Investing in cryptocurrencies carries certain risks. In addition to the volatility associated with these digital assets, the lack of regulation and multiple successful hacking incidents have kept investors at bay.
For example, a report from Chainalysis states that cross-chain bridge hacks have amounted to US$2 billion in losses this year, accounting for 69% of total crypto stolen. Since the beginning of 2022, there have been 13 cross-chain bridge hacks.
So, what are cross-chain bridges? Basically, these blockchain bridges enable the transfer of cryptocurrencies between two blockchain networks. Blockchain networks are similar to silos and don’t communicate with each other.
With the advent of cross-chain bridges, users can deposit their Ethereum (CRYPTO:ETH) (or any other token) to a cross-chain bridge. The ETH token is then locked under a contract, and users are issued the equivalent of another token, such as Polygon to use the Polygon Bridge.
As these bridges are a central point of storage for cryptocurrencies, they are targeted by hackers. In the past decade, several cryptocurrency exchanges have been vulnerable to hacks. However, an improvement in security measures has resulted in a decline in such cyber-attacks.
In addition to security issues, the macro-economic environment remains extremely challenging, accelerating the ongoing sell-off. The rise in interest rates has shifted capital towards low-risk asset classes such as bonds. Further, inflation and the prospect of a global recession have driven consumer spending lower in the last year.
But if you have a large risk appetite, the decline in the prices of these digital assets provides investors an opportunity to buy the dip. So, where should you invest $1,000 right now?
Ethereum is a top long-term bet
Ethereum is the second-largest cryptocurrency in the world, valued at a market cap of US$228 billion. While ETH is down over 60% from all-time highs, it has returned 460% to investors in the last five years.
In the last month, ETH prices have surged 40% due to an upcoming event known as “The Merge.” The Ethereum blockchain is transitioning from a proof-of-work (PoW) validating mechanism to a proof-of-stake (PoS) mechanism, which will reduce transaction fees considerably and improve scalability significantly.
Developers of the Ethereum network successfully merged the Goerli testnet, which was the final testnet rehearsal before the ETH 2.0 merge takes place. The Ethereum Foundation expects to move towards the PoS mechanism by September 19, which will be a key driver of ETH prices in the near term.
Bitcoin continues to enjoy a first-mover advantage
Another top long-term bet for cryptocurrency investors is Bitcoin (CRYPTO:BTC). Bitcoin was the first cryptocurrency launched back in 2009 and remains the most popular digital asset in the world. Valued at US$451 billion by market cap, Bitcoin is held on the balance sheet of several publicly listed companies.
Bitcoin is also known as digital gold as a global network of computers “mine” BTC tokens to confirm transactions. Global gold reserves currently stand at $9.2 trillion and, in my opinion, Bitcoin could replace the yellow metal over time, providing massive upside potential for investors.
If you think Bitcoin might serve as a good store of value and hedge against inflation like gold, the digital gold could account for a larger portion of your cryptocurrency portfolio.