- Crypto’s crashing thanks to inflation, interest rates and Russia’s Ukraine invasion.
- Experts lean towards yes, but also advise caution.
- There are safer alternatives to betting directly on crypto, like ETFs that include crypto exposure.
You may be wondering what the heck is going on with cryptocurrency given recent headlines of crashes and dips.
A cryptocurrency, like Bitcoin, is a medium of exchange, like the U.S. dollar, but is digital. It uses an encrypted ledger (akin to your traditional financial accounting ledger) to track the currency. They are largely unregulated and not backed by any government or monetary authority, or hard asset like gold.
Bitcoin, Ethereum and other cryptocurrencies are down to two-year lows with the crypto market losing approximately $200 billion. They are crashing in part in reaction to overall rising inflation and interest rates, as well as the war between Russia and Ukraine.
They are also reacting to the crash of the TerraUSD stablecoin and the Luna cryptocurrency, whose value collapsed as investors dumped the assets afraid their investments would go sour.
“Cryptocurrencies are not only highly volatile but can lead to enormous losses such as Luna’s drop from $80 to below $0.30,” says Axel Rudolph, a market analyst at financial services firm IG. The fall prompted many crypto exchanges to delist the coin.
You might be curious about crypto and whether or not it’s time to jump in. We spoke to experts to see if now–with prices hovering around levels not seen since late 2020–is the right time to buy. The answers were mixed, and caution was the key theme for all.
Why is crypto crashing?
Part of the blame lies with geopolitics including the global impact of the Russian invasion of Ukraine, rising inflation around the world and interest rates that are increasing to rein in those higher prices.
It’s important to note that crypto–like so many other assets–is volatile. That volatility comes from many factors, including speculation, fear of missing out, supply and demand (if there’s not enough supply and too much demand, there go prices climbing higher) and, specific to crypto, there’s nothing backing it up (like, say, the U.S. government backing I Bonds or something sturdy like gold).
“Cryptos are speculative, driven by psychology rather than by any meaningful technical or fundamental information,” says Dejan Ilijevski, president at SCM Investment Services, an investment advisory firm. “Speculators are driven by [fear of missing out] and nudged into cryptos by celebrities and influencers–trading novices who are more interested in their best interests rather than the damage they can cause individuals and families seeking advice.”
Should you buy crypto?
The short answer is: Yes, you should think about buying now.
“When the market tanks, there is always an opportunity to buy,” says Mark Basa, director at HOKK Finance, which builds financial products related to crypto. “I look at crypto far more long term rather than months or even a year ahead. This is a 5 to 10 year game and the way to win is buy and then ride it out through all the ups and downs.”
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Brock Pierce, chairman of the Bitcoin Foundation, agrees that now’s absolutely the time to buy.
“These extreme levels of fear and selling activity historically end up being the best buying opportunities, and some may think even generational opportunities to buy into the cryptocurrency market,” Pierce says. “I would urge taking a cautious approach, but I believe in the medium and long-term and would think that now is as good a time as ever to be exploring investing and learning more about the cryptocurrency markets.”
What is the best crypto to buy right now?
Bitcoin and Ethereum fell, but didn’t completely plummet because they are mature markets.
Note that while the price of Bitcoin, for example, has dropped by more than 50% since hitting an all-time high in November, it’s still trading around $30,000 per coin. Two years ago, it was hovering around the $9,000 mark, proving this investment may have legs.
“Many players are involved with both these protocols, and they have created a compelling ecosystem,” says Dion Guillaume, global head of public relations and communication at Gate.io, a crypto exchange. “There are businesses, retailers, builders, artists, economists and even countries (in Bitcoin's case) that are vested in both of these systems.”
Nayeem Syed, chief vision officer at Exponentials.tv, a web 3.0 media outlet, says the more traditional cryptocurrencies are worth looking into, such as bitcoin, ethereum and tether.
“Top level blue-chip established cryptos can be a low risk investment for anyone, especially during dips,” Syed says.
Proceed with caution
Ilijevski disagrees on timing. “There is a dip every minute, every day, every week, and every month. Which of those time scales do we use?” Ilijevski asks. Market timing is incredibly difficult because it’s purely speculation, and while speculation is good for professional traders who are competing in short time frames, it’s definitely not for the average person.
That said, if you have the wherewithal to handle a loss, go for it, Ilijevski says.
“There is no reason to keep away from cryptos if it's trading with money that–if you lose–won't significantly change your lifestyle or financial picture,” Ilijevski says. “For the long term, I suggest to clients no more than 1-2% of your retirement portfolio allocation should be in cryptos.”
As an alternative to directly buying cryptocurrencies, Ilijevski suggests buying exchange-traded funds, or ETFs, that contain crypto-related assets and are generally more diversified, protecting investors from bets on individual companies.
“This is a more reasonable strategy compared to picking winners and losers in the crypto space,” Ilijevski says. “It's impossible to know which will survive in the near future.”
Tammy Da Costa, a financial market analyst at DailyFX.com, warns that things could get uglier. She notes that many retail traders invested in bitcoin and cryptos hoping to get higher returns in a low-interest rate environment. Things have changed with inflation expanding and interest rates rising. Da Costa warns of a possible “systemic shock” if large institutions continue to withdraw funds from their crypto portfolios, Da Costa says.
When should you buy crypto?
Now. This is the time, experts agree. Buy the crypto dip.
Kelly Ann Collins, a self-professed “digital pioneer,” lost thousands of dollars in Luna and TerraUSD stablecoin, but that’s not dissuading her.
“Everyone should invest wisely and do their own research, but I, personally, am buying the dip. Getting Bitcoin at $30,000 USD versus $100,000 is a steal,” Collins says.