3 Painful Crypto Investing Lessons From The Merger

It may still be too early to tell, but The Merge has so far been disappointing from an investment perspective. This technological upgrade from Ethereum (ETH 0.59%) was one of the most hyped events of the year, but the price of Ethereum has not responded as planned. The crypto is down nearly 65% ​​for the year and an eye-popping 20% ​​since The Merge took place on September 15th.

An important part of The Merge is that the general macroeconomic environment is going to far outweigh any news from a crypto, no matter how positive. Right now, investors are focused on bigger issues, such as inflation, rate hikes by the Federal Reserve and the risk of a persistent recession.

With that in mind, here are three crypto investing lessons from The Merge.

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1. Only buy cryptos you are willing to hold for the long term

This sounds like something Warren Buffett might say, and with good reason. Buffett has often used this advice to justify his investment decisions in the stock market. But this advice can just as easily be applied to the crypto market. Those most likely to lose money on Ethereum are all the investors who were looking for an easy profit by buying a crypto they didn’t really understand.

They hoped to buy Ethereum cheaply over the summer, hold it just long enough to make a tidy profit, and then cash out. That’s not going to happen with Ethereum anytime soon, given current market conditions. So they are either stuck with an underperforming asset they don’t like in their portfolio, or forced to take a loss on their position. Oh!

2. It is almost impossible to time the market perfectly

Crypto investors who piled into Ethereum over the summer thought the price of the crypto would generally rise for some time before finally hitting a crescendo on or around the date of The Merge. The media was filled with stories about “why you need to buy Ethereum before The Merge.” The logic seemed so simple: Get in during the summer, watch your cryptocurrency rise in value, then tell all your friends you were “early” on Ethereum. Unfortunately, the only people who were “early” on Ethereum were those who started collecting Ethereum back in 2015.

Also, if you look at the stock chart of Ethereum before The Merge, it is a very striking visual proof that it is almost impossible to time the market perfectly. There are zigs and zags, peaks and valleys, all while the market was trying to find the “true” market price of Ethereum. If you bought Ethereum in mid-August, just 30 days before The Merge, you probably paid close to $2,000 for Ethereum. Yes, you were “early” on Ethereum, but not nearly early enough.

3. Cryptos have a business basis

In the crypto industry, the decision to buy a crypto for many people usually comes down to a simple question: “Is it going up at the moment, or is it going down at the moment?” But this is an extraordinarily lazy way of thinking about investing in crypto. It also explains why many people probably feel they got burned by investing in Ethereum. The painful lesson here (sorry, folks) is that you need to do your homework if you want to find a quality crypto.

The difficulty, of course, is that cryptos are not companies. They don’t have “earnings,” they don’t generate cash flow, and they don’t have quarterly calls where you can sit down with company executives and really dig into the numbers.

But there are many places around the web where you can find important metrics that give you insight into the true fundamentals of a crypto. For example, Total Value Locked (TVL) has emerged as a favorite metric to measure how much activity is actually happening on a blockchain. There are plenty of cryptos that claim they have a lot of activity going on, but when you check the TVL figure, the argument seems to be more hype than reality.

So is Ethereum a buy?

The good news is that the underlying fundamentals of Ethereum continue to look good. In terms of TVL, Ethereum remains the recognized leader by a wide margin, responsible for more than 57% of all TVL among blockchains. If you take a look at Ethereum’s position in the non-fungible token (NFT) market, it remains the dominant blockchain by almost any metric. So we know that fundamentally, Ethereum is still a quality crypto. Over time, the price should go up.

If you are thinking of buying Ethereum, however, forget about trying to time this market. It’s still down nearly 75% from its all-time high of $4,891.70, so it’s currently on sale. Buy it now and keep it forever. Your crypto portfolio may thank you later.