It has been nearly four years since the crypto economy retraced more than 60%. And since then, quite a bit has changed.
Despite a new crypto landscape, there are assets out there that are still worthy of being in your portfolio. The most recent crypto bull market spoiled investors. The current market is nothing like it was a year ago when it seemed that nearly every altcoin or meme coin was able to accrue unimaginable gains.
Now that the crypto economy has significantly retraced, it is time for investors to reevaluate their strategy.
Crypto is one of the most volatile assets. To minimize this risk, it is wise to avoid cryptocurrencies that serve no true purpose, have little utility, or lack a history of making it through the last crypto winter. While some altcoins might seem more attractive, they are much riskier. Keeping it simple is one of the best strategies to have during a bear market.
When it comes down to it, ask yourself this: What cryptocurrencies are most responsible for the progress that the entire crypto economy has made in the last decade?
A few names could come to mind, but one in particular meets all the aforementioned criteria -- Bitcoin (BTC 4.08%).
The one constant
Bitcoin is unique for a handful of reasons. It was the first cryptocurrency. It is the most valuable cryptocurrency. It is arguably the most decentralized cryptocurrency. And most importantly, it serves as an indicator of the overall health of all cryptocurrencies.
When Bitcoin is in good shape, so are most other crypto assets. But when it is down, nearly every cryptocurrency performs worse.
Investing in Bitcoin during a bear market helps to minimize risk. And while it isn't likely that Bitcoin will produce returns that many crypto newcomers have become accustomed to with the astronomic rise of meme coins, it is a strategy that has been proven throughout the cryptocurrency's history of more than a decade.
Bitcoin has weathered more than just one crypto winter. Unfortunately, many of the cryptocurrencies today cannot say the same.
Bitcoin leads the way
One trend, in particular, proves that Bitcoin is the smartest and safest digital investment during crypto winters.
Known as Bitcoin Dominance, this metric is a ratio that compares the total value of Bitcoin to the entire cryptocurrency asset class. Back when Bitcoin was one of the first cryptocurrencies in a young market, Bitcoin Dominance was nearly 100%.
Now that many other cryptocurrencies exist, the Bitcoin Dominance metric sits at around 43%. In the past, this number has proved to be a valuable gauge for where investor money is flowing. Past data shows that when a crypto winter arrives, money tends to leave altcoins and flow into Bitcoin.
Eventually, enough money makes its way into Bitcoin, and it rebounds in price. This rebound then subsequently pulls altcoins along with it.
During the last crypto winter in January 2018, Bitcoin Dominance fell as low as 35%. Over the next three years, slowly but surely, more investors chose Bitcoin over other cryptocurrencies. During this stretch, Bitcoin Dominance rose to as high as 73% in December 2020. Just a few months later, Bitcoin would make a run to a new all-time high of just under $60,000 in March 2021.
What is more interesting is that Bitcoin hitting an all-time high had a positive effect on the rest of the cryptocurrency economy. After the Bitcoin all-time high, the total cryptocurrency market cap excluding Bitcoin then peaked two months later in May 2021, when it hit a valuation of $1.4 trillion.
Again, Bitcoin serves as the de facto market indicator.
Bitcoin Dominance is not the only thing that will determine how the future of crypto unfolds, but it is one indicator that demonstrates the value that Bitcoin has on the entire crypto economy.
As Bitcoin goes, so does most of the crypto market. While some investors might get lucky by investing in some obscure altcoin that ends up putting in massive gains, that type of strategy is exponentially riskier. Investing in the world's first and most valuable cryptocurrency is the simplest way to ensure that you don't miss out on the next crypto bull run.