AAfter posting incredible returns in 2020 and 2021, cryptocurrencies have come to an abrupt halt in 2022 as the easy monetary conditions that fueled their success have ended and interest rates have risen. Additionally, many industry participants have exacerbated the downturn by shooting themselves in the foot by taking on too much leverage and sidestepping as crypto prices fall, sparking a wave of forced sales and bankruptcies that have pushed prices down driven even further down.
This excessive leverage saw top cryptocurrencies like Terra (CRYPTO: LUNA) implode within a few days, destroying billions in market values. Popular brokers Voyager Digital (OTC: VYGV.F) and leading crypto hedge fund Three Arrows Capital filed for bankruptcy, while other popular platforms like BlockFi and Celsius seek bailouts from other crypto exchanges like FTX. Which cryptocurrencies could rally in the second half of 2022 and give crypto investors something to cheer for as the dust clears and leverage fades?
1. Bitcoin – the bluest of all blue chips
As with stocks, a bear market is a good opportunity to pick up blue chip names as they fall. While it may not be the most revolutionary choice, Bitcoin (CRYPT: BTC) is one of my top candidates to bounce back in the second half of 2022. If the asset class recovers, it will be led by Bitcoin with more than 40% of the total crypto market cap. While Bitcoin’s 57% year-to-date decline and 70% drop from its all-time high of $68,721 last November seem to have ripped a chink in its armor as a true inflation hedge, let’s look at some of the positives.
Many leveraged traders and investors were forced to sell their bitcoin positions to offset other losses, driving prices lower. Now that many of these participants have gone bankrupt, it is likely that the forced selling wave that has acted as an overhang for Bitcoin will subside and be allowed to stabilize and recover.
Ultimately, the bull case for Bitcoin remains much the same as it was almost a decade ago: it’s the first truly decentralized form of money. Unlike many other cryptos, Bitcoin does not have a parent company or foundation that governs it that would be able to make decisions that could jeopardize its existence, as we saw with Terra. There is no such thing as a “CEO of Bitcoin” who could decide to issue a stablecoin and pay unsustainable interest rates to holders. There is no central foundation that has given itself a large pool of tokens to control the Bitcoin network. In a way, the issues currently hurting the industry further polish the case for Bitcoin as a truly decentralized commodity.
2. Ethereum – Preparing for The Merge
like bitcoin, ether (CRYPT: ETH) is a blue-chip cryptocurrency that is down significantly after seeing a 75% drop from its all-time high of $4,847.57 hit last November. Ethereum is down 68% year-to-date, but the back half of the year is already preparing well for the second-largest cryptocurrency by market cap — Ethereum is up 14% over the past week and is already up 36%. away from the low it reached in June.
Ethereum participants are preparing for “The Merge”, Ethereum’s long-awaited transition to a faster, more energy-efficient Proof-of-Stake consensus. This move should help lower fees and reduce transaction times, thereby addressing two of the key issues participants are currently facing. Lower gas fees and faster transaction times will help make Ethereum more practical for everyday transfers and trading. If gas fees were $16 in the past, sending $20 of Ethereum to another user would have been impractical. As gas fees drop significantly and become more predictable, Ethereum will become a much more attractive option for everyday use.
3. Chainlink – a truly differentiated crypto
Outside of the blue chips with the largest established user bases and largest market caps, other cryptocurrencies need to have truly differentiated models or compelling real-world use cases to recover and thrive over the long term. A compelling example would be chain link (CRYPTO: LINK).
Chainlink is an oracle chain, which means that smart contract platforms can pull information from the outside world to ensure smart contract accuracy. For example, when a smart contract is triggered based on the outcome of a sports score or the price of another cryptocurrency or equity, an oracle like Chainlink needs to deliver that data to the blockchain in an accurate and secure way. Even many cryptocurrency skeptics recognize that blockchain technology is useful and will continue to gain acceptance. As more companies around the world begin to integrate blockchain technology into their operations, the need for an oracle like Chainlink, which can provide information on weather conditions, data from Internet of Things enabled devices, and more, will continue to rise and increase in value.
Will These Top Cryptocurrencies Recover in the Second Half of 2022?
The first half of 2022 has not been good for crypto investors. But some rays of light are showing through and the second half of the year is starting to look better. Blue-chip cryptocurrencies like Bitcoin and Ethereum seem to offer good entry points, and differentiated projects with compelling real-world use cases like Chainlink seem to stand out in the long run.
10 Stocks We Like Better Than Bitcoin
When our award-winning team of analysts have a stock tip, it can be worth listening. After all, the newsletter they’ve been running for over a decade is Motley Fool stock advisorhas tripled the market.*
They just revealed what they think are the top ten stocks investors can buy right now… and Bitcoin wasn’t one of them! That’s right — they think these 10 stocks are even better buys.
Check out the 10 stocks
*Stock Advisor returns from June 2, 2022
Michael Byrne has positions in Bitcoin and Ethereum. The Motley Fool has positions in and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.