The Federal Reserve's intention to hike interest rates to tame inflation has investors fleeing risky assets. And as a result, the cryptocurrency market has taken a beating over the past several months, going from a value of nearly $3 trillion to under $1 trillion as of this writing. If the market for digital assets stays depressed for an extended period of time, what's known as a crypto winter, it affords long-term investors the opportunity to buy top tokens at discounted prices.
According to a team of Motley Fool contributors, Bitcoin (BTC 0.30%), Ethereum (ETH -0.64%), and Solana (SOL 0.85%) are three cryptocurrencies to buy and hold during a crypto winter.
Image source: Getty Images.
1. Bitcoin
RJ Fulton (Bitcoin): There aren't many cryptocurrencies that can say they have made it through multiple crypto winters. For that reason alone, Bitcoin is deserving to be a part of any portfolio during extended downturns in the crypto market.
In addition to Bitcoin's proven track record through crypto winters, of more importance is how it performs once market conditions are more ideal. Let's take a look back at the last crypto winter. Most people agree that the previous crypto winter occurred during 2018. Despite hitting an all-time high of just under $20,000 in December 2017, for almost all of 2018 Bitcoin and many other cryptocurrencies continuously recorded lower lows. Eventually Bitcoin bottomed out in late 2018 around $3,000.
It's at the bottom when there is the most to gain. Now, you shouldn't try to time a market, but investors who consistently invested in Bitcoin throughout 2018 would've been positioned extremely well to make astounding returns when the bull market returned. Just for a little reference, if you had invested $1,000 in Bitcoin when the bottom occurred in December 2018, that same investment would have eventually been worth nearly $20,000 assuming you held on until it hit a new all-time high in November 2021 just under $70,000.
If you look back at other crypto winters like the one in 2014, a similar pattern emerges. After hitting a previous all-time high just shy of $1,000 in December 2013, Bitcoin went on a dry spell for all of 2014 and most of 2015. From that $1,000 mark, Bitcoin slid all the way to just a few hundred dollars in 2015. If you had enough conviction to invest $1,000 at that bottom in 2015 and held until the next all-time high, which hit nearly $20,000 in December 2017, your investment would've turned into around $75,000.
Of course, hindsight is always 20/20, but the objective here is to show that Bitcoin is no stranger to crypto winters and consistently produces returns once downturns have passed. Conditions are roughly the same today as they were in previous crypto winters. Those who add Bitcoin to their portfolio when sentiment in the market is down in the dumps have the most to gain when conditions improve. It should almost be considered a necessity that crypto investors add more Bitcoin to their portfolio during crypto winters for this reason alone.
2. Ethereum
Neil Patel (Ethereum): I'll get no style points for originality here, but that's completely fine when you're talking about an industry and asset class as nascent and volatile as cryptocurrencies. With that being said, I believe investors should take a look at Ethereum to weather a potential crypto winter.
Ethereum was launched to the public in 2015, and since then it has produced a remarkable return of almost 48,000%, easily crushing the S&P 500's performance during the same time. While Bitcoin was created to strictly be a global, peer-to-peer payments network, Ethereum took what a blockchain could do to the next level by introducing smart contracts. These are software programs that self-execute when two parties satisfy the necessary conditions of the contract. It's an innovation that could pave the way for Ethereum to be the world's decentralized computer, allowing two unknown individuals to engage and transact with each other in a way that wasn't possible before.
Examples of some popular decentralized applications (dApps) that run on Ethereum's network include decentralized finance (DeFi) protocols and non-fungible token (NFT) marketplaces. As of July 27, the total value locked on Ethereum's blockchain was $55.8 billion, the most of any cryptocurrency. Other dApps range in use from governance and identity to gaming and social. The platform's deep developer network is a bullish signal for its ultimate success.
For its entire history, Ethereum has operated a proof-of-work (PoW) consensus mechanism. This means that so-called miners must use lots of computing power to validate transactions on the blockchain. It's known to be slow, expensive, and energy-intensive. With the upcoming Merge, planned for September, Ethereum is set to transition to a proof-of-stake model, which allows token-holders to lock up their holdings to earn the right to validate transactions. It's supposed to be faster and cheaper, and if implemented without any major hiccups, could be a massive catalyst for the price of Ether, Ethereum's native token.
If, in a decade from now, we live in a world where cryptocurrencies actually possess valuable utility and are a bigger part of our daily lives, then it's hard to see Ethereum not being one of the top cryptos out there.
3. Solana
Michael Byrne (Solana): When you're bundling up and hunkering down to endure the elements and survive through a crypto winter, it's not the time to take a punt on the most speculative cryptos with flimsy use cases. In this environment, I'm looking to add to my positions in some of the most stable projects across asset classes that have what it takes to survive the bear market and thrive when it is over. I want to invest in cryptos that people are actually using and that have ample funding in their war chests. A prime example is Solana: When a project with the utility and user base of Solana is down nearly 80% year to date, there is no need to speculate further down the risk curve when you can buy this top crypto at a discount.
Solana now has over 1,800 validators, showing that many people are participating in the Solana network -- a good sign for the health of the Solana ecosystem. This total trumps those of other popular blockchains like Avalanche, Polkadot, and Cosmos and trails only Ethereum in terms of proof-of-stake blockchains. According to crypto analytics firm Messari, average active unique fee payers (unique accounts that pay for one or more transactions per day) averaged about 320,000 during the second quarter of 2022.
The fact that Solana Labs is developing its own mobile phone is a testament to the strength and depth of the development team that Solana has at its disposal. Few other cryptos have the resources to undertake a project of this scale. And because several of Solana's leaders, including co-founder Anatoly Yakovenko, come from Qualcomm, which makes chips for cellphones, there is reason to believe that they are uniquely positioned to pull this off. Solana Mobile says the phone, dubbed Saga, will ship in early 2023.
With substantial venture capital backing, Solana has plenty of capital to get it through the winter and to deploy new projects. In June, when much of the crypto market was melting down, Solana Ventures and the Solana Foundation launched a new $100 million fund to deploy capital in Web3 start-ups in South Korea, with a focus on gaming, DeFi and non-fungible tokens.
Solana has the funding, the talented team behind it, and the substantial user base to not only survive, but thrive through a crypto winter.
