In this article, we discuss the 10 cryptocurrencies Redditors are buying before recession begins.
Cryptocurrencies are slowly forcing their way into conversations around recessions and wealth storage, more than ten years after Satoshi Nakamoto launched Bitcoin, the most popular coin on the market today and the biggest in terms of market capitalization, in reaction to the widespread failure of the conventional financial system during the 2008 economic crisis. The biggest strength, and paradoxically the biggest weakness, of the currency is that its value is not tied to cash, a government guarantee, or a business asset.
This is largely true for other coins and the crypto industry in general, barring a few exceptions in the stablecoin sector. Another argument in favor of blockchain is that emerging technologies in general seem to weather economic downturns better than other sectors, evidenced by the performance of the ecommerce and fintech sectors during the COVID-19 pandemic. Capped supplies and decentralization are some of the other reasons that market experts believe that cryptocurrencies are better investments than stocks in the recession period.
The crypto industry is thriving even as inflation rises and growth stocks are battered, largely due to the efforts of firms like Visa Inc. (NYSE:V), Block, Inc. (NYSE:SQ), and PayPal Holdings, Inc. (NASDAQ:PYPL), that are working hard to incorporate blockchain tech onto their platforms and make it more accessible to the ordinary citizen. Even hedge fund managers have started to take notice of the opportunity offered by cryptocurrencies. For example, billionaire Ray Dalio of Bridgewater Associates believes that Bitcoin is like a digital version of gold.
Recession Fears Gather Pace
The hype around crypto has increased as inflation fears and a subsequent rise in interest rates spark fears of a recession. Top economic experts at mortgage loan firm Fannie Mae have forecast that the United States economy could face a “modest recession” in 2023. The experts have blamed rising interest rates, the Ukraine war, and soaring inflation as some of the major reasons behind this prediction. Doug Duncan, the chief economist at the firm, has said that the expectations for economic growth in 2023 have been meaningfully downgraded in light of the inversion of the Treasury yield curve.
On April 18, economic experts at investment bank Goldman Sachs also echoed these fears, affirming that there was a “real chance that the US economy is going to suffer a recession or hard landing in the next two years”. The bank sees a 15% chance of a recession in the next twelve months and a 35% chance of a recession in the next twenty-four months. The team of experts at Goldman expects the central bank to raise the benchmark rate up to 3.25% before inflation is brought under control, raising fears of a economic slowdown.
Source: PixaBay
Our Methodology
These were picked from a careful assessment of the cryptoverse on internet platform Reddit. The details of each cryptocurrency are mentioned alongside a discussion around top companies working in the sector to provide readers with some context for their investment decisions.
A database of around 900 elite hedge funds tracked by Insider Monkey was used to calculate the popularity of these firms among hedge funds.
Cryptocurrencies Redditors are Buying Before Recession Begins
10. Polkadot
Polkadot is a cryptocurrency that has the lowest carbon footprint among a host of altcoins gaining relevance on social media in the past few months. This is important for Redditors who believe that environmental concerns should be central to important investment choices. The Polkadot network is also different from other coins since it uses a system of parallel chains that are application-specific to connect to a single-base platform. This greatly enhances the usage cases of the coin and makes it more stable with regards to outside influences.
Currencies like Polkadot are becoming popular on Reddit as companies like Alphabet Inc. (NASDAQ:GOOG), the California-based technology giant, back their usage. Among the hedge funds being tracked by Insider Monkey, London-based investment firm TCI Fund Management is a leading shareholder in Alphabet Inc. (NASDAQ:GOOG) with 2.9 million shares worth more than $8.5 billion.
Just like Visa Inc. (NYSE:V), Block, Inc. (NYSE:SQ), and PayPal Holdings, Inc. (NASDAQ:PYPL), Alphabet Inc. (NASDAQ:GOOG) is one of the stocks that Redditors have their eye on as the momentum around cryptocurrencies gathers pace.
