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Bear markets are nothing new in crypto. While the S&P 500 experienced a gradual increase since the Great Recession and posted only one year with a decline in the span from 2009 to 2021, the cryptocurrency economy has been through roughly three bear markets in that same time frame. Most of those bear markets caused declines of more than 70%.
However, despite these huge swings in price, the cryptocurrency asset class has gone from consisting of just one cryptocurrency, Bitcoin (BTC 2.31%), to thousands that are now collectively worth more than $800 billion. At one point in 2021, the value of all cryptos hit a high of $2.9 trillion.
Although there are thousands of cryptocurrencies today, not all are cut from the same cloth. I won’t spare words — some are completely pointless. If there’s anything that past bear markets have taught us, it’s that just because a cryptocurrency is around today doesn’t mean it will be here when the next bull market returns.
Investors should prioritize the cryptocurrencies that provide true value and utility because they’ll remain resilient no matter how brutal this bear market gets. So which cryptocurrencies today have what it takes to make it to those greener pastures? I believe there are three.
The one that started it all doesn’t seem to be going anywhere anytime soon. Even though Bitcoin is down more than 75% from its all-time high, it’s still the most valuable cryptocurrency by market cap — and that doesn’t look like it will change in the future. Bitcoin might benefit from its first-mover advantage, but even with its head start, the cryptocurrency has ascended to a class of its own.
There are few other cryptocurrencies that garner attention from companies like Bitcoin does. In just the last few years, the likes of BlackRock (the world’s largest asset management company), Fidelity, Tesla, and Exxon, have all in some way or another announced new integrations of business processes with Bitcoin.
There are no other cryptocurrencies that have earned the title of the official currency of a country. Two now recognize Bitcoin as an official form of currency — El Salvador and the Central African Republic. In addition, countries like Bulgaria and Ukraine are believed to hold billions of dollars of the cryptocurrency.
With this kind of interest from public and private sectors, Bitcoin might be the safest bet to make it to the next bull market.
The next cryptocurrency that will likely survive this bear market is Ethereum (ETH 2.78%). It’s the second most valuable cryptocurrency and serves an entirely different purpose than Bitcoin.
Created in 2014, Ethereum brought about a new innovation called smart contracts. These are self-executing lines of code that run automatically and don’t require any person or intermediary to ensure the conditions of the contract are met.
Thanks to Ethereum and its smart contracts, an entire new sector of cryptocurrency was created. Known as decentralized finance, or DeFi, this new sector aims to replace traditional financial companies, like banks, lenders, and more, through the use of smart contracts.
Although there are other smart-contract blockchains, Ethereum is the clear-cut leader. Using a value referred to as total value locked (TVL), we can compare the utility that blockchains support in a dollar amount. You could think of TVL like comparing market caps of companies.
Ethereum’s TVL is about $23 billion and makes up more than 59% of all the value in DeFi. The next closest is Tron, with just $4 billion in TVL. Clearly, it’s not even close, and as DeFi progresses, Ethereum should continue to capture the bulk of the market.
The last cryptocurrency to make the cut is Polygon (MATIC 5.87%). While it’s the youngest on this list, it makes up for it in potential.
Polygon is known as a Layer 2 blockchain because it makes Layer 1 blockchains like Ethereum faster. It does this by processing transactions on its own blockchain and then adding them in bundles to Layer 1 at a later date.
While Ethereum dominates DeFi, it does struggle at times with slow transaction speeds and high fees. To mitigate this, more users have been migrating to Polygon because it reduces fees and increases speeds that have plagued Ethereum, while still offering the benefits of Ethereum’s decentralization and security.
This combination of perks has drawn considerable interest from some big-time names this year. Companies such Nike, Meta, JPMorgan, Disney, Coca-Cola, and Starbucks have all partnered with Polygon in some way or another as they look for cost-effective solutions to produce crypto-related products.
Many of these endeavors are in their initial stages. However, if Polygon proves to be a viable means to accomplish these companies’ goals, it wouldn’t be difficult to imagine a future where Polygon becomes the standard for businesses looking to move to the blockchain.
JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. RJ Fulton has positions in Bitcoin, Ethereum, and Polygon. The Motley Fool has positions in and recommends Bitcoin, Ethereum, JPMorgan Chase, Meta Platforms, Nike, Polygon, Starbucks, Tesla, and Walt Disney. The Motley Fool recommends the following options: long January 2024 $145 calls on Walt Disney, long January 2024 $47.50 calls on Coca-Cola, long January 2025 $47.50 calls on Nike, short January 2023 $92.50 puts on Starbucks, and short January 2024 $155 calls on Walt Disney. The Motley Fool has a disclosure policy.
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