The same lessons keep repeating themselves. Investors are being reminded of just how volatile the digital asset ecosystem can be. The market for cryptocurrencies reached a peak valuation of around $4.4 trillion in October last year. Today, the market cap sits at $2.4 trillion, a loss of 45% (as of Feb. 18).
The smartest investors are sharpening their focus, figuring out what portfolio moves to make amid the turmoil. Here's one high-conviction crypto to buy and one that should be avoided like the plague.
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Buy the dominant cryptocurrency
Investors should consider buying Bitcoin (BTC 1.11%), the world's leading digital asset that has pioneered the entire industry. Given that it represents 57% of the market, its price swings have an outsized impact. Bitcoin is 46% below its record.
Anyone who pays attention to history will quickly point out that these types of massive drops, which can be nerve-wracking when living through them, are extremely common. Bitcoin's price has fallen more than 50% on numerous occasions. It's hard to know exactly what's causing the recent dip, with explanations ranging from large and early investors taking profits to investors worried about a hawkish Federal Reserve. There is no shortage of guesses.
What matters is that Bitcoin has a hard supply cap of 21 million units. It's purely digital, transcends borders, is secure, and has ongoing adoption within the financial services industry and among regulators. In other words, the fundamentals are holding up.
Long-term investors should stay focused on these factors. In five or 10 years, Bitcoin's price should be much higher.
CRYPTO: BTC
Key Data Points
Avoid this meme token
On the other hand, investors shouldn't touch Dogecoin with a 10-foot pole. What's interesting is that this meme token has significantly outperformed Bitcoin over the past decade. However, it's currently trading 86% off its peak from May 2021. And there are no signs of life that it can bounce back.
To its credit, Dogecoin was one of the earliest cryptocurrencies to hit the market. But it was created as nothing more than a joke. Its founders are no longer involved. And throughout its history, Dogecoin's price has been supported by its community, which results in wild price movements based on hype. That community appears to be falling apart, given that Dogecoin's price is so far below its record.
The market is realizing that Dogecoin has no real-world utility, other than being used by gamblers looking to score a quick profit. It's not scarce, as the supply is constantly increasing. And it doesn't have an expanding financial ecosystem being built around it. Keep this crypto out of your portfolio.