In its Q4 2021 investor letter, Vulcan Value Partners, an asset management firm, highlighted a few stocks and Alphabet Inc. (NASDAQ:GOOG) was one of them. Here is what the fund said:
“In contrast, we made a different kind of mistake about a decade ago. Google, now Alphabet Inc. (NASDAQ:GOOG), performed very well for us while we owned it. The company kept outperforming our assumptions and we kept lowering them to be conservative. “Trees do not grow to the sky.” The stock kept going up and our value grew but did not keep pace with the stock. It hit our estimate of fair value and we sold it with a nice gain, patting ourselves on the back. We kept following the company and what they actually did over the next several years was roughly double the assumptions we used to value it. Therefore, our value was too conservative, and we sold it too cheaply, missing many years of compounding. Fortunately, we experienced some volatility several years ago that allowed us to purchase Alphabet Inc. (NASDAQ:GOOG) (Google) again with a margin of safety.”
9. Polygon
Polygon has been trending on social media ever since the Associated Press announced that it would be using the network to launch a non-fungible token (NFT) marketplace for tokenized photographs. Polygon is an Ethereum-based network that is faster and more efficient than the parent network. As more prominent companies endorse the coin, it is rising in relevance as a wealth storage play since stable businesses demonstrate the real-world usage cases for the cryptocurrency with their investments in the project.
Polygon can be traded through the services offered by CME Group Inc. (NASDAQ: CME), the Illinois-based derivatives exchange. At the end of the fourth quarter of 2021, 55 hedge funds in the database of Insider Monkey held stakes worth $2.7 billion in CME Group Inc. (NASDAQ:CME), compared to 64 the preceding quarter worth $2.6 billion.
In its Q4 2021 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and CME Group Inc. (NASDAQ:CME) was one of them. Here is what the fund said:
“CME Group Inc. (NASDAQ:CME), for example, maintains a dominant franchise in electronic commodities and options trading with high incremental margins. Its interest rate trading business had been depressed coming out of the recession, but with a tightening policy environment, it now provides upside optionality that augments robust free cash flow growth and capital return. Willscot Mobile Mini is another compounder that executed well through the pandemic but was not initially recognized for the synergies of its Mobile Mini acquisition. The deal has reduced costs and created greater operating leverage as the company rides the tailwinds of improving industrial production and construction.”
8. Avalanche
Avalanche has gained popularity on the Reddit forum in the past few weeks as a recession play. Redditors have been citing the partnership of the Avalanche network with popular professional services firm Deloitte as one of the reasons behind their bullish view of the coin. Deloitte has previously appreciated the underlying blockchain technology of the Avalanche network for use on a Federal Emergency Management Agency project. The Avalanche network provides a fast and reliable way to aggregate and validate claims made by the agency.
Avalanche is rising in prominence on social media through the crypto mainstreaming efforts of companies like Tesla, Inc. (NASDAQ:TSLA), the EV maker from California. At the end of the fourth quarter of 2021, 91 hedge funds in the database of Insider Monkey held stakes worth $12.9 billion in Tesla, Inc. (NASDAQ:TSLA), up from 60 in the previous quarter worth $10.6 billion.
Here is what ClearBridge Investments has to say about Tesla, Inc. (NASDAQ:TSLA) in its Q4 2021 investor letter:
“Within the growth universe we target, emerging growth stocks – the category with the highest revenue growth rates – significantly underperformed the overall growth categories in 2021 after leading performance in 2020. The pull-through effect on digitization, online access across industries, and spending to modernize outdated corporate infrastructures accelerated trends in a highly compressed time frame. Much of that trend slackened in 2021 and shares of these companies, while showing good top-line growth, saw slowing appreciation from the blistering pace in the prior year. With that moderating growth, multiples decelerated from 2020 highs. Bucking the headwinds among our emerging growth names was Tesla, Inc. (NASDAQ:TSLA) which saw continued sales momentum from their leadership positions in the key growth areas of electric vehicles.”
