After a strong start to the year, the crypto market has been trading sideways recently. There are concerns about the liquidity and ongoing viability of key crypto market intermediaries, as well as a considerable amount of anxiety about further Federal Reserve rate hikes.
Against that backdrop, the race is on to find the best risk-averse cryptocurrencies. These are the cryptos that are most likely to hold on to their gains, even if the market starts to move downward. These are also the cryptos that are less volatile when it comes to daily market moves, due to their superior long-term growth prospects.
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Bitcoin
The starting point is Bitcoin (BTC -2.75%), which remains the most popular crypto in the market for both retail and institutional investors. At a current price of $22,385, Bitcoin has a total market cap of more than $432 billion, which represents approximately 40% of the market cap of the entire crypto market. For many investors, Bitcoin is the first crypto they ever add to their portfolios, as well as the one crypto they are most likely to buy and hold.
While everybody knows about the tremendous gains that Bitcoin is capable of producing, what might not be as well-known is how well Bitcoin has bounced back from previous market meltdowns and crypto collapses. In its history, Bitcoin has staged at least five different comebacks, including one time in 2011 when the price of Bitcoin almost fell to $0.
Against this backdrop, Bitcoin's decline of 65% in 2022 is not as troubling to longtime crypto investors. Remember: Bitcoin fell by 73% in 2018 but later recovered and eventually soared to an all-time high in 2021.
While Bitcoin has been notoriously volatile in the past, it is actually losing much of its famed volatility. Traders now are actually complaining that Bitcoin is not volatile enough, since the crypto has been trading in a relatively narrow trading range since mid-2022. In fact, Bitcoin is starting to trade much more like a large high-tech stock than a risky crypto in 2023.
Finally, Bitcoin is becoming increasingly diversified on an international scale as it becomes an important part of the global economy. Brazil just put into place a comprehensive framework for the use of Bitcoin, while other countries are looking to ramp up the use of Bitcoin within their financial systems. The latest survey on Bitcoin payments highlights the potential for Bitcoin adoption to grow 50% by the year 2025.
Ethereum
Another risk-averse cryptocurrency is Ethereum (ETH -2.94%), which has a massive market cap of $191.6 billion, trailing only Bitcoin in terms of market size. Like Bitcoin, Ethereum has become a popular crypto for both retail and institutional investors, and now accounts for nearly 20% of the entire market cap of the entire crypto industry.
What makes Ethereum unique is the size and scope of its ecosystem, which now includes everything from non-fungible tokens (NFTs) to decentralized finance (DeFi). It also includes blockchain gaming, metaverse platforms, and decentralized applications using smart contracts. This provides a tremendous amount of diversification and enables Ethereum investors to diversify away some of the systemic risk found within the crypto market.
Ethereum also remains the top Layer 1 blockchain network, giving investors the peace of mind of knowing they are investing in a best-in-class crypto. Back in 2021, it looked like a handful of Layer 1 blockchain upstarts might unseat Ethereum.
However, last year Ethereum completed The Merge, which was one of the most celebrated feats ever in the crypto and blockchain industry. As a result, Ethereum is cheaper, faster, and more efficient than ever. And this gives it a tremendous economic moat to fend off potential "Ethereum killers."
Should you buy Bitcoin or Ethereum?
At the end of the day, Bitcoin and Ethereum both offer an optimal blend of risk and reward. Both are capable of churning out massive upside performance. At the same time, both are relatively less risky than other, more speculative coins in the crypto market. Sure, Bitcoin or Ethereum might not have the stratospheric upside potential of a hot new AI crypto token, but you also don't have to worry about Bitcoin or Ethereum falling to $0 overnight.
I'm bullish both short term and long term on these two cryptos, and I think they should be the building blocks of any diversified crypto portfolio. They are two cryptos you can buy and hold forever.
