Financial markets are in a rough patch, as the triple threat of inflation, rising interest rates, and geopolitical uncertainty send investors racing to the exits. The cryptocurrency market, down 22% to $1.7 trillion year to date, is not immune to these challenges.
But the crash could be an opportunity to buy quality assets at a discount. Let's explore why Bitcoin (BTC -4.62%) and Aave (AAVE -8.99%) could fit the bill.
1. Bitcoin
As the crypto that started it all when it launched in 2009, Bitcoin's first-mover advantage has given it scale, mainstream acceptance, and brand recognition. These characteristics could help it hold its value during this difficult market and bounce back stronger than ever.
Image source: Getty Images.
The jury is still out on whether Bitcoin is a safe-haven asset, which is a type of investment that can reliably hold or even gain value during economic downturns. But unlike stocks, cryptocurrency is shielded from recessions because it doesn't rely on earnings to generate value. And unlike bonds, real returns aren't directly affected by inflation.
Bitcoin has fallen behind newer cryptos in technical capabilities like transaction speed and support for decentralized applications (dApps), which offer services on the blockchain. But its strong brand allows it to dominate the industry. With a market value of almost $700 billion, Bitcoin represents more than 41% of the entire cryptocurrency market. And crypto directory cryptwerk.com estimates that it is accepted by almost 8,000 merchants. This is impressive when compared to its closest rival Ethereum, which is accepted at just over 4,000.
At about $36,000 per coin, Bitcoin is down by around 47% from its all-time high reached in November last year. This could make a good entry point for investors who believe in the asset's long-term potential.
2. Aave
With a market cap of $1.9 billion, Aave is down 79% from its all-time high reached in May last year. But the asset's dirt cheap valuation and innovative fintech use case give it impressive long-term potential.
Aave fits into a class of cryptocurrencies known as decentralized finance (DeFi), which aim to replace traditional financial services like banks with blockchain-based equivalents to give investors more options and control over their wealth. The platform allows users to borrow and lend cryptocurrencies with a unique twist.
Aave loans are collateralized at 100%, which means their main purpose is to allow the borrower to "cash out" of their cryptocurrency holdings without selling. This service could benefit investors who need liquidity but still want to benefit from their asset's long-term appreciation. Aave's appeal will naturally improve in a crypto bull market, making it a great way for investors to bet on a recovery in the industry.
Investing in a difficult market
Yes, the market is crashing. But we've been here before, and what usually happens next is a rebound. While no one knows how long it will take for the market to recover, Bitcoin and Aave could make great investments while they are trading at a discount to their historical highs.
