The cryptocurrency market has been pummeled over the last few months, and it seems no token has been spared. Bitcoin (BTC +1.20%) and Ethereum (ETH +1.60%) are down despite being the largest cryptocurrencies, and former hot cryptos like Solana (SOL +1.39%) and Cardano (ADA +1.89%) have lost over 70% of their value in the last six months.
What's difficult right now is knowing whether it's time to buy and hold for recovery or give up on the crypto revolution. After all, if even a stablecoin like TerraUSD (UST 0.35%) can lose 90% of its value in a week, then what hope do more volatile cryptocurrencies have? I think the answer is in a long-term mindset.
Bitcoin Price data by YCharts
Very real problems exist in cryptocurrencies
This industry is still quite young, very unstable, and extremely hard to pin a value on. We've seen over the past week that algorithmic stablecoins can be gamed, which can result in huge losses, hurting confidence in the entire system. Meanwhile, Bitcoin's drop has undermined the idea that it's a hedge against inflation or a safe haven. Ethereum's network upgrades have been delayed again. Solana's network periodically goes down and is slower than hoped when it is running.
Are these reasons to panic or just some acceptable growing pains? In general, I think it's time to reassess the thesis you had when you first bought cryptocurrencies and whether that idea is holding up in reality.
Image source: Getty Images.
Buy quality, not quantity
Some cryptocurrencies have been building real-world and digital utility incredibly quickly. For example, according to Solscan -- where you can view blockchain transactions and analytics about Solana -- there were 49 daily active programs running a year ago and are now 951.
On Ethereum, the most valuable NFTs have been developed, and billions of dollars in digital assets trade hands every month.
CRYPTO: ETH
Key Data Points
In downturns, I think it's key to buy quality assets, not just the thing that's fallen the most. In cryptocurrency, that means assets that are building real, durable advantages for a digital world. Ethereum and Solana are the clear leaders right now.
What to avoid
I think we will ultimately see the decline of meme coins that provide little to no value to the crypto ecosystem. Dogecoin (DOGE +0.56%) and Shiba Inu (SHIB 0.78%) are great examples of these crypto projects lacking significant value, and there's little likelihood that these tokens will be used for either transactions or smart contract development.
In market downturns, we typically see the strongest companies rise to the top, and I think the same will hold true for cryptocurrencies.
Follow developers, not hype
I think the developer numbers are something important to watch in cryptocurrencies. If crypto is going to go mainstream, it's going to be because real utility is built on the blockchain by developers. This utility has started with non-fungible tokens (NFTs), but will extend to decentralized finance and other areas of the real-world and digital economies.
Ethereum and Solana seem to have a clear lead in attracting developers and building projects right now. That doesn't mean they're mature, but long-term these are the kind of blockchains investors should be betting on. I'm not panicking right now, I'm slowly buying great assets at lower prices than we saw a month ago. That portfolio-building effort starts with Ethereum, Solana, and NFTs built on those blockchains.
