In the cryptocurrency space, volatility tends to rein supreme. In times like these, with so many macro concerns, it may seem like a great time to buy the dip. That said, with so many investors looking for cryptos to sell, this risk-off sentiment could drive markets much lower from here.
Thinking about all the macro concerns in the market may be enough to turn many investors off from owning digital assets. However, concerns around once-prominent crypto exchange FTX (FTT-USD) have exacerbated sector-specific concerns. Indeed, the fallout from a top-5 global crypto exchange by transaction volume isn’t small. This bankruptcy could be among the most systemic in nature, providing a series of risks investors are starting to price in.
Thus, it’s not only small-cap tokens that are feeling the pain. There are plenty of projects out there with questionable fundamentals to begin with that may be expected to decline.
Rather, concerns around other prominent cryptos have sparked a massive selloff in the market. In many respects, there’s nowhere to hide right now.
Thus, in this article, I’m going to discuss the bear case for three cryptos which otherwise look like some of the best long-term bets. Here’s why these crypto stalwarts may actually be cryptos to avoid, at least over the near-term.
It may be surprising to see Bitcoin (BTC-USD) first on my list of cryptos to sell. Indeed, this is a token many continue to tout as the best crypto out there and also is extremely popular. However, a case can be made that Bitcoin is exceptionally overpriced too.
Now, there are two factors why I suggest being wary of Bitcoin right now. Let’s start with this token’s absolute price. Bitcoin is expensive, both on this token’s actual price and its valuation. Relative to active wallet addresses, one could make the argument that Bitcoin has more to drop. Indeed, there are few fundamental metrics to base such an opinion on, but in this bear market, investors will grasp onto any reason to sell.
The second is that Bitcoin’s price action of late has been terrible. This token sunk approximately 7% after the FTX news broke. Recently the coin has been hovering over $16,200 level. With so much systemic risk in the system, the question for Bitcoin is how much institutional capital will be pulled. Much of the institutional money that flowed into this space went into Bitcoin. Thus, the token’s previous catalyst could be a headwind moving forward.
The world’s second-largest cryptocurrency by market cap, Ethereum (ETH-USD) is another pick that may surprise investors. This top token is one that has also been underperforming over the past could months. With so-called “crypto winter” in full swing, ETH has been one of the worst-performing large-cap tokens. Now with the FTX bankruptcy, the situation has gotten materially even worse.
As crypto investors dump tokens to retain liquidity, Ethereum has been among the most-sold tokens out there. Much of that has to do with this token’s use across so many platforms and projects.
With Ethereum alternatives continuing to develop, this network’s existing headwinds could get a lot stronger. It remains to be seen how stable Ethereum can remain, if the crypto ecosystem starts to crumble. For now, it appears these doomsday concerns may be overblown. That said, no one really knows where the bottom is right now.
Last on our list of cryptos to sell is a token that many more investors can probably get on board with. Solana (SOL-USD) is a project that’s had its fair share of issues, to be sure. Whether we’re talking about network outages or downtime, or simply absolutely horrendous price action of late, there’s not a lot to like about how Solana has performed of late.
Unfortunately for investors, there’s another significant concern tied to Solana and the FTX debacle. It turns out that Solana has close ties with Alameda, FTP’s sister venture. Solana was Alameda’s second-largest holding and it accounted for almost 10% of the coin’s entire market cap. Thus, there’s some significant ties here to FTX investors need to consider.
This token’s price action in 2022 has been dismal, and this is simply the latest catalyst to take Solana lower. While investors looking for long-term returns may think these prices are attractive, like with the other tokens on this list, it’s unclear how low Solana can go. Thus, investors looking to play it safe may want to stay on the sidelines right now.
On the date of publication, Chris MacDonald has positions in Ethereum and Solana. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.