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Most crypto bulls would argue that digital assets are good investments because of their fundamentals. Blockchain technology will revolutionize finance. Bitcoin is a hedge for inflation and a store of value. Adoption is increasing. And so on.

Bears will argue the digital assets are nothing but high-risk vehicles for speculation, tethered to liquidity in the financial system. Bitcoin, ether, and tons of other cryptocurrencies have already sold off massively in recent months, as investors have turned bearish in anticipation of monetary tightening. Bitcoin and ether fell by as much as 50% from the former's November 8 high.

Gritt Trakulhoon, the top crypto analyst at asset management startup Titan, seems to be one of the few bears to acknowledge this argument as legitimate.

"In some ways it's sort of true," Trakulhoon recently told Insider.

But if he gives weight to that argument, and with the Federal Reserve pulling its support from the market and getting set to hike interest rates in the months ahead, why should investors be in crypto at all in the near-term? Liquidity is drying up, and quickly why bother for the time being?

Trakulhoon's answer was that investors seem to have digested the news around Fed tightening.

He pointed to signs that back this up, that the market may be bottoming though he admitted that bottoms are difficult to call in crypto as prices have indeed started to slightly recover in recent days.

For one, flows into digital asset funds have turned positive again, Trakulhoon said, citing data from CoinShares.

Relatedly, bitcoin "whales," or those that hold vast amounts of bitcoin, have started to add to their positions again, he said. The supply of bitcoin per whale is now at a 10-year high, according to Cointelegraph.

Further, long-term holders of bitcoin have also slowed selling, which Trakulhoon said has been a bullish indicator in the past.

Bitcoin's relative strength index, or RSI, also shows that the cryptocurrency appears to be oversold, he said in an email.

If bitcoin hasn't yet bottomed, Trakulhoon said the crypto, currently near $44,300, should ultimately go no lower than around $24,000. That's because this is bitcoin investors' average cost basis, he said. If and when bitcoin goes into the high $20,000s or low $30,000s, Trakulhoon said it would present an attractive risk-reward proposition.

Of course, there are also the long-term bullish trends that excite Trakulhoon, as his investment outlook is for the next 3-5 years.

Major banks are ramping up their crypto infrastructure and hiring teams of people familiar with the space. Banks are also investing heavily.

He also believes a bitcoin spot ETF will eventually be approved, which will mean more inflows, he said.

"Regardless of what the market does in the short-term, we still see development going on, progress being made," he said. "The number of developers and people who work in the space have multiplied dramatically in the last year, like 4-5 times. And I think going forward it's going to be quite interesting, because we're at the crux of really gaining that mainstream adoption."

In addition to bitcoin, which he likes as an inflation hedge and store of value, Trakulhoon said he is "quite bullish" on a number of other projects. All of them are layer-one blockchains, meaning they provide the base layer for other applications to build on.

The biggest of them is ethereum, which is currently the second-biggest crypto by market cap .

"I don't even consider ethereum as an altcoin anymore. It's a blue chip, the world's largest blockchain, has thousands of applications on it, and is undergoing a pretty transformative change in terms of moving from proof of work to proof of stake," he said about the smart-contract blockchain.

But ethereum has had its issues. Trakulhoon said it was "over compromised on security," and pointed to its high gas fees and lack of scalability as problems that need fixed.

That's why he also likes a number of ethereum's competitors, other smart-contract, layer-one blockchains. These include Avalanche, Terra, Solana, Phantom, and NEO.

"We look at these layer-one blockchains as a good sort of pick-and-shovel play to capture the potential growth that will come with metaverses, NFTs, gaming, and DeFi, because all these applications have to be built on these blockchains."

See the original post:
6 Altcoins to Watch, and Why the Crypto Market Is Bottoming: Analyst - Business Insider