The top 5 cryptocurrencies for Australian investors to watch

The outlook for cryptocurrencies

As central banks gradually retreat from their hawkish positions in 2024, cryptocurrencies could see gains on the back of looser monetary conditions.

Global investors may find relief in signs that monetary authorities around the world are gradually shifting towards more accommodating settings.

Officials from the US Fed have recently signalled that two or three cuts to interest rates are likely in 2024, as inflation steadily eases.

In January, the US consumer price index rose 0.3% for the month and 3.1% on a 12-month basis, down from 3.4% in December. While the figures were higher than expected, Fed Vice Chair for Supervision Michael Barr said the central bank remains "confident [that] we are on a path to 2% inflation" - the target level at which interest rate hikes are no longer necessary.

In other parts of the world, expectations of looser monetary policy are also building as inflation gradually eases. In the Eurozone, annual headline price rises came in at 2.8% in January, down from 2.9% in December and edging closer to the 2% target after breaching a peak of 10.6% in October 2022.

Officials at the European Central Bank say they are now monitoring data in wait for an opportune time to reduce interest rates from their current record highs.

Here in Australia, analysts also expect the country's monetary authority to reduce interest rates in the near-future. All four of the country's big four banks expect the Reserve Bank of Australia (RBA) to commence cuts to the target benchmark rate by the second half of 2024.

Should central banks continue to shy away from rate hikes, it could bode well for the performance of cryptocurrencies, given that recent history has shown they are highly susceptible to monetary policy settings.

Cryptocurrencies endured a major rout in 2022, after the US Fed and other central banks turned hawkish in response to breakneck inflation. Tokens plunged across the board in tandem with other risk assets that are strongly influenced by tighter monetary conditions.

By the end of 2022 bitcoin had fallen to just a quarter of its value at the start of the year, while a slew of other cryptocurrencies plunged and major players in the sector came apart amidst legal scrutiny - chief amongst them Do Kwon's Terraform Labs and Sam Bankman-Fried's FTX.

While the 2022 cryptocurrency winter may have undermined the argument that digital assets serve as an effective hedge against inflation, this precedent could also bode well for them in an environment where inflation is abating and monetary conditions are easing.

If cryptocurrencies perform similarly to other risk assets such as equities, then looser monetary conditions may serve to boost their prices in the same way as stocks.

The top five cryptocurrencies to watch

Here is a list of five of the top cryptocurrencies for investors to consider, should they believe looser monetary policy will prove a boon for digital assets.

1. Bitcoin (BTC)

2. XRP (XRP)

3. Tether (USDT)

4. Ethereum (ETH)

5. Cardano (ADA)

Bitcoin (BTC)

Created by Satoshi Nakamoto in 2009, Bitcoin enjoys the prestige of being the first widely adopted blockchain-based token of the Internet era. This vaunted status provides BTC with a sense of credibility and trust that has the potential to underpin its long-term value.

Despite enduring a tumultuous history since its launch over a decade ago, including sharp declines towards the end of the Covid pandemic, BTC currently remains well ahead of its recent pricing. As of 15 February 2024, Bitcoin sat at US$52.029.90, for a year-to-date rise of more than 17%.

XRP (XRP)

First launched in 2012, XRP is the native cryptocurrency employed by Ripple, a payment, exchange and remittance network that is based upon a distributed open-source protocol and is accessible to financial institutions around the globe.

Ripple claims to permit "secure, instantly and nearly free global financial transactions of any size with no chargebacks".

In July 2023 a US court ruled that XRP is not a security, after the Securities and Exchange Commission (SEC) launched legal proceedings against Ripple CEO Brad Garlinghouse and co-founder Chris Larsen in December 2020, on the grounds that the cryptocurrency was an unregistered security.

Tether (USDT)

First launched in 2014, Tether is an asset-backed stablecoin whose value is in theory pegged to the price of fiat currencies such as the greenback and Euro.

According to reports from Bloomberg, USDT is the largest stablecoin in terms of both trading volume and market capitalisation, as well as one of the world's most traded cryptocurrencies. reports

Hong Kong-based Tether Limited has stated that it holds reserves equivalent to each USDT issued in order to maintain the peg, although the company has incurred fines for failure to present sufficient audits to regulators in the past.

Ethereum (ETH)

First conceived in 2013 by programmer Vitalik Butrin, ETH has since emerged as the world's second-largest cryptocurrency in terms of market capitalisation. It's garnered strong support amongst some fintech developers, due to the smart contract functionality of its blockchain-based open-source software.

ETH underwent 'the Merge' in September 2022, when it shifted from a consensus mechanism based on proof-of-work to one based on proof-of-stake. According to developers, the move has slashed Ethereum's energy usage by 99%, potentially overcoming one of the main hurdles to the broader adoption of cryptocurrencies for transactional purposes.

Cardano (ADA)

While ADA is one of the newer cryptocurrencies on the market, it's a pioneer in its adoption of a proof-of-stake consensus mechanism that helps to greatly reduce the energy intensity and raise the efficiency of blockchain-based transactions

Cardano founder Charles Hoskinson recently unveiled plans to improve the functionality of ADA, with the Plutus V3 upgrade that will enhance blockchain interoperability.

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