Crypto prices crashed hard in 2022 as the previously up-and-coming sector ran into new headwinds like rising interest rates and the implosion of some large players, such as FTX.
Beneath the surface, there were still reasons for optimism. The Bitcoin (BTC 3.60%) network stayed operational 24/7 with no downtime, remained impervious to hacks, and successfully processed billions of dollars of daily transactions.
Meanwhile, Ethereum (ETH 2.78%) developers successfully pulled off The Merge, Ethereum's transition from proof of work to proof of stake, an engineering feat that some observers compared to changing out the engine of an airliner in mid-flight. Other cryptocurrencies like Tron (TRX -0.30%) served a purpose for people all over the world, while Solana (SOL 7.59%) might benefit from a new product introduction.
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1. Bitcoin
As mentioned above, the Bitcoin network stood strong in 2022, processing billions of dollars of transactions daily while being fully operational 24/7. There is plenty to look forward to in 2023. Although some observers feel that Bitcoin has fallen behind smart contract platforms like Ethereum, Bitcoin developers are working on an upgrade called Taro that could allow Bitcoin users to mint assets such as non-fungible tokens (NFT) and stablecoins on the Bitcoin blockchain, which would bring a new wave of enthusiasm to the oldest and largest cryptocurrency.
At the same time, a new protocol called Machankura, which was developed by an African developer named Kgothatso Ngako, is making Bitcoin accessible to more people than ever. The service, which allows people to send and receive Bitcoin via text message, is a boon in Africa where many people have cellphones that are not internet-enabled, meaning that Machankura has the potential to bring accessibility to Bitcoin to millions of more users.
2. Ethereum
As mentioned above, Ethereum switched to proof-of-stake in 2022, which reduced its carbon footprint by more than 99% and made it easier than ever for even casual Ethereum users to earn rewards for participating in the Ethereum network. Ethereum users can now use a third-party service like Lido Finance, Coinbase, or Rocket Pool to stake their Ethereum -- basically locking it up to process transactions and secure the network.
Users seamlessly earn staking fees with interest rates of between 3.87% and 4.6%, depending on which of these pools they are using, with no minimum amount of Ethereum required to get started. These yields are competitive with those of dividend stocks and Treasury bonds, and require minimal effort or technical know-how to get started.
Although The Merge was a milestone for Ethereum in 2022, Ethereum isn't done making improvements. In two months, Ethereum is tentatively scheduled for its next big upgrade, Shanghai, which will allow users to withdraw their staked Ethereum. This will give users increased liquidity and remove much of the risk around staking -- investors will be able to withdraw their staked Ethereum if they want to trade it or need the money, as opposed to locking it in for an indefinite time period, which is the case now.
3. Tron
Although crypto discourse can often wander into philosophical debate, these pontificators often forget that most people simply want a product that works and is cost-efficient. That's exactly what they are getting with Tron. Tron is fast, it gets user's money from point A to point B safely and reliably, and it is remarkably cheap -- fees on Tron cost less than a penny.
There is something to be said for this type of simplicity and reliability, and that's why people all over the world are using Tron. There are now more than 130 million Tron accounts, and the Tron blockchain has processed 4.6 billion transactions worth over $6.3 trillion since its inception.
Tron is particularly popular with users in emerging markets who want to transact in dollar-denominated stablecoins. In the past 24 hours, more than 2 million transfers using Tether were sent and received on the Tron blockchain, showing that Tron is a key cog in the economic engine of much of the developing world. As people all over the globe continue to use Tron for its simplicity and reliability, it is a good cryptocurrency to have exposure to over the long term.
4. Solana
While all cryptocurrencies took heavy losses in 2022, few had a worse year than Solana, which fell more than 94% from its high of $260 in November 2021 and was barely able to stay above $10 by year-end. In addition to the challenges that all cryptocurrencies faced, Solana dealt with additional headwinds in the form of the bankruptcy of crypto exchange FTX. FTX, its founder Sam Bankman-Fried, and his Alameda Research hedge fund were heavy investors in Solana and many tokens within the Solana universe. For example, Solana and Serum (a Solana token) made up a large portion of the assets on FTX's balance sheet.
But as the calendar turned to 2023, Solana started to fight back and it has more than doubled since Jan. 1. I don't think it's realistic to expect Solana's rally to continue at this scorching pace all year, but clearly a sense of optimism has returned to Solana and it doesn't seem unreasonable to think that it will chalk up a decent gain for the year.
The excitement over a new dog-themed meme coin called Bonk, which was AirDropped to many Solana users, is a large part of what's driving the rally. Although it's a silly name and it may not have long-term staying power (at one point Bonk had gained over 3,000% after launching, but then fell more than 50% in a 24-hour period), it seems to have propelled a wave of activity on the Solana blockchain and ushered in a new era of enthusiasm, helping it move past the aftermath of the FTX collapse.
Like Tron, Solana is a fast and cheap blockchain, and a lot of people are using it. Solana has processed more than 130 billion transactions and right now, it is processing well over 3,300 transactions per second. Like Tron, Solana charges negligible fees.
While 2020-2021 was an incredible time for crypto, I think it would be unreasonable for investors to expect those types of gains in 2023, or even further out. However, with the progress that these cryptocurrencies are making, I think that it's entirely reasonable to expect that they will finish 2023 up. With slow and steady progress, and gains that are more sustainable than in the past, it would be a welcome change after what crypto investors endured last year.