7. Ripple
During recession periods, there is lots of trading activity as panicked investors initiate trades to limit their losses. Ripple, the only crypto coin that already caters to the global payments economy through partnerships with leading banks around the world, could offer investors a stable and secure settlement channel in the midst of a crisis. One of the most popular uses of the coin is to facilitate exchanges between different types of currencies, including fiat and cryptocurrencies. Ripple has gained 13,700% in the past five years.
The popularity of Ripple owes a lot to the crypto initiatives of firms like Mastercard Incorporated (NYSE:MA), the New York-based payments processing firm. Among the hedge funds being tracked by Insider Monkey, Virginia-based investment firm Akre Capital Management is a leading shareholder in Mastercard Incorporated (NYSE:MA) with 5.8 million shares worth more than $2.1 billion.
In its Q4 2021 investor letter, Saturna Capital, an asset management firm, highlighted a few stocks and Mastercard Incorporated (NYSE:MA) was one of them. Here is what the fund said:
“Given the likelihood of rising inflation and interest rates ahead, we anticipate adjustments to the portfolio to reduce exposure to highly valued stocks dependent on low interest rates to support terminal year valuations, while seeking investments in companies more correlated with a return to economic normalcy. We sold our position in Mastercard Incorporated (NYSE:MA). Although Mastercard Incorporated (NYSE:MA) does not charge or collect interest, its association with credit activities was problematic.”
6. Cardano
Cardano is one of the altcoins that became popular because of their early adoption of the Proof-of-Stake consensus mechanism. The Cardano network has also recently allowed the processing of smart contracts on the platform, adding to positives like faster transaction times and low fees. The coin has not experienced the wild swings associated with the prices of other currencies in the recent past, registering solid but modest gains of around 5,750% in the five years between 2017 and 2022.
Coins like Cardano are mined using the powerful machines manufactured by NVIDIA Corporation (NASDAQ: NVDA), the microchip maker from California. At the end of the fourth quarter of 2021, 110 hedge funds in the database of Insider Monkey held stakes worth $10.4 billion in NVIDIA Corporation (NASDAQ:NVDA), up from 83 in the previous quarter worth $10 billion.
In addition to Visa Inc. (NYSE:V), Block, Inc. (NYSE:SQ), and PayPal Holdings, Inc. (NASDAQ:PYPL), NVIDIA Corporation (NASDAQ:NVDA) is one of the stocks that hedge funds are monitoring as a bargain play in an inflationary market.
In its Q4 2021 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and NVIDIA Corporation (NASDAQ:NVDA) was one of them. Here is what the fund said:
“During the fourth quarter, the ClearBridge Global Growth Strategy outperformed its MSCI ACWI benchmark. The Strategy delivered gains across eight of the nine sectors in which it was invested (out of 11 total), with the information technology (IT) and industrials sectors the primary contributors. The communication services sector was the sole detractor. Spare some time to check the fund’s top 5 holdings to have a clue about their top bets for 2022. Bucking the headwinds among our emerging growth names was NVIDIA Corporation (NASDAQ:NVDA), which saw continued sales momentum from their leadership positions in the key growth areas of graphics processing units for gaming and data centers.”
5. Solana
Solana is one of the most popular altcoins on the market. Investors have backed the coin as one of the main challengers to Ethereum, the second most popular coin globally. This is because the Solana network has lower transaction speeds and lower fees compared to the Ethereum network. Utility and community have driven a rapid rally in the price of the coin that has become one of the most popular crypto on Reddit. Solana is available on stock trading application Robinhood as well. All these use cases contribute to the overall asset value.
