Nearly every asset class has collapsed in 2022 so far. Stocks and bonds fell sharply, and gold fell nearly 10 percent. Only cash equivalents provided positive returns. None of these have seen more pain than the crypto space. In November 2021, Bitcoin (BTC) was close to $69,000. Today, it’s around $20,700, down about 70 percent. Ethereum (ETH) is down 58 percent. Cardano (ADA) and Solana (SOL) have lost more than 70 percent and 55 percent of their value, respectively, to date. So altcoin projects aren’t in any better shape either. Forbes analyst Dan Ashmore explained his investment strategies and preferred assets in the bear market.
Factors to be considered in the Bitcoin and altcoin market
This year’s drop is the latest in a long series of bear cycles in this highly cyclical industry. So why does it sound so harsh for cryptocurrency this time around? It is worth remembering that cryptocurrency was not in the market during the great recession or the 2008 financial crisis. In fact, both events inspired Satoshi Nakomoto to launch Bitcoin in 2009. From then until the end of 2021, the US stock market had one of the longest bull runs in history, according to the analyst. The cryptocurrency has grown tremendously from its previous days. It is therefore a difficult task to predict historical price data so far.
According to Anshmore, what we know from previous crypto winters is that some cryptocurrencies have ceased to exist. Also, it is unlikely that crypto will rise significantly until the stock market recovers. Therefore, the coins to invest in are those with the strongest fundamentals, mainly real use cases. According to Ashton, these cryptos are likely to survive a long period of selling. Marketing and community-based cryptocurrencies such as meme coins have limited survivability during downturns. It just continues to take advantage of the bull market hysteria. Even in less daunting crypto winters, many cryptocurrencies failed to recover from previous all-time highs.
The biggest cryptocurrencies are reliable
Similar to “blue-chip” stocks, the biggest cryptocurrencies will likely weather the storm for the best. Ashton cites the following list as an example:
- Bitcoin: It is not surprising to say that Bitcoin, the world’s largest cryptocurrency, is the safest bet in the current bear market. It still has a market capitalization of $396 billion and is held on the balance sheets of publicly traded companies. Institutional adoption is growing and carving a role in mainstream financial markets.
- Ethereum: ETH has established itself as the leading smart contract network, the core layer of the decentralized economy. Altcoins Ethereum and Bitcoin represent about 60 percent of the market.
- USD Coin (USDC): With the markets plunging all over the place, this stablecoin has been one of the main cryptocurrencies this year as it is based on the ultimate safe-haven, the US dollar. “We’ve seen a tremendous increase in the dollar,” Matt Forester, chief investment officer of Lockwood Advisors at BNY Mellon Pershing, told Forbes Advisor.
“Remember that owning fiat currency stablecoins is a way for crypto investors to secure their wealth in dollars without leaving the crypto market,” Ashton says. It may also allow investors to leverage returns within decentralized finance protocols (DeFi). These DeFi protocols support financial products and services built on Blockchain technology.
How should cryptocurrency investment be in the long run?
According to the analyst, crypto investment should be viewed with a long-term lens. In the short term, crypto is prone to large fluctuations in value. Without a long-term time horizon, speculators take huge risks from the increasing volatility of the crypto markets. If an investor can hold onto their crypto for a long time, they can weather the storm of short-term price drops as long as the underlying asset is valuable.
In short-term trading, the gains (and losses) are much greater. For some observers, the difference is gambling versus investment. The former offers greater short-term earning potential, but is far beyond the risk spectrum. With a bigger rise comes, of course, the biggest risk.
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