Is now a good time to invest in Crypto?
Last week’s plunge in the local stock market, prompted by a sell-off in the US that saw the S&P 500 fall 4.3 percent last Tuesday, left investors questioning their next move in an increasingly volatile market.
As has been the case in recent times, the crypto market took the lead from the more established markets but plunged further, with Bitcoin down over 9 percent last Wednesday before recovering slightly towards the end of the week.
But last week was just part of the recent story for crypto investors.
Market-leading cryptocurrencies such as Bitcoin have fallen more than 70 percent from their peaks last November, while others have fallen even further. leading many commentators to declare a new ‘crypto winter’.
So, what has led to this sharp decline in recent months, and what does this mean for investors?
Crypto decline caused by macroeconomic factors
Yahoo Finance spoke with crypto expert Michael Hazilias, founder of digital asset consultancy Breakout Solutions, to get his take on the current market. Having been an investor in Crypto himself since 2017, and experiencing the highs and lows like no other, Hazilias set up his consultancy two years ago to share his experience with his clients.
“Everything in the crypto world is extreme, and the macroeconomic factors that have affected the real economies have also contributed to the loss of confidence in cryptocurrencies,” he said.
Hazilias goes on to explain that rising global interest rates – a response to above-average inflation caused in part by soaring energy prices – has been a significant factor in falling values in most investment sectors.
Cryptocurrencies have been particularly hard hit, as the nature of these investments is that they tend to outperform in good times and crash when investors get nervous.
Given this information, is investing in crypto still a good idea?
Is this the beginning of a new crypto cycle?
Hazilias suggests that the latest downturn is part of the long-term cycle.
“Based on past experience, the typical cycle for crypto investments is about four years, with most currencies experiencing exponential growth on either side of the most recent downturn,” he said.
He learns that buying into a period of decline can yield significant dividends in the long run.
“While recent losses have been painful for some investors, I believe the opportunity to create generational wealth arises during downturns,” he said.
Given that the price of BitCoin has stabilized since its low point in June of this year, and has actually risen by as much as 20 percent in recent weeks, it may be that the bottom for cryptocurrencies is now behind us, creating an opportunity to invest in next long-term cycle.
Not all crypto is the same
Another point Hazilias is keen to emphasize is that not all Crypto investments are equal, and the term “crypto” is a collection of a number of digital assets, with some far more speculative than others.
For example, Non-Fungible Tokens (NFTs) are a completely different asset than established cryptocurrencies such as BitCoin and Ethereum – each NFT is unique, while one Bitcoin can be exchanged for another.
Why does this matter?
Simply put, the value of NFTs is more likely to be influenced by the perception of what is valuable rather than market fundamentals, thus making them more susceptible to significant fluctuations in price.
Hazilias believes that in the current climate, investors should limit their exposure to speculative assets such as NFTs and invest in more established cryptocurrencies.
“BitCoin, and to a lesser extent Ethereum, have been around the longest, and as a result, these coins are seen as the most stable of current crypto investments going forward,” Hazilias said.
Why?
As BitCoin in particular has moved more into the mainstream, a recent report from Deloitte suggests that 75 percent of merchants will consider accepting BitCoin payments in the next two years.
As more companies normalize BitCoin as an accepted means of payment, the more likely it will be that speculation in its value will be reduced.
Crypto: Investment for the long term
Despite his enthusiasm for BitCoin in particular, Hazilias is keen to stress that all investments, including those in cryptocurrencies, should be viewed with a long-term lens rather than short-term speculation.
“Many of the early adopters of crypto investing have tended to view it as a ‘get-rich-quick’ scheme rather than a long-term investment, and that is inherently risky,” he said.
In his view, this ‘instant gratification generation’ has often been left out of pocket by trying to guess the market – in effect trading rather than investing.
He concludes with three golden rules for those considering investing in cryptocurrencies in the coming months:
1. Invest for the long term
2. Do your own research
3. Only invest what you can afford to lose
These rules can seem remarkably similar to the advice you would get when investing in more traditional assets such as shares or property. But as the crypto market matures, perhaps we should treat any investment in this space through the same lens.
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