Down 34% to 60% From Their All-Time Highs, Are Bitcoin, Ethereum, Solana, or Cardano

Two months ago, Bitcoin (CRYPTO:BTC) was over $64,000, Ethereum (CRYPTO:ETH) was over $4,600, Cardano (CRYPTO:ADA) was around $2.05, and Solana (CRYPTO:SOL) was just under $240. Since then, all four large-cap cryptocurrencies have been down at least 30%. The fall from their respective all-time highs is even more.

Here’s what’s driving crypto markets lower and which, if any, of these four cryptos are worth buying now.

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Crypto market headwinds

At its core, the crypto investment thesis is based on the belief that digital means of exchange, digital stores of value, decentralized finance (DeFi), and decentralized apps (dApps) will gradually be in more widespread use, and so would be worth more in the future. For that to happen, the crypto industry must receive support from investors — made possible by companies pursuing new projects, attracting talent, as well as early funding from venture capital companies.

However, regulatory risks in the U.S. and in other countries where more mining takes place, such as China and the Middle East, threaten the industry’s growth. Despite this, leading exchanges, like Coinbase and BlockFi, have been adamant about educating regulators about crypto by taking a proactive approach to working with them, not against them. Still, it wouldn’t be surprising if regulation remains a threat for the foreseeable future, given crypto’s potential to disrupt fiat currencies like the U.S. dollar, as well as the highly valuable and entrenched U.S. financial sector.

Another threat is rising interest rates. Lower interest rates are a tailwind for riskier asset classes like stocks — especially growth stocks — and cryptocurrencies. There are two primary reasons behind this. First, companies in growing industries tend to lack the necessary cash flow to fund their operations organically. In a low interest-rate environment, they are incentivized to take on debt, rather than raise equity capital, to fuel growth. In addition, more mature companies are incentivized to buy back their own stock using cheap debt, thus driving up their stock prices due to lesser outstanding shares. Second, higher interest rates make other asset classes, such as bonds, comparatively more attractive.

To reduce inflation, however, the Federal Reserve indicated it might begin tapering faster than expected. Tapering means scaling back its bond purchases, a mechanism the Central Bank uses to shrink or reduce the growth of the overall money supply circulating in the economy. After years of low interest rates, which became even lower due to the COVID-19 pandemic, the Fed is tapering its debt purchases, hoping to slow down inflation. Over the last decade, federal and monetary stimuli helped the U.S. stock market by extending lifelines for companies desperate for cash.

The final headwind worth discussing is fears of a crypto winter. Prolonged slowdowns and even declines in crypto asset values, have traditionally happened every four years. The calendar suggests we are due for another one that may have already started. However, because most of the Bitcoin that can possibly be mined is already mined, crypto winters should carry less and less weight over time.

The rise of Solana and Cardano

Solana has carved out a useful role as a faster and cheaper complement to Ethereum. So far, though, it is a more centralized network that is less secure than Ethereum. Reports suggest that Solana crashed on Jan. 4 for the third time in the last six months. 

Cardano is less active than Solana. But like Ethereum and Solana, Cardano is a Layer 1 blockchain that could serve a big role in the future of DeFi. Solana has been criticized by some as rolling out too fast, and consequently, facing bugs or potential security breaches. By comparison, Cardano’s founders have been criticized for taking things too slow for the benefit of reducing problems down the line. As a result, many investors have lost patience with Cardano, as it’s down the most from its all-time high.


Current Price

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Data source: coinmarketcap.com.

Stick with the ones with the best long-term theses

Despite Solana and Cardano’s potential, most investors are probably best sticking with Bitcoin and Ethereum. The rise of new altcoins, non-fungible tokens (NFTs), the metaverse, and other crypto-related investments has made Bitcoin appear less exciting than when the landscape was in its infancy. However, Bitcoin offers one of the most attractive risk/reward profiles in the crypto space. Bitcoin depends less on the health and growth of the crypto industry and more on companies, countries, and regular people seeing it as a meaningful store of value. That trend alone should be enough to propel Bitcoin up multiples higher over the coming years.

Ethereum is the market leader in DeFi and dApps and serves as a balanced way to invest in the long-term growth of blockchain technology that could one day improve our everyday lives by simplifying finance and giving individuals more control over their money.

For risk-tolerant investors, a basket of mostly Bitcoin and Ethereum, with small positions in Solana and Cardano, could be a great way to take advantage of the crypto sale.

When it comes to investing in cryptocurrency, it’s important to remember that short-term volatility is unpredictable and can rapidly cause prices to shift away from fundamentals, both to the upside and downside. Maintaining a multi-year time horizon is the best way to stay calm during market crashes and let the long-term thesis play out.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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