These six cryptos are likely to be volatile over the next three months. But they are close to a trough, after falling well over 60% in the last 6 months. Investors should consider dollar-cost-averaging into them over the next three months.
The truth is the cryptocurrency market has cratered. Several reasons were the recent Federal Reserve tightening of interest rates, and the subsequent stock market crash on June 10. That was when the Federal Reserve hiked the Fed Funds rate and began tightening liquidity in the bond market by purchasing Treasury securities. This was due to an expected rise in inflation in May.
One more reason this is happening is that there was a second Defi (Decentralized finance) liquidity pool that began “pausing” withdrawals. A Hong Kong lending platform called Babel acted to suspend redemptions and withdrawals.
This has caused further panic and many of its investors have had no choice but to “liquidate” their other major holdings in cryptocurrencies.
Of course, during panics like this, it pays to slowly accumulate when you think an asset might be at a bottom, even if further declines may be on the way. There is no guarantee that will be the case. That is where we are now.
Let’s dive in and look at these cryptos.
Bitcoin (BTC-USD) is the largest crypto out there and the first digital decentralized cryptocurrency. There are 21 million Bitcoin tokens and over 19 million of them have now been issued into the circulating supply, according to Coinmarketcap.com.
That means 9.5% of its token supply can be issued at an increasingly higher hash or difficulty rate for Bitcoin miners. This also ensures over the next several years that the crypto could end up moving higher as the scarcity effect on the supply kicks in.
Bitcoin, the largest crypto is down 60% YTD to $18,998 as of June 18 from $47,686.81 at the end of 2021. Moreover, from its peak of $76,566 on Nov. 7, the crypto is now off over 75%.
One investor now likens the selloff in cryptos to the Panic of 1907. There was no Federal Reserve then. And “JP Morgan was forced to step in with his own funds and then rally all those guys that were solvent to fix the situation.”
The point is that once investors see a major downdraft in the market for Bitcoin and/or Ethereum, they will rally back into cryptos. This has not happened yet, and I suspect it won’t before Ethereum crosses below $1,000.
Ethereum is the second-largest crypto, and it is close to when it will transition to proof-of-stake, from proof-of-work (crypto mining). At $995 on June 18, Ethereum is down 73.6% YTD and almost 80% from its peak of $4,812 on Nov. 7.
This puts it in rarified territory. How long Ethereum will stay below $1,000 is very doubtful, as it seems to be a major red line. I suspect that Ethereum won’t stay below $1,000 for very long. That makes this a very good opportunity to begin dollar-cost-averaging into it for as long as the price is below $1,000.
Cardano (ADA-USD) competes directly against Ethereum. It says its platform is more scalable, secure and efficient. It has been accepting smart contracts and NFTs (non-fungible tokens) on its platform in the past year.
However, the jury is still out on whether it can overtake Ethereum. Even though its transaction validation system is run on a proof-of-stake, rather than mining like Bitcoin and Ethereum, the latter is going to convert soon. That may take away one of its advantages.
Cardano is likely to significantly rebound. Cardano is likely to significantly rebound now that it is gaining market share in the smart contract arena, as well as the NFT (non-fungible tokens) marketplace. Cardano is down 67% YTD as of June 18.
Solana is an Ethereum-based blockchain designed to provide fast transactions and validations. It also claims to have the lowest transaction fees, although it still charges for transactions on smart contracts. These are used for finance applications and other uses like music streaming.
It has taken a big hit so far this year. At $30.88 on June 18, it is down 82.7% from $178.52 where it ended the year last year. Even worse it is down 88.1% from its peak of $258.93 on Nov. 7, 2021.
This is a punishing performance. But it may make sense to now begin dollar-cost-averaging into the crypto. It could lower, but when the market sentiment turns, there won’t be any time to get in at these prices. Living with variance for the next three months or so could pay off big in the long run.
Even if it were to retrace half of its decline of $228 from its peak, the rise represents a gain of over 369% to $144.91 from $30.88.
This meme crypto is actually gaining steam as a payments tool with merchants, especially now that Elon Musk is still standing behind Dogecoin as a form of payment. Dogecoin is down 69% YTD to 5.3 cents on June 13 from 17.3 cents at the end of 2021.
Moreover, from its peak of 34.14 cents on August 14, 2021, Dogecoin is now down over 84.5%. It’s incredible that Dogecoin could have cratered so much in such a short time period. But when the rebound comes, there won’t be any chance to buy in at these prices. That’s why it makes sense to dollar-cost-average into the price over the next three months.
Polygon is known as a Layer 2 protocol crypto built on top of Ethereum. According to Coindesk, it “allows developers to create and deploy their own blockchains that are compatible with the Ethereum blockchain with a single click.”
As of June 18, it is down 86.5% YTD to 34.7 cents from $2.5748 at the end of last year. Even if it retraces half of that decline to $1.73, MATIC crypto will make a 400% return.
That is a good enough reason for investors to begin a dollar-cost-average campaign over the next three months. This will allow them to take advantage of any rebound in the crypto which is likely to happen quickly once it starts. It is also a disciplined way to invest, helping the investor to ride out any volatility in a calm manner.
On the date of publication, Mark Hake did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.