Yahoo Finance Is now a good time to invest in crypto?
Last week's falls on the local stock market, prompted by a sell-off in the US that saw the S&P 500 fall 4.3 per cent last Tuesday, caused investors to question their next move in an increasingly volatile market.
As has been the case in recent times, the crypto market took its lead from the more established markets, but plummeted even further, with Bitcoin down more than 9 per cent last Wednesday before recovering slightly towards the end of the week.
But last week was only part of the recent story for crypto investors.
Market-leading cryptocurrencies such as Bitcoin have fallen more than 70 per cent from the highs of November last year. Other fell even further, prompting many commentators to declare a new 'crypto winter'.
So, what has prompted this sharp decline over recent months, and what does this mean for investors?
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Crypto downfall caused by macro-economic factors
Yahoo Finance spoke to crypto expert Michael Hazilias, founder of digital-asset consulting firm Breakout Solutions, to get his views on the current market.
Having been an investor in crypto himself since 2017, and experiencing the highs and lows like others, Hazilias set up his consulting business two years ago to share his experience with his clients.
“Everything in the crypto world is extreme, and the macro-economic factors that have been impacting the real-world economies have also contributed to a loss of confidence in cryptocurrencies,” he said.
Hazilias goes on to explain that rising global interest rates - a response to above-average inflation, caused in a part by soaring energy prices - have been a significant factor in falling values across most investment sectors.
Cryptocurrencies have been particularly hard hit, as the nature of these investments is that they tend to overperform in the good times and crash when investors get nervous.
Given this information, is it still a good idea to invest in crypto?
Is this the beginning of a new crypto cycle?
Hazilias suggests that the recent downfall is all part of the long-term cycle.
“Based on previous experience, the typical cycle for crypto investment is approximately four years, with most currencies experiencing exponential growth either side of the last downturn,” he said.
In his experience, buying into a downturn can pay significant dividends in the long run.
“Although recent losses have been painful for some investors, I believe that the opportunity to make generational wealth occurs during downturns,” he said.
Given the price of Bitcoin has stabilised since it’s low point in June this year - and has actually risen by as much as 20 per cent in recent weeks - it could be that the bottom for cryptocurrencies is now behind us, creating an opportunity to invest in the next long-term cycle.
Not all crypto is the same
Another point Hazilias is keen to emphasise is that not all crypto investments are the same, and the term ‘crypto’ is a catch-all for a whole range of digital assets, with some far more speculative than others.
For example, non-fungible tokens (NFTs) are a totally different asset to established crypto coins such as Bitcoin and Ethereum - each NFT is unique, whereas one Bitcoin is interchangeable with another.
Why does this matter?
Put simply, the value of NFTs is more likely to be influenced by the perception of what is valuable rather than market fundamentals, thus making them more prone to significant fluctuations in price.
Hazilias believes that in the current climate, investors should limit their exposure to speculative assets such as NFTs and invest in more established crypto coins.
“BitCoin and, to lesser extent, Ethereum have been around for the longest and, as a result, these coins are seen as the most stable of current crypto investments going forward,” Hazilias said.
Why?
Because Bitcoin in particular has moved more into the mainstream, with a recent report from Deloitte suggesting 75 per cent of retailers would consider accepting Bitcoin payments within the next two years.
Once more businesses normalise Bitcoin as an accepted means of payment, the more likely it will be that speculation in its value will be reduced.
Crypto: Investing for the long term
Despite his enthusiasm for Bitcoin in particular, Hazilias is keen to emphasise is that all investments, including those in cryptocurrencies, should be viewed with a long-term lens rather than short-term speculation.
“Many of the early adopters of crypto investment have tended to view it as a ‘get-rich-quick scheme’ rather than a long-term investment, and that is inherently risky,” he said.
In his view, this ‘instant gratification generation’ has often been left out of pocket by trying to second-guess the market – in effect trading rather than investing.
He ends with three golden rules for those considering investing in cryptocurrencies in the coming months:
1. Invest for the long term
2. Do your own research
3. Only invest what you can afford to lose
These rules may seem remarkably similar to advice you would get when investing in more traditional assets, such as shares or property. Yet, as the crypto market matures, maybe we should be treating any investment in this area through the same lens.
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