Solana is also different from other coins since it uses a combination of proof-of-stake and proof-of-history mechanisms to achieve consensus. Since the Proof-of-Work (PoS) system is under fire for energy-intensive mining requirements, resulting in a subsequent risk associated with owning PoS coins, Solana is a much safer investment in this regard as well. Solana was launched in 2020 at a price of $0.77 per coin. In the two years since, this figure has climbed to around $136, representing an increase of 17,500%.
4. Binance Coin
Binance Coin is the coin used on Binance, one of the largest crypto exchanges in the world. During times of crisis, trades related to crypto usually increase as investors panic and sell. Since a large number of these transactions are made on the Binance platform, they require the use of the Binance coin for trades, resulting in an increase in demand for the coin that subsequently has an impact on the price. In addition, the coin is also used for other purposes like payments processing and travel arrangements.
Binance Coin is also one of the fastest-growing coins on the market. In 2017, one Binance coin was priced at around $0.10. By early April 2022, the price of one Binance coin had risen to around $445. This represents a gain of 445,000% in five years. Binance also has a global presence, meaning the exchange offers relative protection from reliance on just one or two markets. The trading fees on the platform are also one of the lowest globally, increasing the value it offers to crypto enthusiasts worldwide.
3. Tether
Tether is a stablecoin. This means that the price of the coin is tied to a third-party asset, in this case the United States dollar, and is less prone to the price volatility associated with other cryptocurrencies. In the past year, the price of Tether has not fluctuated by more than 1% or so, attesting to the stable nature of the asset in the wild crypto market. Tether is also one of the biggest coins in the world in terms of market capitalization, ranking third behind Bitcoin and Ethereum. It includes support for a number of blockchain networks.
There are also some potential downsides to investments in Tether that should be considered before backing it as a recession investment. Only about a third of the coin is backed by cash, fiduciary deposits, reverse repo notes, and government bonds. The rest of the coin is backed by a short-term money market instrument called a “commercial paper”. According to a report by crypto expert Ann on Medium, Tether has not engaged with reputable firms for commercial paper transactions, increasing overall risk.
2. Ethereum
Ethereum is the largest decentralized application platform in the world and offers more growth potential than Bitcoin, the most popular coin by market capitalization, for investors. This is because Ethereum is on the verge of rolling out a big update that will significantly improve the energy efficiency and speed of the network. As market experts are predicting that the US economy might drop into recession later this year, buying Ethereum at a bargain price now could translate to significant returns in the coming months.
Ethereum already hosts nearly 3,000 decentralized apps on the network. However, the network can only process nearly 100 transactions per second, resulting in constant bottlenecks. The new upgrade, transitioning from Proof-of-Work to Proof-of-Stake, will likely increase this number to 100,000. The price of Ethereum is also more predictable than Bitcoin since it is tied to real-world use cases. This makes the coin more akin to gold and oil, which are also used to store wealth during crises, than other crypto coins.
1. Bitcoin
Bitcoin is widely regarded as one of the best-performing assets of the last decade. Many investors are turning towards Bitcoin as an alternative to cash or high-quality dividend stocks during times of recession. This is because the value of the coin is not tied to the economy of one particular nation, relatively protecting it from the ripple effect of a market crash in the US or China. The price of the coin is not tied to one particular event either, rather it revolves around different themes such as regulation, environmental concerns, government crackdowns on mining, and changes in institutional adoption.
Bitcoin is also being used to store wealth since it tends to perform well during economic expansions and contractions. For example, Bitcoin is a safer option as a store of value compared to other popular coins like Ethereum and Tether because the purpose of the coin is not centered around practical use-cases like smart contracts, block times, and non-fungible tokens. Another advantage of an investment in Bitcoin during a crisis is that the total supply of the coin is capped and added supply is decreasing.
You can also take a peek at 10 Stocks Reddit’s WallStreetBets is Buying in July 2021 and Top Robinhood Stocks Popular on Reddit.
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Disclosure. None. 10 Cryptocurrencies Redditors are Buying Before Recession Begins is originally published on Insider Monkey.
