At a time when Bitcoin (BTC 0.52%) is up 107% for the year and pushing the crypto market higher, it's getting harder and harder to find any cryptocurrencies that are down for the year. Just about the only cryptos still in the red for 2023 are silly meme coins such as Dogecoin and Shiba Inu or speculative metaverse coins crashing back to reality.

But I've dug through the crypto rubble to find two intriguing investment prospects. Both of them attracted significant buzz in 2022, but both have failed to deliver on their potential this year. In fact, both were down 20% for the year before the current Bitcoin rally. Here's a closer look at why they're down now and how they could turn things around soon.

1. Polygon

Polygon (MATIC -1.62%) burst onto the scene in 2022 at just about the same time that Ethereum (ETH 0.59%) was attracting attention for The Merge. That makes sense since Polygon is a Layer 2 scaling solution that helps to make the Ethereum blockchain run faster, better, and cheaper. A year ago, Polygon was generally acknowledged as the top Layer 2 scaling solution for Ethereum, and the future looked bright indeed since its growth was directly pegged to the growth of Ethereum.

Unfortunately, things have gone south for Polygon since then. It started with layoffs early in the year for Polygon Labs (the company behind the token), and then things got really bad this summer when the SEC suggested that Polygon's crypto token (MATIC) might actually be an unregistered security. On top of all that, competition is much higher than even before in the Layer 2 space.

Not all is lost, however. Polygon has a new strategy called Polygon 2.0 that involves a rebranding of the MATIC token to make it more attractive to investors. This new strategy, first announced this summer, hopes to solve all the problems surrounding Polygon and, in so doing, help it reclaim its role as the top Layer 2 scaling solution for Ethereum. If that happens -- and it is a big if -- then Polygon could pop.

2. Uniswap

Next up is Uniswap (UNI -0.92%), which started to attract mainstream attention after the collapse of the cryptocurrency exchange FTX in November. Unlike FTX, which is a centralized exchange, Uniswap is a decentralized exchange. What that means for investors is that all funds are held off exchange in a blockchain wallet that you control, so you don't have to worry about someone like former FTX CEO Sam Bankman-Fried walking off with your money.

The big investment thesis for Uniswap last year was that decentralized exchanges were going to gain market share at the expense of centralized exchanges. Since Uniswap was the largest of these decentralized exchanges, it only made sense that it attracted the most attention from crypto investors. But there are many other decentralized exchanges out there, and Uniswap has been hard hit by a downturn in trading activity brought on by a crypto winter.

What makes things particularly perplexing is that while Uniswap is down nearly 20%, its centralized exchange competitor, Coinbase Global (COIN 4.78%), is up 54% this year. The good news is that Uniswap still ranks top among decentralized exchanges in terms of 24-hour trading volume. In fact, Uniswap's spot trading volume has been higher than that of Coinbase for much of 2023.

The big catalyst for Uniswap could be the potential return of the retail investor to crypto in 2024. Buzz is growing about the Bitcoin halving next year, as well as the launch of new spot Bitcoin ETFs, and any big Bitcoin rally is sure to boost trading activity. If that happens, and if Uniswap can expand into new product offerings for other digital assets beyond just cryptocurrencies, then we might see the price of Uniswap pop.

Too little, too late?

The problem is that the clock seems to be running out on both Polygon and Uniswap. Within a very short period of time, Polygon has to reinvent itself as Polygon 2.0 and complete a full-scale rebrand. And it doesn't get any easier for Uniswap. If a big Bitcoin rally doesn't happen next year, then Uniswap could be in trouble if investors abandon the decentralized exchange investment thesis.

Obviously, investing in Polygon and Uniswap involves a lot of risk. It should be an obvious red flag that they are still down for the year at a time when just about every other crypto is up double or even triple digits. So, a little due diligence is required before investing in either Polygon or Uniswap. But if you are looking for a beaten-down crypto with a chance of popping, these are two of the best prospects.