The bear market of 2022 was vicious, particularly for those invested in high-growth and high-risk assets. The cryptocurrency sector was among the hardest hit, as a so-called crypto winter lasted through all four seasons of the year.
However, given the incredible growth most top cryptos experienced over the past decade, the assets warrant some attention from investors. These digital assets have produced excellent returns over the long term, despite their bouts of volatility. For those who take a truly long-term approach to portfolio construction -- and don't mind volatility -- having some small percentage of assets dedicated to crypto could pay off.
Cryptocurrency investing isn't for everyone, but for those looking to dip their toes in the water, here are three tokens worth considering in this bear market (or any bear market).
1. Bitcoin
Many investors consider a first-mover advantage essential. Being the first cryptocurrency in the world has undoubtedly benefited Bitcoin (BTC 3.43%), which is the world's largest crypto by market capitalization.
Here are some points in favor of seeing Bitcoin as a relatively defensive asset compared to other more speculative tokens:
- Decentralization: Bitcoin is decentralized, meaning no government or institution controls it. This allows for more autonomy.
- Limited supply: The maximum supply of Bitcoin that can ever exist is 21 million tokens. That cap helps protect its value against inflation.
- Transparency: All transactions on the Bitcoin network are recorded on a public ledger called the blockchain, which provides both transparency and security.
- Borderless: Bitcoin can be sent and received by anyone, anywhere in the world, making it a borderless currency.
- Low transaction fees: Bitcoin transactions carry lower fees than traditional financial transactions.
- Potential to buy on a dip: Bitcoin has had a history of high volatility, which can create opportunities for investors looking for high returns.
The concept of holding Bitcoin as a way to protect one's assets against the impacts of market fluctuations and inflation is interesting. While crypto has traded with a high correlation to risk assets in recent years, there's still a diversification argument that can be made for digital assets. Given Bitcoin's size, prominence, and historical performance, this token is likely going to remain a go-to option not only for retail investors, but also for institutions seeking diversification.
2. Ethereum
Ethereum (ETH 4.01%) is the world's second-largest blockchain network, and it has given rise to much of the utility that's been created in the world of crypto. Most decentralized applications (dApps) that actually "do something" are tied in some way to Ethereum. Its rise to second place in the overall rankings among cryptos is generally attributed to its network being the first to utilize smart contracts on a massive scale.
Smart contracts allow for the creation of custom tokens such as NFTs, provide for lending and other contracts to take place on the blockchain, and have given rise to a whole assortment of potential crypto use cases across a range of industries.
Ethereum's developer community remains among the largest and most active in the crypto world. Its network is among the best-funded and most able to build and deploy innovative technologies. This has attracted one of the most active user communities in the crypto space, and strong network effects support this token's continued rise.
Plenty of altcoins have popped up looking to take market share away from Ethereum. (And some have succeeded, including the one I'll discuss below.) But for investors who are looking for a steady option in an unsteady sector, Ethereum is a top choice to consider right now.
3. Avalanche
Last on this list of cryptos to consider buying in any bear market is Avalanche (AVAX 3.35%), another layer-1 smart contract network. Avalanche is considered a rival to Ethereum, though it has the added benefit of being able to work with Ethereum, which has helped propel its growth.
Decentralized application development on Avalanche has remained strong, evidenced by more than $920 million of total value locked (TVL) on its network at the time of writing. While this number is down significantly from $11 billion in 2021, it's still evidence that there's plenty of activity happening on the Avalanche blockchain right now.
I'm a fan of cryptocurrencies that represent blockchain networks that are actually creating value for users. Thus far, Avalanche has proven to be such a project, providing low transaction fees and what Avalanche's team says is the fastest time-to-finality of any blockchain.
Worth a small investment?
There's no such thing as a defensive asset in the world of crypto. Indeed, this sector is one that carries significant risk, and features outsized volatility relative to most other assets.
That said, Bitcoin, Ethereum, and Avalanche are among the top tokens I'd pick for investors seeking a more stable upward trajectory over time. Those looking to add some exposure to the crypto world when valuations have come down may want to at least add these tokens to a watch list. This year's rally has been impressive, and is indicative of the longer-term historical moves seen in these tokens since their inception.
Nothing is certain, and these tokens could have further to fall. However, for those who want to at least take a flyer, some small positions in these tokens would provide exposure to crypto's upside if the sector rises once again.
