Attempting to time financial markets has been proven over and over to be a losing investing strategy. With the current crypto market decline people want to know if now is the time to buy.
As Bitcoin (BTC) this week fell below $33,000 for the first time in around 12 months and with Ethereum (ETH) and Cardano (ADA) also tumbling, the crypto market appears to be crashing – or at least going through a major correction.
Given the old investment adage ‘buy the dip’, investors may now be looking for a piece of the volatile crypto market in hopes this marks a temporary downturn rather than a long-term bear market.
If you’re thinking now is the time to buy, here’s a look at previous trends, some expert opinion and tips on buying if you’re new to cryptocurrency.
Month on month*, the price of BTC is down more than 20% to around $32,000USD today. Back in November 2021, it traded for as much as $69,000. A more-than 50% drop represents significant losses.
ETH saw similar losses to Bitcoin over the past month, down to around $2,400USD, while Cardano (ADA) suffered even worse, falling by almost a third (32%) to $0.69USD.
While this doesn’t yet match the severity of the 2018 crash, in which Bitcoin lost 80% of its value, experts say things could still get worse for those left holding BTC.
It’s these kinds of losses that have prompted the UK finance regulator, the Financial Conduct Authority (FCA), to issue repeated warnings to crypto investors. It says there are no guarantees of returns and that people should be prepared to lose everything they invest.
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Inflation, downturn and war
Co-founder of automated crypto trading platform Coinrule, Oleg Giberstein, thinks crypto is undergoing the same stresses as other parts of the economy, leading to the fall in prices.
He said: “It’s not just crypto that’s down, everything is down, and over the next 6-12 months the economic outlook is bad. Central Banks are between a rock and a hard place with regard to slow economic growth and high inflation. So, investors are escaping ‘risk-on’ assets like crypto and tech stocks.”
As for whether this downturn marks the beginning of a long-term trend or a temporary blip, Giberstein believes the market could remain challenging for up to two years, but added things could worsen during that time.
Sam Kopelman of crypto exchange Luno agreed that Bitcoin and other coins’ misfortunes weren’t happening in isolation: “Falling below $30,000 leaves bitcoin on the precipice of a key support level. If Bitcoin falls below this support level, it could even drop further to $25,000 before any significant move back up.
“Investors dumped assets across the board yesterday as global stocks suffered the worst day since June 2020. The market is battling the consequences of rapidly rising US interest rates, alongside military conflict in Europe.”
Inflation information out this week from the US Labor Department and the UK’s Office for National Statistics will likely have a knock-on effect for interest rates and, in turn, crypto prices.
Kopelman says the reports in the US and UK should provide more clarity of market moves over the coming weeks, but expects a volatile week ahead.
Is ‘buy the dip’ a good strategy?
The principle of ‘buy the dip’ is based on an assumption price drops are temporary aberrations that correct themselves over time. Dip buyers hope to exploit dips by buying at a relative discount and reaping the rewards when prices rise again.
Crypto markets are volatile, so buying cryptocurrencies at any price – let alone a dip that might become a long-term trend – is risky. While prices could return to previous levels, they could also fall even further, leaving your investment underwater.
If the past is prologue, then the current dip (or crash, depending on your perspective) could bounce back as it did last year, when prices fell to similar levels before returning to pre-dip levels and even peaking in the autumn. But of course, they might not.
Bitcoin prices in particular have shown a degree of seasonality to date, appearing to fall in value to lesser or greater extents in the spring before bouncing back in early summer. However, as with every kind of investment, let alone the unpredictable world of cryptocurrencies, past performance is no guarantee of future results.
Oleg Giberstein said: “Many a novice investor has been burned trying to ‘catch falling knives’”.
He advises those committed to ‘buying the dip’ to decide on a set amount of money they’re comfortable with using to buy BTC or ETH each month and not to worry too much about what happens to prices over the next two years.
Pavel Matveev of digital exchange Wirex advises buyers to hedge their bets. He said: “It’s important to diversify your crypto portfolios with different altcoins to mitigate risks.”
via this site forbes.com