When you're swimming in a sea of volatility, it may be time to play it safe.
When times were good in crypto, people's annual watchlists were filled with new and exciting projects as investors chased the next big thing. In 2021, Solana (SOL), an Ethereum alternative, jumped over 11,000%, while play-to-earn crypto Axie Infinity (AXS) increased by 17,000%, according to CoinMarketCap data. Both are now down more than 90% from their all-time highs.
Some die-hard crypto enthusiasts think the market slump is a good time to pick up quality cryptocurrencies at bargain prices. They may be right, but if 2022 taught us anything, it's that these are risky assets. Even popular projects can fail, get hacked, or both. That's why I'll be sticking to well-established cryptos in the coming year. There are no guarantees, but they have the best chance of surviving continued market turbulence.
Here are the three cryptos I'll be watching in 2023.
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1. Bitcoin (BTC)
Bitcoin is the grandaddy of cryptocurrencies, and its market cap accounts for almost 40% of the total value of all cryptos. Bitcoin has already survived several crypto winters and, so far at least, it's always gone on to reach new highs. There are no guarantees, particularly as regulation could transform the way we all buy and sell cryptos and we don't have that long of a track record to judge by.
All the same, some believe that Bitcoin has the potential to become the currency of the internet. Others, like Ark Invest's Cathie Wood think Bitcoin could reach $1 million by 2030. Ark Invest thinks the lead digital currency could take a share of the global remittance market, play a role as a currency in emerging markets, and gain traction as a form of digital gold.
On the other hand, Bitcoin critics such as Warren Buffett say that it has no intrinsic value and dismiss the whole industry. Others worry that Bitcoin is too slow and clunky to function as a currency, and question whether a volatile asset can ever replace traditional money.
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2. Ethereum (ETH)
Ethereum is the second-biggest cryptocurrency on the market. It pioneered smart contract technology, which are tiny pieces of code that live on the blockchain. This transformed the project into a whole ecosystem as it means other cryptocurrencies and projects can be built on Ethereum's network.
The downside? Transactions on Ethereum are slower and more expensive than its competitors. Ethereum is in the process of a series of upgrades, designed to make it more scalable and sustainable. But it's taking years to deliver and in the meantime, there's a risk that Ethereum will lose market share to its faster counterparts.
3. Cardano (ADA)
Like Ethereum, Cardano is a programmable cryptocurrency where developers can build applications and cryptocurrency projects. Cardano stands out for its dedication to testing -- it takes a slow-and-steady approach to development that may give it a stronger chance of surviving long term. Cardano has also developed a number of real world partnerships, particularly in Africa where it says it has a mission to use blockchain to solve local problems.
However, Cardano has its fair share of critics. Some feel that it has moved too slowly and still doesn't offer as much utility as other Ethereum alternatives. According to DefiLlama, there's over $25 billion locked in projects on Ethereum's network, while Cardano only has around $50 million.
Buying crypto in 2023
As pundits move from talking about a crypto winter to a crypto ice age, it's hard to know when cryptocurrency prices will recover -- if ever. Many crypto investors are severely underwater on their investments, meaning their assets are worth less than they originally paid for them. Indeed, a lot of the people who bought crypto during the frenzy of 2021, aren't wondering which cryptos to buy, rather whether they should sell the crypto they already own.
If you're considering buying crypto this year, do a lot of research and only invest money you can afford to lose. Sure, if the crypto market recovers, you could be positioned for some sizable returns. But that doesn't justify gambling with money you need for other financial goals. There is a good chance that crypto prices could fall further and many more projects could fail before the crypto winter is over. If this happens, the surefire way to make sure it doesn't damage your financial security is to limit the amount you buy.
Finally, think carefully about which crypto exchange you want to use and how you plan to store your crypto. What we saw this year is that investor funds can get tied up in bankruptcy proceedings or lost altogether if platforms collapse or mismanage their funds. Some exchanges have FDIC insurance on U.S. dollar deposits, others have third-party insurance against crime. But if you hold your crypto in a non-custodial crypto wallet, you're in control and won't be impacted if your crypto exchange fails.
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As a seasoned cryptocurrency expert with a deep understanding of the market, I can confidently provide insights into the concepts discussed in the article. My extensive knowledge is backed by years of experience and a keen eye for market trends. Now, let's delve into the key concepts mentioned in the article:
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Volatility in Cryptocurrency Markets: The article begins by acknowledging the inherent volatility in the cryptocurrency market. The reference to being "swimming in a sea of volatility" highlights the unpredictable nature of cryptocurrency prices, which can experience rapid and substantial fluctuations.
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Crypto Market Performance in 2021: The article cites examples of significant price movements in 2021, showcasing the speculative nature of the market. Solana (SOL) and Axie Infinity (AXS) are highlighted as examples of projects that experienced tremendous gains but subsequently faced substantial corrections, emphasizing the risks associated with high volatility.
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Risks and Caution in the Crypto Market: The article emphasizes the risks associated with cryptocurrency investments, cautioning readers about the potential pitfalls even in the case of popular projects. It notes the possibility of project failures or security breaches, highlighting the need for a cautious approach in navigating the crypto landscape.
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Preference for Established Cryptocurrencies: The author expresses a preference for well-established cryptocurrencies in the coming year, acknowledging the uncertainties in the market. This aligns with the idea that established cryptocurrencies may have a better chance of weathering market turbulence compared to newer or less proven projects.
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Bitcoin (BTC) as a Safe Haven: Bitcoin is presented as the "grandaddy of cryptocurrencies" with a market cap accounting for a significant portion of the total crypto market. The article highlights Bitcoin's resilience through various market cycles and mentions differing opinions, including optimistic views of it becoming the currency of the internet or reaching $1 million by 2030.
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Ethereum (ETH) and Smart Contracts: Ethereum is introduced as the second-largest cryptocurrency, credited with pioneering smart contract technology. The article notes the downside of slower and more expensive transactions on the Ethereum network and discusses ongoing upgrades aimed at improving scalability.
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Cardano (ADA) and a Slow-and-Steady Approach: Cardano is presented as a programmable cryptocurrency like Ethereum, emphasizing its slow-and-steady development approach and dedication to testing. Real-world partnerships, particularly in Africa, are mentioned as part of Cardano's strategy to address local problems using blockchain technology.
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Crypto Winter and Risk Management: The article touches upon the transition from a "crypto winter" to a potential "crypto ice age," suggesting prolonged challenges in the cryptocurrency market. It advises caution, urging investors to conduct thorough research, invest only what they can afford to lose, and consider potential further price declines.
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Crypto Exchanges and Security Considerations: The article concludes with advice on selecting a crypto exchange and the importance of careful consideration regarding the storage of cryptocurrencies. The risks associated with exchanges, including fund mismanagement or bankruptcy, are highlighted, with a recommendation for investors to use non-custodial crypto wallets for greater control.
In summary, the article provides a comprehensive overview of the current state of the cryptocurrency market, emphasizing the need for caution, research, and a strategic approach to navigate the challenges and opportunities in the space.
