Nearly the entire cryptocurrency ecosystem was swept away last week as news of government crackdowns and other negative headlines dominated the discussion.
However, not all parts dipped. One of the generally positive aspects of declining cryptocurrency values is that different assets react in different ways to selling.
Certainly, the damage is considerable. Bitcoin fell 12% last week and Ether, the second most valuable cryptocurrency, fell 21%. Excluding stablecoins, whose values hover around $1 because they are pegged to the dollar, the top 12 coins all fell. But others have increased during this period.
Barrons searched for coins among the top 100 cryptos by market capitalization that have outperformed over the past week, and found several that have held up.
They include parts that aren’t exactly household names, but are explored as potentially useful technologies: Polygon, Helium, Celsius, and Maker. It is dangerous to assume that relative winners will hold up longer term – cryptocurrencies can move strongly based on trading in unregulated opaque markets and can suffer from low liquidity. With small coins in particular, investors need to understand the platform they are buying from, as they are essentially investing in an early-stage venture capital startup.
That said, the projects that held up the sale are worth watching. One of the reasons why some of these coins may have performed well is that they dodged some of the problems of the global cryptonet during the selloff.
“One thing we saw during the panic is that centralized exchanges and many decentralized exchanges were having trouble keeping up with demand,” said Matt Hougan, chief investment officer at crypto fund provider Bitwise Asset Management. Barrons in an email. “Many centralized exchanges simply went down for periods during the sell-off because they were overloaded with traders.”
This may have been the case with Polygon, formerly called Matic, the 14th most valuable cryptocurrency. It’s a so-called “Layer 2” technology which is built on top of the Ethereum blockchain and is intended to make transactions faster and cheaper. Hougan thinks Polygon was able to work around some of the system congestion during the sale because it’s supposed to process more transactions. “Thanks to this approach, their network was not congested,” he writes. “As a result, users were able to trade easily on [Polygon] while other approaches faced challenges.
Polygon is involved in some of the hottest areas of cryptocurrency, including working with trading platforms to facilitate the trading of non-fungible tokens, or NFTs. Currently, NFT trading can be expensive due to the “gas fees” associated with using trading platforms.
The polygon may have increased for another reason as well – it seems to be better for the environment than some other parts. It uses a “proof of stake” system to validate transactions on the blockchain. Bitcoin uses “proof of work”, a much more energy-intensive system. Tesla CEO Elon Musk has criticized Bitcoin’s impact on climate change, causing some proof-of-stake tokens to outperform proof-of-work.
Helium is a particularly unusual cryptocurrency that is part of a project to decentralize wireless communications. Its goal is to get households and businesses to install small telecom hubs on their property – almost like mini cell towers – and then reward them with a token called HNT. The company says so has nearly 42,000 hotspots worldwide. It received funding from New York venture capital firm Union Square Ventures.
The Celsius network is known for allowing people to earn interest into their crypto holdings, or to borrow crypto. Celsius says it has over 700,000 users and is gaining nearly 100,000 users per month. Lending and borrowing is becoming more popular on crypto platforms, and Celsius is becoming a bigger hub for it.
Maker is a token that is part of another unique funding project within cryptocurrencies. MakerDAO is an organization that created a decentralized stablecoin called DAI that can be lent without intermediaries. Maker is a key hub of the “defi” movement that attempts to move traditional banking to a decentralized network where there are no gatekeepers and people can more easily lend or borrow currency. Maker tokens give users a vote in market creation and will likely increase in value if DAI is used more frequently.
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