The crypto market has stabilized in recent weeks after a brutal start to 2022. Sector giant Bitcoin (BTC 0.04%) has recorded a 37% rebound from the two-year lows of June and smart contracts leader Ethereum (ETH +0.85%) more than doubled from its recent lows. However, both Ethereum and Bitcoin still trade far below their all-time highs. Crypto investors with a long-term view of the market may want to double down on the two largest digital assets. Furthermore, a much smaller project with tremendous growth prospects looks even more enticing right now.
Let's see why these crypto names look like fantastic investments today.
CRYPTO: ETH
Key Data Points
Ethereum's "Merge" is coming next month
The most obvious game-changer on the table is Ethereum's long-awaited software upgrade, formerly known as Ethereum 2.0 but now more often called "The Merge." Ethereum developers have been working on an alternative blockchain network, swapping out the ultra-secure Proof-of-Work (PoW) technology for a faster and less power-hungry Proof-of-Stake (PoS) platform. This event will combine the Ethereum network's original blockchain with the so-called Beacon Chain, which validates transactions with a PoS system.
This move will end the practice of mining Ethereum tokens; an activity often performed with the latest and greatest graphics processors from Advanced Micro Devices (AMD 0.87%) and Nvidia (NVDA 2.13%). That may be bad news for AMD and Nvidia but it's great for the Ethereum platform. The system's total power consumption will be reduced by 99.95%, transactions and smart contract executions will be many times faster, transaction fees will drop dramatically, and Ethereum will be ready for another round of efficiency-boosting changes in future updates.
Test deployments and dry-run experiments have dominated Ethereum's development process over the last year or so. The upgrade is of crucial importance, and there is absolutely no room for error. So when co-founder Vitalik Buterin finally pinned a date to the final merge this week, the announcement drove Ethereum prices 14% higher in the span of five days. Buterin now expects the technology switch to take place on Sept. 15, give or take a couple of days depending on the global hash rate leading up to the last PoW block.
The expected efficiency gains don't appear to be baked into Ethereum's market price yet. The cryptocurrency has largely matched Bitcoin's price moves over the last year. I don't expect Ethereum prices to skyrocket on Sept. 15, and a massive groundswell of surging token prices leading up to the merge would also surprise me. But Ethereum is positioning itself for a brighter future, where app developers and users can take advantage of a healthier technology platform on a massive scale. The price gains may take some time, but they are almost certainly coming over the next couple of years. That makes Ethereum a great investment today.
CRYPTO: BTC
Key Data Points
Bitcoin still owns the crypto market
It's not entirely fair to call Ethereum a buy just because its prices are tracking close to the Bitcoin chart. The interconnected nature of the cryptocurrency sector means that a rising tide really does lift all boats -- or at least all boats in reasonably good repair and with competent crews. I expect the revamped Ethereum ecosystem to spark high interest in Ether-powered financial technology and decentralized finance products and services. The same services are also likely to rely on Bitcoin's battle-tested security for their long-term value storage functions. Therefore, the Ethereum merge is actually good news for Bitcoin, too.
At the same time, the crypto market is heading toward a more stable future. Governments around the world are piecing together their cryptocurrency trading rules and taxation schemes. Some news items are more positive than others, but the market is making progress. Investors hate uncertainty, and that's only more true for deep-pocketed institutional investors. When banks, hedge funds, and investment firms finally have a regulatory framework in place, they will flood the crypto market with trillions of dollars in fresh capital. We're not there yet, and it probably won't happen on a large scale in 2022 or 2023. Still, baby steps are being made in the U.S. and abroad.
Bitcoin is the most important name in the crypto market, with the largest market value and longest history. A handful of digital currencies attempt to do what Bitcoin does best, often in the form of a direct Bitcoin clone with a few technical tweaks. However, none of them can match Bitcoin's massive scale and unrivaled visibility.
The grand vision of becoming a digital replacement for physical gold is not going away. Global gold reserves are currently worth roughly $9.2 trillion while Bitcoin's market cap is hovering near $500 billion. The long-term growth opportunity is massive, even if you assume that gold hangs on to half the value-storage market or more.
The crypto market as a whole doesn't really make sense without Bitcoin. Therefore, Bitcoin strikes me as a fantastic long-term investment if you can grab these digital coins at reasonable prices. This is one of those opportunities.
CRYPTO: DOT
Key Data Points
Don't forget the digital glue!
Remember how I talked about crypto projects working together, forming a digital platform that is greater than the sum of its parts? The Polkadot (DOT +0.41%) blockchain network provides developer-friendly glue that ties the pieces together.
There are other crypto projects with a similar vision, but none that can match Polkadot's sterling pedigree. This is the official blockchain protocol of the Web3 Foundation, co-founded by smart contracts inventor and Ethereum co-founder Gavin Wood. Polkadot exists to drive the Web3 vision forward, and the token should rise in value as its interconnected ideas gain traction in the real world. Wood's presence gives Polkadot instant credibility in the developer community.
And Polkadot is starting from a much lower price point. The digital coin's total market value is just $9.8 billion today. Its long-term potential is much larger than that, and I expect multi-bagger returns from today's deeply discounted Polkadot prices.
These three cryptocurrencies have clear and important roles to play in the evolving crypto market, and that is why I keep singing this old song over and over. If Polkadot, Ethereum, and Bitcoin are the only cryptos you know and own, I'm sure you'll do fine in the long run.
