The new year started off with considerable fanfare for the cryptocurrency market. Under President Donald Trump's crypto plan, America was going to become "the crypto capital of the world." That meant deregulating the crypto market, promoting innovative uses for blockchain technology within the financial markets, and becoming a Bitcoin (BTC +1.10%) superpower.
Those promises mostly have been kept. The White House even hosted a Crypto Summit on March 7. But broader macroeconomic weakness -- in the form of tariffs and recession fears -- have sent crypto markets tumbling. Cryptocurrencies are down across the board, so it's hard to tell what's hot, and what's not. So let's take a closer look at key Trump priorities for crypto.
Hot cryptocurrency sectors
The three hottest crypto sectors right now are decentralized finance (DeFi), real-world asset (RWA) tokenization, and stablecoins. The easiest way to see this is by examining the crypto portfolio of World Liberty Financial, the Trump-affiliated crypto company that uses the tag line, "Shape a New Era of Finance." It went on a highly publicized crypto buying spree ahead of the inauguration as a show of support for Trump's crypto plan.
Currently, some of the biggest holdings of World Liberty Financial include Ethereum (ETH +3.04%), Chainlink (LINK +0.90%), Ondo, Aave, and Ethena. The company also holds two stablecoins: Tether and USDC. All of these holdings, in one way or another, reflect a core idea of Trump's crypto plan: creating new linkages between the world of traditional finance and the world of decentralized finance.
CRYPTO: ETH
Key Data Points
Decentralized finance really just refers to putting the traditional financial system on blockchain rails. Once you have a Layer-1 blockchain like Ethereum, it's possible to build on top of it. You can create new decentralized exchanges for trading digital assets. You can create new ways to borrow and earn money. And you can create enormous value by reducing the inefficiencies of the modern financial system.
Real-world asset (RWA) tokenization is one of the hottest trends on Wall Street right now, and it's supported by top asset managers such as BlackRock. Tokenization refers to the transformation of traditional assets (such as stocks and bonds) into digital assets that can be traded on the blockchain. Once you do that, you can create new efficiencies and open up markets to new participants. For example, it's now possible to tokenize very illiquid assets (such as private equity and real estate) and put it all on the blockchain in the form of tradable crypto tokens.
Image source: Getty Images.
It might be hard to believe that stablecoins are hot right now. After all, they are pegged 1-to-1 to the U.S. dollar, so they are supposed to trade for $1 at all times. You really can't speculate in stablecoins (unless you're betting that they will lose their peg), and many investors might not want to hold an asset like USDC or Tether that trades for $1 day in and day out.
But as Coinbase Global recently pointed out, stablecoins might just end up being the biggest story of the year for crypto. The Trump crypto plan calls for using stablecoins as the way to guarantee that the U.S. dollar remains the top reserve currency in the world.
To buy stablecoins, you need dollars. And right now, dollars are pouring into stablecoins at an unprecedented rate. The top five stablecoins now have a total market cap of more than $200 billion.
Not-so-hot cryptocurrency sectors
Three not-so-hot cryptocurrency sectors include meme coins, artificial intelligence (AI), and anything related to consumer-facing applications of blockchain technology (such as gaming, Web3, and the metaverse).
Remember the last crypto bull market rally? Prices of meme coins such as Dogecoin and Shiba Inu were skyrocketing in value. Celebrities were spending millions of dollars to buy non-fungible tokens (NFTs) from the Bored Ape Yacht Club collection. And people were buying digital real estate in the metaverse as a way of getting rich quick.
Unfortunately (or fortunately, depending on your point of view), that type of speculative froth is unlikely to return anytime soon. The new Official Trump meme coin is down about 85% from its highs, nobody is buying expensive NFTs when the threat of recession is looming, and early attempts to combine AI and crypto -- such as by creating the brand-new position of White House AI & crypto czar -- have thus far been very low-key.
Still not convinced that consumer-facing crypto sectors are out of favor? Just search for images of the White House Crypto Summit that took place on March 7. The event looks unlike any crypto event you've ever seen. One iconic image from The New York Times looks like a formal Wall Street board meeting: The participants are dressed in dark business suits and ties, clapping politely, and sitting at a long, drab table under a gold chandelier and the watchful eye of Abraham Lincoln.
How does Bitcoin fit into the big picture?
At this point, you're probably wondering: Why haven't you mentioned Bitcoin? For one, Bitcoin is not a sector, it's a single asset. And second, the Trump crypto plan is primarily focused on economic competitiveness and financial innovation. The stated goal is to "Make America Great Again."
To the extent that Bitcoin can help to accomplish that goal, it's important. For example, if it can help to strengthen the U.S. dollar, boost investor confidence in the American economy, help to pay down the nation's $36 trillion debt load, or bring new jobs to America, then it's important.
For now, though, it's perhaps more important to understand how the worlds of traditional finance and blockchain finance fit together, and what that means for America's financial future. I'm convinced that this is the key to figuring out which under-the-radar cryptocurrencies are the best investment opportunities right now.
