In the last seven days, the prices of cryptocurrencies such as Bitcoin (CRYPTO:BTC), Ethereum (CRYPTO:ETH), and Solana (CRYPTO:SOL) have declined by 7.8%, 6%, and 15%, respectively, at the time of writing. The selloff in these digital assets can be attributed to the ongoing pullback in equity markets. Investors are also worried about a hawkish policy by the Fed in addition to a wide range of macro-economic factors.
In addition to cryptocurrencies, exchanges such as Coinbase saw stock prices decline by more than 12% on Thursday, while crypto mining companies such as Hut 8 Mining have also experienced a selloff in recent trading sessions.
While cryptocurrencies are viewed as an alternative asset class, the prices have generally moved in line with that of the equity market. So, as investors are wary about rising inflation and multiple interest rate hikes, they shift capital towards low-risk assets such as bonds or gold, driving share prices lower.
Earlier this week, the Federal Reserve raised the benchmark overnight lending rates by 0.5%, which was the largest rate hike since 2000. In a bid to offset inflation, central banks are likely to increase interest rates multiple times in 2022. The Fed also disclosed plans to reduce its balance sheet, as it employed quantitative easing measures amid COVID-19.
However, the selloff also provides investors an opportunity to buy quality assets at a discount. Let’s see why it makes sense to hold Bitcoin, Ethereum, and Solana in your crypto portfolio right now.
Bitcoin
Valued at a market cap of US$694 billion, Bitcoin is the largest cryptocurrency in the world. It’s down 47% from all-time highs and has declined 24% in 2022. However, investors should note that the BTC has always delivered positive returns for investors who have held the token for more than four years.
Bitcoin enjoys a first-mover advantage and is anti-inflationary in nature given the total supply of BTC tokens is limited to 21 million coins. Despite the recent weakness, the BTC token has returned close to 2,000% in the last five years, making it an enticing bet for long-term investors.
Ethereum
Similar to Bitcoin, Ethereum has also increased investor wealth at an exponential rate, and the ETH token is up 3,000% since May 2017. The Ethereum blockchain is programmable, which means you can develop smart contracts on its platform.
Right now, Ethereum uses a proof-of-work (PoW) mechanism to validate transactions, where miners use significant computational power to solve complex puzzles and validate transactions. The PoW mechanism is expensive and slow, which means the Ethereum network can process around 13 transactions per second at an average cost of US$13 per transaction.
But Ethereum developers are looking to shift toward a proof-of-stake (PoS) mechanism that should lower costs and increase transaction capabilities at an accelerated pace.
Solana
A cryptocurrency that gained over 10,000% in 2021, Solana is currently the seventh-largest digital asset in the world, valued at US$28 billion by market cap. Like Ethereum, Solana’s blockchain is equipped with smart contract capabilities, where developers can build decentralized applications.
Solana recently launched Solana Pay, which is a payments framework where merchants can accept payments from customers in the form of stablecoins such as the USDC. This will lower transaction fees considerably for merchants and improve profit margins by a couple of percentage points.
