan