Cryptocurrency prices are falling. Descent.
After a tick-tock-tick above $69,000 in November, the Bitcoin roller coaster dipped to a low of just $35,000 at the end of January. Ethereum and other popular altcoins followed a similar trajectory, wiping out $1 trillion in total from the crypto market in a matter of weeks.
However, if you present these numbers in front of a real crypto investor, they won’t go astray; they will tell you to jump on board.
Source: Tenor.com
“Buy a dip,” they say. Prices will skyrocket again, as always.
But will they? Is it time to buy (more) cryptocurrencies? Or is the trip nearly over?
Let’s take a look at what has already happened and what will happen, and whether it is worth buying cryptocurrency in 2022.
This is why prices fell in the first quarter
Before investing in crypto (or anything for that matter!), it’s best to take emotions out of the equation and look at the numbers. Where are cryptocurrency prices now and why?
Well, as mentioned above, we are in the midst of a crypto crash. Because cryptocurrencies are so speculative, it’s hard to pinpoint the culprits, but it’s safe to say that rising interest rates, El Salvador’s failed Bitcoin adoption, and investor withdrawal during the pandemic era are all playing a role.
So that’s what causes the failure. Will prices go up again now?
Well, let’s take a look at some of the upcoming trends that could push prices up or down.
What trends can push the price of cryptocurrency up?
It’s worth repeating that crypto is a super speculative thing. It does not include P/E ratios, sector performance measures, or other data points that help us predict stock or real estate prices.
However, even though cryptocurrency prices are largely determined by perception alone, we can predict which trends will affect that perception.
War in Ukraine
Crypto’s continued role in protecting Ukraine has given it much-needed publicity in the wake of the El Salvador disaster (discussed below).
In the first week of the invasion, when Ukraine was forced to freeze its own economy to prevent bank runs, foreign donations were hard to come by. Luckily, the cryptocurrency has given donors the ability to send money directly to the Ukrainian government, and since then over $100 million in BTC, ETH and even NFT has flown through them to pay for food, Kevlar and other vital items.
In Ukraine, the cryptocurrency has literally proven its worth on the world stage, which can revive global interests and investor confidence.
Rising inflation
In an era of skyrocketing inflation, many people see cryptocurrencies as a safe place to store money so it doesn’t depreciate (also known as “inflation hedge”).
Translation: If you have $1 in your checking account, it could be worth as little as $0.94 next year. But if you put it in a cryptocurrency, it could be worth $1.36 next year. Since this growth exceeds inflation, this makes the cryptocurrency a good hedge.
Naturally, not everyone thinks so. Some still consider cryptocurrencies to be too volatile to safely store any amount of capital. But watch the headlines – if more institutional investors declare Bitcoin as a hedge against inflation, prices could rise quickly.
What trends can reduce the cost of cryptocurrency?
…War in Ukraine
Like a force of nature, cryptocurrencies don’t pick sides. Case in point: while the cryptocurrency brought $100 million in aid to Ukraine, it also created a back door for Russia to bypass Western economic sanctions and continue funding the conflict.
Of course, Western exchanges like Coinbase have gone to great lengths to intercept Russian money on the blockchain. However, the dual role of crypto in the conflict could lead NATO to view it as a whole as a price-damaging burden.
Metaverse and NFT
The Metaverse, aka the VR extension of the Internet, is on its way. I have done a full analysis of how the Metaverse will change our financial landscape, but for the purposes of this discussion, you should know that the impending Metaverse may not be good news for cryptocurrency prices.
You see, the metaverse must be powered by stable, controlled, and NFT-enabled cryptocurrencies. Ethereum 1.0 only checks one of these points, while Bitcoin checks none of them.
For this reason, tech giants are already starting to file patents for their own cryptocurrencies, and the looming metaverse could mean the end of Bitcoin.
Disaster in El Salvador
As mentioned, El Salvador, being the first country to accept Bitcoin as legal tender, was supposed to be a PR day for the cryptocurrency, encouraging other countries to follow suit and sending the cryptocurrency market to the moon.
Unfortunately, the opposite happened. Adoption rates are in single digits, El Salvador has lost 23% of its initial investment, and the International Monetary Fund is begging President Bukele to back out. Massive oof.
So, there are trends for and against the revival of cryptography. Are there any constants in all this?
Yeah. Risks, of course.
One thing remains the same: risk
A few years ago, I published an article about the six biggest risks to investing in bitcoin:
- Cryptocurrency deposits are not FDIC insured.
- Blockchain cannot be hacked, but wallets and trading platforms can.
- Loss of access to the wallet.
- Cryptocurrency consumes more energy than Sweden.
- Countries forbid it.
- Bitcoin winter may be coming.
I’m picking them up now because they’re still true. In fact, the risks are increasing; more exchanges have been hacked and Bitcoin is now consuming more energy than Argentina, which in turn is drawing more ire from world governments trying to cut emissions.
In any case, I believe that cryptocurrency is not any safer than it was in 2021. If you decide to invest in it, it’s best to start with a small percentage of your portfolio (<10%) dedicated to high yield companies. risk, speculative assets.
Need help assessing your risk tolerance? We got you.
Is it worth buying cryptocurrency in 2022?
You may consider buying cryptocurrencies if:
You are high risk tolerant and can dedicate 10% of your portfolio to high risk speculative investments, you might consider buying a small amount of cryptocurrencies.
Which cryptocurrency should you buy, you ask?
HM. Well, variety always helps. Consider a combination of OG (BTC, ETH) and some promising altcoins. Read more about choosing criteria in the article How to invest in cryptocurrency.
You can safely transfer crypto if:
The thought of investing in a super risky, speculative asset makes you more anxious than excited and you prefer to see your money grow more steadily, then you will be 100% fine without cryptocurrencies.
People have been seeking financial freedom long before the advent of cryptocurrency. See how the rich get rich (and how you can too!).
The “secret” is to be ordinary. Investing is supposed to be boring, and perhaps the best, most boring way to invest is to invest in an index fund.
Will 10% APY make a huge profit? Nope.
Will it provide stable income? Yeah.
And you know what they say about slow and stable.
Source: 9GAG.com
Summary
Cryptocurrency prices bounce up and down like an ECG of a scared Chihuahua, and for every trend that signals another bull move, there is an opposite trend that signals a down market.
One thing remains unchanged in 2022: Bitcoin and others like it are still risky investments. If you decide to invest in a particular cryptocurrency, set aside a small corner of your portfolio for it and just see how it performs. See if you can risk (and manage stress) money in the most unpredictable market of our lives.
If not, there are many safer ways to invest and achieve financial freedom. Let Money Under 30 show you something.
Featured Image: Fer Gregory/Shutterstock.com