Cryptocurrency market crash: is it time to buy?
Cryptocurrency prices have plummeted this year, and the most important cryptocurrency, Bitcoin, is now worth less than a third of its all-time high reached in November 2021. Back then, it took over 64,000 dollars to buy a Bitcoin; now, at the beginning of October, a BTC is worth around 20,000.
Similar movements were recorded for the other major Cryptocurrencies. Ethereum (ETH) fell from $4,800 to $1,347 over the same period and Binance Coin (BNB) from $650 to $290. If this is not a Cryptocurrency Market Crash, it is at least a deep correction.
An old Wall Street adage suggests that when prices fall, it might be time to buy: 'buy the dip' as they say. This a tactic that could come into play now, in the hope that the descent is momentary and not an indication of a bear market that will last for a long time (a bear in stock market jargon).
Significant Losses
The collapse in the prices of major cryptocurrencies, well over 50 percent, represents a significant loss. Although the severity of these losses is less than the 2018 crash, during which Bitcoin lost 80% of its value, experts say things could get worse for those who still own Bitcoin and other cryptos.
Cryptocurrency prices are subject to strong fluctuations. Consob, the Italian financial market authority, along with other regulators in the European Union has warned investors that cryptocurrencies "are subject to extreme price volatility and have shown clear indications of the presence of a price bubble" and that investors who buy them "must bear in mind that there is a possibility of losing a considerable portion, if not all, of the money invested"
Inflation, recession and war
The co-founder of the automated cryptocurrency trading platform Coinrule, Oleg Giberstein, believes that cryptocurrencies are under as much stress as other parts of the economy, and that this is the reason for the price collapse.
"It's not just cryptocurrencies that are down, everything is down, and the economic outlook for the next six to 12 months is bad," he says. "Central banks are between a rock and a hard place, with slow economic growth and high inflation. So investors are moving away from riskier assets like cryptocurrencies and tech company stocks."
As to whether this decline marks the start of a long-term trend or is instead a temporary misstep, Giberstein thinks the market could remain in trouble for up to two years, adding that things could even get worse during this period.
Sam Kopelman, UK head of cryptocurrency exchange Luno, agrees that the misfortunes of Bitcoin and other cryptocurrencies are not isolated cases. 'The market is battling the consequences of rapidly rising US interest rates as well as the military conflict in Europe,' he says.
"Buy the dip': a good strategy?
The principle behind 'buy the dip' is based on the assumption that price collapses represent temporary aberrations that correct themselves over time. Those who buy on dips hope to exploit them by buying at a relatively discounted price and reaping the benefits when prices rise again.
Cryptocurrency markets are volatile, so buying cryptocurrencies at any price, especially in the case of a downturn that could turn into a long-term trend, is risky. Prices might return to previous levels, but they might also continue to fall, leaving you with a loss.
Looking at the past, the current downturn (or slump, depending on your point of view) could lead to an upturn as happened last year, when cryptocurrency prices fell before returning to pre-downturn levels and even peaking in the autumn. Of course, however, this may not happen.
In particular, Bitcoin prices have so far shown a certain seasonality, falling more or less in price in the spring and rising again in early summer. However, as with any other type of investment, past performance does not guarantee future returns, especially when dealing with the unpredictable world of cryptocurrencies.
"A lot of beginner investors have suffered severe losses trying to invest by buying the downturns," says Giberstein, who advises those who want to try it to invest in Bitcoin or Ethereum every month a predefined amount that they can afford to lose, without giving too much weight to the quotes over the next two years.
Pavel Matveev, CEO of London-based digital payments platform Wirex, advises mitigating risk by splitting investments between various cryptocurrencies.
How to buy cryptocurrencies
If you have no experience with investing in cryptocurrencies, we have put together a guide to buying cryptocurrencies to assist you from the beginning - from choosing a platform to buy and sell, through what fees you have to pay to what alternatives to buying coins directly are.
