The crypto market plunged as much as 10% on Monday to add to a sell-off that's been brewing for weeks. Three of the five largest cryptos -- Bitcoin (BTC 5.74%), Ethereum (ETH 4.00%), and Solana (SOL 10.26%) -- are down 33%, 23%, and 41%, respectively, from their all-time highs.
Investors looking at a sea of red may be wondering what to do now to prepare themselves for 2022. Let's take a look at why the long-term investment thesis for Bitcoin, Ethereum, and Solana remains intact and which cryptocurrency may be best for you.
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Too fast of a rebound?
One reason the crypto market could be falling is that it rebounded too quickly off its sell-off. Regulatory concerns, crackdowns in India and China, and added competition in the crypto industry, as a whole, were a few considerable risks that were shrugged off as Bitcoin, Ethereum, and Solana all proceeded to hit all-time highs in the first half of November. However, since then, there's been decreased regulatory uncertainty -- namely, when the U.S. Securities and Exchange Commission (SEC) approved the first U.S. Bitcoin futures exchange-traded fund (ETF), which launched on Oct. 19.
Another threat looming over the crypto market is speculation of a crypto winter, which is a prolonged period of stagnating or often declining crypto markets that have, in the past, lasted one to two years. The idea that a crypto winter may be right around the corner or is already upon us is a deterrent for short- to mid-term traders looking to play the markets.
However, the long-term gains of Bitcoin, Ethereum, and Solana have been potentially life-changing, even when you factor in all the sell-offs. Like most winning assets, the real money has been made from people who have held these top cryptos through thick and thin, not from traders dipping in and out of the market.
Best crypto buys now
There are good arguments for buying Bitcoin, Ethereum, and Solana on sale. Most investors would probably be best suited to diversify into all three cryptos. However, the weights of each will likely depend on your personal interest and risk tolerance.
Solana's 41% plunge in just over a month stands out for growth investors who are interested in solutions that are disrupting the industry as we speak. Arguably, Solana offers the best utility of any network right now due to its extremely fast speed and low fees. These traits make Solana a better platform for developers who are building an app that needs to be cheap and quick -- such as the minting of non-fungible tokens (NFTs).
By comparison, Ethereum is more established, decentralized, slower, but overall safer and better suited for apps that place a premium on security over cost or speed. Given their strengths and weaknesses, Solana and Ethereum can coexist and grow together. One day, they could even become interoperable as their networks expand and mature.
Bitcoin remains the safest crypto out there. The investment thesis for Bitcoin is stronger than ever as more countries and companies recognize its value and even look to hold it on their balance sheets. It's also maturing into a great inflation hedge that's arguably better than gold.
Another less-talked-about option is to simply invest in high-yield stablecoins. Stablecoins act as secure methods of payment that provide liquidity and stability to cryptocurrency exchanges. Although risker than savings accounts, some stablecoins are backed dollar for dollar by real U.S. dollars. Stablecoin interest rates can exceed 8% or even 9% on platforms like BlockFi.
Leaning into a crash
It's one thing to simply talk about leaning into a crash and taking advantage of lower asset prices, but it's quite another to buy a dip, only to watch prices fall further. Investors interested in crypto would benefit from understanding that even if the long-term thesis for Bitcoin, Ethereum, and Solana is sound, there's no telling how far each crypto could fall in the short term.
Long-term industry watchers will remember that in 2018, Bitcoin suffered a roughly 80% drawdown from its high. Granted, Bitcoin is much more sophisticated and established now than back then. But wild surges to the upside and crippling blows to the downside remain common in the crypto market.
Investors looking to position their crypto portfolios for 2022 could stand to benefit from buying Bitcoin, Ethereum, and Solana. Given its entrenched position as the leading blockchain supporting decentralized finance, Ethereum could arguably be the best buy out of all of them and is likely to appeal to both risk-averse and risk-tolerant investors for its established reputation and incredible upside potential.
