Cryptocurrency investors have been on a wild ride over the past few years. In 2021, the crypto market fell over 50% between May and July, erasing more than $1 trillion in wealth. The market then surged 150% to a peak of $3 trillion in November, before again falling 40% to its current valuation of $1.9 trillion.
Of course, volatility has become a hallmark of the crypto market, and if you can stomach those wild price fluctuations, now looks like a great time to invest. In hindsight, every sell-off has been a buying opportunity, and there is no reason to believe the current crypto crash is any different. With that in mind, Ethereum(CRYPTO: ETH) and Bitcoin (CRYPTO: BTC) look like good additions to a long-term investor's portfolio.
Here's why.
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1. Ethereum
The Ethereum blockchain is a programmable computing platform. That means that, in addition to serving as a digital ledger for transaction data, it can be used to build decentralized software and services. For example, decentralized finance (DeFi) products allow users to borrow, lend, and earn interest on money without going through a bank. By eliminating traditional financial institutions, DeFi makes financial services more accessible and more efficient. And Ethereum is the most popular DeFi ecosystem, with more than $115 billion invested on the platform, a figure that accounts for more than 55% of all DeFi investments across any blockchain.
Ethereum, the second most valuable crypto with a market value of about $360 billion, also powers a number of other noteworthy software products and services. For example, OpenSea is the world's most visited non-fungible token marketplace, and it generated nearly $2 billion in revenue over the past year, according to Token Terminal. Similarly, popular metaverse game Axie Infinity generated roughly $1.3 billion in revenue over the past year. And because both products run on Ethereum, purchases and transaction fees are funded with the native cryptocurrency, the ETH coin (i.e., Ether).
The bull case for Ethereum is clear: Decentralized software and services eliminate the biases and inefficiencies that come with centralized ownership, and Ethereum is the market leader. As Ethereum's ecosystem becomes even more popular with consumers and investors, demand for the ETH coin should rise, propelling its price higher. That's why this cryptocurrency looks like a smart long-term investment.
2. Bitcoin
Bitcoin was the first widely adopted cryptocurrency, and it remains the most popular digital asset by a wide margin. With a market cap of more than $800 billion, Bitcoin accounts for 42% of the collective value of the crypto market, and it's currently worth more than blue chip companies like Berkshire Hathaway and Meta Platforms (formerly Facebook). In fact, there are only six publicly traded companies in the world that are worth more than Bitcoin.
What makes it valuable? Scarcity. The underlying computer code imposes a hard cap of 21 million coins, meaning Bitcoin is a finite asset. And basic economic principles tell us that when demand for a finite asset rises, its price will rise too. But it's not just retail traders that are driving that demand.
A recent study from Fidelity suggests that 37% of institutional investors own Bitcoin, either in their own portfolio or in a client's portfolio. It's worth mentioning that Ethereum is the second-most-popular digital asset, with 20% institutional ownership penetration. Better yet, 71% of the surveyed investors said they plan to buy cryptocurrency in the future, up from 59% in 2020. In other words, institutional adoption is on the rise, and that's good news for Bitcoin (and Ethereum). And as demand for Bitcoin trends upward, its price should follow. That's why this beaten-down cryptocurrency is a buy.
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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. Trevor Jennewine has no position in any of the stocks mentioned. The Motley Fool owns and recommends Berkshire Hathaway (B shares), Bitcoin, Ethereum, and Meta Platforms, Inc. The Motley Fool recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). 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.
