The bear market of 2022 was vicious, especially for those investing in high-growth and high-risk assets. The cryptocurrency sector was one of the hardest hit, as the so-called crypto winter lasted for all four seasons of the year.
However, given the incredible growth in most top cryptos over the past decade, the asset deserves some attention from investors. Despite the volatility, these digital assets have given handsome returns over the long term. For those who take a truly long-term approach to portfolio construction – and don’t mind volatility – having some small percentage of assets dedicated to crypto can pay off.
Crypto investing isn’t for everyone, but for those looking to dip their toes in the water, here are three coins worth considering in this bear market (or any bear market).
1. Bitcoin
Many investors consider first-mover advantage to be essential. Being the world’s first cryptocurrency has its undoubted advantage Bitcoin (BTC -0.17%), which is the world’s largest crypto by market capitalization.
Here are some points in favor of viewing bitcoin as a relatively defensive asset compared to other more speculative coins:
- Decentralization: Bitcoin is decentralized, which means that no government or institution controls it. This allows for more autonomy.
- Limited Supply: The maximum supply of bitcoin that can ever exist is 21 million tokens. That limit helps protect its value against inflation.
- Transparency: All transactions on the bitcoin network are recorded on a public ledger called the blockchain, which provides both transparency and security.
- Borderless: Bitcoin can be sent and received by anyone, anywhere in the world, making it a borderless currency.
- Low transaction fees: Bitcoin transactions have low fees compared to traditional financial transactions.
- Buying on the Dip: Bitcoin has a history of high volatility, which could create opportunities for investors looking for higher returns.
The concept of holding bitcoin as a way of protecting one’s wealth against the effects of market fluctuations and inflation is intriguing. While crypto has traded with a high correlation to risk assets in recent years, there is still a diversification argument that can be made for digital assets. Given bitcoin’s size, prominence, and historical performance, the coin will continue to be an option not only for retail investors, but also for institutions seeking diversification.
2. Ethereum
Ethereum (ETH -0.74%) is the second largest blockchain network in the world, and has spawned most of the utilities created in the world of crypto. Most decentralized applications (DApps) that actually “do something” are tied to Ethereum in some way. Its rise to second place in the overall ranking among cryptos is generally attributed to being the first network to use smart contracts on a large scale.
Smart contracts allow for the creation of custom tokens such as NFTs, provide for lending and other contracts to take place on the blockchain, and have given rise to a whole assortment of potential crypto use cases across a range of industries.
Ethereum’s developer community is one of the largest and most active in the crypto world. Its network is one of the best funded and most capable of building and deploying innovative technologies. It has attracted one of the most active user communities in the crypto space, and strong network effects support the continued growth of this token.
A number of altcoins have popped up looking to take market share from Ethereum. (And some have succeeded, which I’ll discuss below.) But for investors looking for a stable option in a volatile sector, Ethereum is a top option to consider right now.
3. Avalanche
Last on this list of cryptos to consider buying in any bear market is avalanche (AVAX -1.33%), another layer-1 smart contract network. Avalanche is considered a rival to Ethereum, although it has the added advantage of being able to work with Ethereum, which has helped fuel its growth.
Decentralized application development on Avalanche remains strong, as evidenced by the total value locked (TVL) of over $920 million on its network at the time of writing. While this number is far less than the $11 billion expected in 2021, it is proof that there is a lot of activity happening on the Avalanche blockchain right now.
I’m a fan of cryptocurrencies that represent blockchain networks that are actually creating value for users. Thus far, Avalanche has proven to be a project that offers low transaction fees and what the Avalanche team says is the fastest time-to-finality of any blockchain.
Worth a small investment?
There is no such thing as a defensive asset in the world of crypto. In fact, this sector is one that carries significant risk, and increased volatility relative to most other assets.
That said, Bitcoin, Ethereum, and Avalanche are among the top coins I would pick for investors seeking a more stable upward trajectory over time. Those looking to add some exposure to the crypto world at a time when valuations have come down may want to at least add these tokens to their watch list. The rally this year has been impressive, and is indicative of the long-term historical moves these coins have seen since their inception.
Nothing is certain, and these coins could drop further. However, for those looking to at least take a flyer, a few short positions in these tokens will provide exposure to the crypto’s upside if the sector rises once again.
Chris McDonald has positions in Ethereum. The Motley Fool has a position on and recommends Avalanche, Bitcoin, and Ethereum. The Motley Fool has a disclosure policy.
Source: www.fool.com
