Stocks and cryptocurrencies, which have traded with a much tighter correlation this year than in prior ones, have been in a bear market for much of 2022. Despite a rally in July, the Nasdaq Composite is still down nearly 21.5% this year. Most cryptocurrencies are in even worse shape as the Federal Reserve fights high inflation with aggressive interest rate hikes and quantitative tightening -- reducing the massive balance sheet it built up during the pandemic and effectively pulling liquidity out of the economy.
While I don't know if we've seen the worst of the bear market or if steep declines will continue in the near term, I do have confidence that at some point, the bear market will be followed by a bull market, as well as new market highs. Here are two no-brainer cryptocurrencies to buy before the bear market ends.
There are more than 20,000 different cryptocurrencies now, but I really see no need to stray from the classics. Bitcoin (BTC -0.22%) is the pioneer of blockchain technology and the world's largest cryptocurrency with a market cap of more than $410 billion. At one point last year, Bitcoin had a market cap of well over $1 trillion. Almost all cryptocurrencies and most crypto-related stocks move with at least some correlation to Bitcoin, so the industry's success really depends on Bitcoin's success.
The reason I really like Bitcoin is that there is strong evidence that the world is adopting and will continue to adopt it. Major Wall Street banks now offer services to help customers invest in and store Bitcoin. Goldman Sachs earlier this year originated its first-ever Bitcoin-backed loan. There are now more than 32,000 Bitcoin ATMs in the U.S.
While the Bitcoin blockchain network's technical capabilities are not as strong as those of many other newer blockchain networks, that's in some sense by design because the network's miners rarely approve upgrades. Bitcoin could also eventually prove to be a hedge against inflation, despite its failure to rise during the current bout of pricing pressure. The cryptocurrency has a finite supply of 21 million tokens, the last of which is projected to be mined around the year 2140. Ultimately, if any cryptocurrency is going to be around long term, I think it will be Bitcoin and I think Bitcoin will eventually trade at a much higher price than it does now.
Along the lines of sticking with the classics, I see Ethereum (ETH -0.75%), the world's second-largest cryptocurrency with a roughly $200 billion market cap, as another no-brainer cryptocurrency to buy before the bear market ends.
Ethereum and its smart-contract technology have really seeped into mainstream life. It's also the technology behind many non-fungible tokens (NFTs). Developers have poured onto the Ethereum network to use smart-contract technology to develop all sorts of decentralized applications. Furthermore, there have also been tons of ERC-20 cryptocurrencies built on top of the Ethereum network. Some popular ones include Shiba Inu, Tether, and Chainlink.
The next big development for the Ethereum network will be the completion of the network upgrades that have been ongoing for several years. Those upgrades will transition it from a proof-of-work (PoW) mining system, in which miners use lots of computing power (and lots of electricity) to solve cryptographic puzzles in order to mine new tokens, to a proof-of-stake (PoS) system. In that new protocol, miners will stake their existing Ethereum tokens in order to enter what is essentially a lottery to get chances to create new blocks and mine tokens. PoS is much more energy efficient than PoW.
The upgrades are also expected to enable the network to process far more transactions per second, which should ease congestion, bring down "gas fees" (aka, transaction costs), and allow the network to scale more efficiently. The upgrades are expected to be completed soon, and investors are very excited about their potential impact on prices.