2023: The year cryptos stole the limelight

2023 was the year that cryptocurrencies stole the limelight. Of the 10 largest cryptocurrencies, Solana smashed its way to the head of the field with a gain of 620% for the year. Next was Avalanche, up 290% and then bitcoin (BTC) with 152%.

The S&P Cryptocurrency Top 10 Equal Weight Index is up 137% for 2023, coming after a 285% gain in 2021 and a 78% loss in 2022.

These returns prove yet again the volatility of cryptocurrencies, and the dangers of betting too heavily in this relatively new asset class.

The chart below from Glassnode shows the percentage returns of the top 10 cryptocurrencies over 2023.

YTD price growth of the 10 largest cryptocurrencies

While sentiment towards cryptocurrencies turned positive in 2023, the dynamics driving Solana (SOL) and Avalanche (AVAX) are different from that of BTC.

SOL is the native token of the Solana blockchain, which is able to process 65 000 transactions a second, orders of magnitude faster than Visa card, which can handle 24 000 a second.

Following a recent technology upgrade, Ethereum can handle up to 100 000 transactions a second (from 15 previously), but the high costs of these transactions has driven users to low-cost competitors such as Solana, now the preferred network for new coin issues in the crypto space.

“This impressive price surge has helped the world’s fifth-largest cryptocurrency to add more than $32 billion to its market cap, rising from $4.3 billion in January to almost $37 billion last week,” says a report by Altindex.com. “But despite reaching a 2023 high, Solana’s price is still nearly three times below its all-time peak of $259.96, seen at the end of 2021.”

Avalanche, a rival to Ethereum, is an open source blockchain launched in 2020 to offer fast, scalable transaction features.

The AVAX price more than doubled in the past month after it announced deals with giant banking groups JPMorgan Chase and CitiBank for the tokenisation of real world assets, a market expected to be worth $3 trillion in the next five years. Tokenisation is the process of creating a digital representation of real world assets such as stocks, bonds or property.

Avalanche is also betting big on ‘GameFi’ as an emerging trend, where gamers can earn value by way of tokens or non-fungible tokens (NFTs) by participating in games.

2023 was also a good year for Cardano (ADA), which ended the year up 140%. Cardano is another blockchain competitor to the likes of Ethereum and Solana, and is targeting the growing decentralised finance and treasury management space (as well as voting).

Bitcoin remains the king of the crypto mountain with a 152% gain over the past year.

The engine driving its growth is the upcoming ‘halving’ – which happens every four years, when new supply is halved – and the prospect of massive institutional flows expected to happen once exchange-traded funds (ETFs) are authorised in the US and elsewhere.

Crypto versus equities

It’s been an abysmal year for the JSE All Share Index, which closes the year with a net gain of 4.7%. That’s barely keeping pace with inflation.

The reasons for this have been the subject of non-stop discussion over the year, but topping the list are the problems at Eskom and Transnet.

The weaker rand – down 8.4% against the US dollar in 2023 – did little to rescue an index top-heavy with rand hedge stocks.

To stay ahead of the game, you had to be invested offshore. The S&P 500 is up 25.9% in 2023, if one includes dividend payments. The Nasdaq ended the year 46% higher. It was helped along by outstanding gains from its main constituents: Apple (up 61%in 2023), Microsoft (56%), Alphabet/Google (57%), Amazon (78%), Tesla (138%) and Meta Platforms (188%).

Looking at the performance of the world’s leading tech stocks, the top cryptocurrencies certainly held their own and in some cases (notably Solana, Avalanche and BTC), surpassed them.

Just five coins account for 75% of crypto market cap

Although there are more than 8 900 digital coins in the crypto space, five top-performing cryptocurrencies – Bitcoin, Ethereum, Solana, Avalanche, and Cardano – make up most of the market value.

According to CoinMarketCap data, these coins now make up 72% of the total crypto market cap, with a combined value of $1.19 trillion as at the third week of December.

Bitcoin alone accounts for 51% of the global crypto market cap, as the total value of all BTC coins hit $851 billion. – moneyweb.co.za