Investing in Bitcoin and other cryptocurrencies is speculative. Since Bitcoin is neither a traditional currency nor a commodity like gold, it does not currently fit into standard asset allocation methods. Supply and demand, not intrinsic worth, determine Bitcoin’s extraordinary volatility. Bitcoin has no profits or income. It has no book value, price-to-earnings ratio, or price-to-sales ratio. There are no methods for determining its value that we accept or believe to be convincing, as traditional value criteria do not apply.
So, is it wise to invest in the cryptocurrency market right now?
Is Buying in the Crash a Good Strategy?
This week’s crypto meltdown provided a wealth of lessons. Even the most popular alternative currencies, like Terra, can experience sudden losses and struggle to survive. Decentralized algorithm stablecoins like TerraUSD have an intriguing premise but require a more practical approach. In times of crisis, centralized stablecoins like Tether (USDT), which are frequently accused of having insufficient cash reserves, appear powerless.
The tenet of “buy the dip” is predicated on the idea that price declines are transient aberrations that eventually correct themselves. Dip buyers aim to take advantage of dips by purchasing at a relative discount and profiting when prices increase.
It’s perilous to purchase cryptocurrencies at any price, let alone one that may turn out to be a long-term trend, due to the volatility of the cryptocurrency markets. Prices might go back to where they were, but they also drop significantly more, leaving your investment in the red.
You might be uneasy after the markets for cryptocurrencies fell. What chances and dangers does it offer? Use it as a reminder to reevaluate why you decided to get engaged in the market in the first place.
The Founders at Bitcode Method suggest you continuously diversify your cryptocurrency portfolios with different coins to mitigate risks.
Why Should You Invest in Cryptocurrency Now?
Cryptocurrency is unlikely to change from its volatile and highly unpredictable nature. Its values fluctuate at any minute, dependent and driven by speculation, hype, and economic conditions. No one, even skilled investors, can tell you exactly where cryptocurrency is headed in the coming months. The market is already destined to swing; this factor many investors like because prospects of a high return on investment are likely, along with potential risks.
Cryptocurrency is a long-term investment that allows you to make a lot of money potentially. If you invested in Ethereum three years ago, you would have seen returns of more than 800% today – this is despite the numerous downturns that it experienced during this time.
Cryptocurrency is not headed anywhere for a long time despite the number of swings. Many investors see cryptocurrency as a form of futuristic digital coinage that will have significant use in the future.
Several moves are toward developing legitimacy in cryptocurrency, such as President Joe Biden’s desire to explore a digital US dollar for multimillion-dollar Super Bowl advertisements.
Gerri Walsh, the SVP of investor education at the Financial Industry Regulatory Authority, said that “cryptocurrency is one of those categories of investing that doesn’t have those traditional investor protections. They’re outside the realm of securities trading. It’s an area that’s in flux, as far as regulations go.”
Cesare Fracassi, who runs the Blockchain Initiative at the University of Texas, supports this by stating, “I think crypto holds a possible solution to some of the problems of the traditional financial sector. The current, traditional financial system is noninclusive, it’s slow and expensive, and incumbents, including large banks and financial institutions, basically have a lot of control. I think crypto is a venue through which you can actually break the system.”
The need for a dependable, long-term store of value is another typical justification for investing in cryptocurrencies. Most cryptocurrencies, unlike fiat money, have a finite supply that is limited by mathematical procedures. This prevents any political entity or governmental organization from having its value diminished by inflation.
Furthermore, a government agency cannot tax or seize tokens without the owner’s consent due to the cryptographic structure of cryptocurrencies.
Cryptocurrency is inherently volatile. Cryptocurrencies have no cash flow. Therefore, traders must rely on shifts in mood to determine the price. As a result, the market may fluctuate between extremes of optimism, as it did at the beginning of 2021, and dismal despair, as it did a few months later. The game played on Wall Street is volatility, which traders enjoy because it gives them a chance to profit. All investments are accompanied by risk, but with risk comes great reward.
By: Hannah Parker