Ethereum: Top Crypto Investment Narratives For 2022

Ethereum: Top Crypto Investment Narratives For 2022
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The goal of cryptocurrency investors is to financially benefit from the growth of virtualization throughout society. However, the best way to do this is not as straightforward as 'picking the best tech'. While the best tech inevitably wins in a Web 2 environment, the Web 3 market runs on entirely different parameters.

The goal of cryptocurrency investors is to financially benefit from the growth of virtualization throughout society. However, the best way to do this is not as straightforward as 'picking the best tech'. While the best tech inevitably wins in a Web 2 environment, the Web 3 market runs on entirely different parameters.

To succeed as a Web 3 investor, I believe the key is to understand investment narratives (the focus of this post) along with technology-induced network effects (the focus of my next post).

The Most Important Crypto Narratives

While the overall cryptocurrency investment thesis is centralized = bad and decentralized = good, in the crypto market this broad concept is narrowed down into multiple layers based on purpose and technology.

NFTs

NFTs have unequivocally been the biggest surprise mover of 2021. Looking back, this seems to be due to a number of reasons:

  1. Psychologically - NFTs solve a natural human demand for community and companionship (a demand which has increased due to Covid).
  2. Scarcity - NFTs take digital scarcity to a new level of intensity, often with circulating supplies of only 10,000 unique pieces.
  3. Virality - communities of voluntary NFT holders are economically incentivized to promote their respective projects. This creates organic and free marketing for the NFT project.

NFTs are entirely different than coins or tokens. Their customizability combined with their tendency to form closed and anonymous communities is an entirely new concept to the human race. As of now, NFTs have successfully evolved to represent a separate and new sector of the cryptocurrency economy.

To wrap your head around NFTs, you must remember that all people desire to feel important and recognized. It's precisely for this reason that profile picture NFT projects such as CryptoPunks and Bored Ape Yacht Club have exploded in popularity this past year.

I think NFTs are way, way bigger than most people realize. The total NFT market cap is currently priced at over $7 billion according to JPMorgan's November analysis (although other sources have claimed $22 billion, and $44 billion). In my opinion, holding Ethereum (ETH-USD) is the best way to benefit from the rapid and upcoming growth of the NFT market.

Ethereum Scaling Solutions & Alternatives

Polygon (MATIC-USD), Terra Luna (LUNA-USD), Solana (SOL-USD), and Avalanche (AVAX-USD) are currently the biggest winners in the scalability/bridges/layer-1 sectors of the crypto market. I believe there is a strong bull-case in 2022 for Ethereum scaling solutions and various layer-1 alternatives to make big moves.

Common market consensus currently agrees that FANG stocks are the future of technology. Alternatively, I think the future of tech is web 3. My reasoning for this is straightforward:

  • As people continuously spend increased portions of their lives virtually, they will naturally want property rights within these virtual networks.
  • Since decentralized networks enforce property rights through unbiased mathematics, they are superior to institutions or corporations.

As society becomes virtualized, it seems likely that people will flock to the most fair and valuable networks. Currently, Ethereum fits the bill best for this outcome.

Given Ethereum's heavy network effect, however, there is still a highly competitive market for Ethereum alternatives to battle for users. While this market is smaller than the Eth network overall, it is still highly valuable.

My personal favorite token within the scalability investment narrative is Polygon (MATIC). The Polygon network is a scalable and high-throughput sidechain linked to the Ethereum network. This means Polygon directly benefits from both the growth of Ethereum and it can compete with the technology and scalability of alternative crypto networks.

Crypto-Gaming & Metaverse Environments

This last narrative goes hand-in-hand with the growth of NFTs. So far, the crypto economy has focused the majority of its attention singularly on the development of decentralized networks. As successful implementations of these networks grow to fruition, there will increasingly be demand from users looking to do something with these networks.

Play-to-earn (P2E) cryptocurrency-gaming and metaverse environments are the specific narratives I am most bullish on. This past year, we saw explosive growth from the Axie Infinity (AXS-USD) play-to-earn game and from the Decentraland (MANA-USD) and Sandbox (NYSE:SAND) metaverse environments.

Crypto-gaming should soon gain traction, as there are literally hundreds of gaming studios currently at work developing crypto-native games. However, it's important to note that this growth will expand beyond the traditional idea of gaming.

Decentralized metaverse environments are emerging. These 'games' are made simply for players to exist in - as in, there is no specific purpose within these games. Users in these environments maintain the opportunity to buy and develop upon virtual land, and then optionally try to earn from that land.

Currently, functional metaverse environments such as Decentraland and The Sandbox mirror the gameplay of GTA 5 or Minecraft. However, what makes metaverse environments special is their incorporation of tokens, NFTs, and decentralized networks.

I agree with Bill Gates' prediction that "the metaverse will host most of your office meetings within 3 to 5 years." I see this outcome to be an inevitable byproduct of virtualization throughout society. Once again, as we become increasingly virtualized, people will opt to spend their time in the best environments. Currently, due to a lack of other options, many companies operate through countless and monotonous Zoom calls. Over time, I can see these Zoom calls shift to instead take place in the metaverse.

Conclusion

At the end of the day, I think Ethereum is the best overall investment for 2022. However, if you want to try to outpace the growth of Eth, then I suggest looking for quality projects that fit within the NFT, scalability, and crypto-gaming / metaverse narratives.