Cryptocurrency Market Cap Jumps $1.5 Trillion, Bitcoin Not as Hot as Ether!

Specifically, bitcoin, the world's largest cryptocurrency, has seen the virtual currency's market share fall to less than 40% as of December 17, compared to 70% at the beginning of the year. Part of this is due to the rising popularity of ethereum and the flow of market capital into other tokens, while the trend could be a sign of a destabilizing speculative bubble for some.

In addition, market controversy continues over the role bitcoin plays in investment portfolios. Among its proponents, Bitcoin provides a hedge against the highest levels of inflation in decades. However, as Figure 3 shows, bitcoin's correlation with risk assets such as technology stocks is instead more consistent with inflation expectations in 2021.

The Road Ahead for Crypto Assets

In 2021, cryptocurrencies return much more than traditional assets. As seen in Figure 4, the Bloomberg Galaxy Crypto Index is up over 160% this year, well ahead of gains in traditional assets such as commodities (23%) and global equities (13%). Of course, given the huge volatility of cryptocurrencies, the risk level of the asset class is also higher.