Should you really invest in crypto right now?

November last year, Bitcoin (BTC 0.99%) and Ether (ETH 4.07%) reach their records of more than $ 68,000 and $ 4,800, respectively. Many other smaller cryptocurrencies were also lifted by the rising tide.

But today, Bitcoin is traded for around $ 20,000 while a single Ether token is worth about $ 1100. Many of the smaller altcoins – such as Dogecoin (DOGE 2.31%) and Cardano (ADA 0.85%) – went even worse.

The staggering crash was largely caused by rising interest rates, which drove investors away from more speculative investments; the alarming errors of “stablecoins” such as TerraUSD; tightening of regulations for the crypto market; and liquidity issues at several cryptocurrency exchanges. Expensive advertising stunts – included Coin base‘s (COIN -6.68%) The Super Bowl ad and Matt Damon’s Crypto.com ad – also suggested that the market was bubbling over.

Image Source: Getty Images.

But after the bubble appeared, some contrarian investors may be wondering if it’s finally time to buy some top cryptocurrencies like Bitcoin and Ether. Let’s go through the bull and bear cases for the crypto market to decide.

What do the bulls think?

The bulls believe that the cryptocurrency is resetting a market that had been saturated with dangerous coins and speculative traders. After the weaker cryptocurrencies are burned away, the stronger ones – such as Bitcoin and Ether – can stabilize and become viable assets for investors.

Many cryptocurrencies previously claimed that cryptocurrencies could shield investors from inflation, but volatility in the immature market prevented that scenario from playing out as consumer prices rose this year. However, if the prices of Bitcoin and Ether stabilize, they may become viable hedges against inflation, such as gold, silver and other precious metals, in the future.

However, no one is sure when these prices will actually stabilize. Last year, Ark Invest’s Cathie Wood predicted that Bitcoin’s price would reach $ 560,000 by 2026 if all institutional investors allocated only 5% of their portfolios to the cryptocurrency. Earlier this year, she claimed that Bitcoin’s price would reach $ 1 million by 2030. Fundstrat’s Tom Lee, who correctly predicted Bitcoin’s rise from $ 9,000 to $ 20,000 before the pandemic began, believes the price could eventually rise to around $ 200,000 during the next few years.

As for Ether, the bulls believe the recent Ethereum 2.0 (Eth2) upgrade for the blockchain, which could potentially reduce total energy consumption for mining by about 99%, will make it a more environmentally friendly alternative to Bitcoin, which uses huge amounts of energy. They also believe that the smart contract technology at Ethereum, which facilitates decentralized transactions across the blockchain, can be used to create a new generation of decentralized apps (dApps) that are not linked to centralized mobile app stores, operating systems and cloud platforms.

The price targets for Ether vary widely, between $ 4000 and $ 8000, but all these bullish estimates are related to the idea that the Eth2 upgrade will stabilize Ether’s price and improve mining efficiency.

What do the bears think?

The bears often compare the crypto bubble to the tulip mani bubble of the early 17th century. If it follows this path fully, all cryptocurrencies – including Bitcoin and Ether – could fall to zero.

Like the tulip bubble, cryptocurrency prices were driven by a “fear of missing out” (FOMO) rather than actual value or scarcity. When the tulip bubble burst, people realized that they had paid absurd prices for individual bulbs – and investors could be determined to repeat the story with their cryptocurrencies and NFTs (non-fungible tokens).

The bears believe that cryptocurrency mania was primarily driven by social networks such as Reddit, commission-free trading platforms such as Robin Hood, sheer boredom during the pandemic and stimulus checks. These tailwinds are now disappearing as inflation, rising interest rates and a potential recession are driving investors towards safer investments instead. That’s why Brian Armstrong, CEO of the cryptocurrency exchange Coinbase, recently warned investors that a new “crypto winter” had begun.

Government regulators around the world are also cracking down on cryptocurrency trading and exchanges. The regulatory pressure, which has intensified in the United States under the new chairman of the Securities and Exchange Commission (SEC) Gary Gensler, could eventually deflate the entire market. After all, cryptocurrencies were originally promoted as anonymous alternatives to fiat currencies – but now they are being aggressively tracked, regulated and taxed.

Simply put, cryptocurrencies are the kind of investment that can flourish in a bull market – but they are destined to disappear in a bear market.

Is it the right time to buy crypto?

I do not intend to dive into the crypto market when interest rates rise, but I also do not think leaders like Bitcoin and Ether will disappear immediately. Therefore, I believe that investors should wait for the broader markets to stabilize before nibbling on these top cryptocurrencies, and only allocate a low single-digit percentage of their portfolios to these coins when it finally happens.