$2 trillion in crypto has been wiped out, is this a good time to buy?
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How much lower can the crypto market go?
Important points
- Over the past eight months, the crypto market has lost over $2 trillion in value, 60% from its peak.
- Major crypto funds and platforms have gone under and thousands of employees have lost their jobs.
- Crypto is not the only investment that has done poorly this year, the stock market and the economy in general have fallen due to high inflation, supply chain issues, the war in Ukraine and more.
The cryptocurrency market has been hit hard this year, losing over $2 trillion in value since peaking in 2021. The crypto market reached $3 trillion in November 2021. However, in eight months, the market has fallen by over 60% to around $920 billion, the worst first half of the year ever. With crypto at lows not seen since 2020, is this a good time to buy?
Massive losses
In addition to the huge sell-off, many crypto funds and platforms have also gone under. Crypto lender Celsius had $25 billion in assets under management. After declaring bankruptcy last month, it was left with $167 million in cash and owed $4.7 billion to users.
Hedge fund Three Arrows Capital (3AC) managed $10 billion in crypto, and now its assets have been frozen by a federal bankruptcy court. Voyager Digital, another popular lending platform with 3.5 million customers, has also filed for bankruptcy in recent weeks.
Employees have also felt the sting of crypto’s collapse. Coinbase laid off 1,180 employees, nearly a fifth of its workforce last month. Other crypto platforms such as Gemini, Crypto.com, BlockFi, Bitpanda and OpenSea have followed suit, cutting 5% to 20% of their workforce or announcing a hiring freeze.
Is the crypto crash over?
With the crypto market in turmoil, many are calling it a “crypto winter”. A crypto winter is where prices remain low for an extended period of time. However, it is not just crypto that is down. The S&P 500 fell at one point by more than 20% this year, which is considered bear market territory.
According to the latest GDP data, the US economy contracted for the second quarter in a row in Q2. Two quarters of consecutive GDP decline is the typical indicator of a recession. High inflation, supply chain problems and the war in Ukraine have contributed to the decline. The Fed rate hikes have also affected the crypto market.
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Until the overall economy becomes healthier, crypto prices may continue to be in a crypto winter. However, with crypto falling to attractive prices and buying volume increasing, there may be signs that we may be heading back to pre-dip levels.
Is it a good time to buy crypto?
Like any investment, it is almost impossible to know when we will bottom out. Buying a dip is a good strategy when price drops are temporary and in the long term prices continue to rise. Cryptocurrencies are volatile and as the market has shown over the past 5 years, prices can move quickly in either direction.
Dollar-cost averaging (DCA) is an approach to buy the dip without exposing yourself to too much risk. DCA buys a fixed dollar amount on a regular basis regardless of price. In this way, you buy more shares when prices are low and fewer shares when prices are high. DCA is also a good way to avoid emotional investments and avoid mistiming the market.
When investing in crypto, it is important to take the risk and long-term goals into consideration. Prices may continue to fall, so it’s not a good idea to put all your eggs in one basket. Diversification will help you spread your risk between different asset classes. Although there are opportunities to buy when prices are lower, there is no guarantee that they will rise again.
There are countless stories of crypto investors who have lost their savings during this downturn. The focus should be on finding the right investment portfolio that will help you achieve your goals without taking unnecessary risks.
