We’re in the middle of crypto winter. Will it get worse? Or could this be the last great opportunity to buy the best asset class of the 21st century?
After nearly reaching the moon in 2021, crypto markets crashed back to earth in 2022. With industry heavyweights Bitcoin and Ethereum trading between 25-30% of their all-time highs, this is a certified crypto bear market.
This begs the question: should you buy crypto now? In this article, we'll explore whether now is a good time to buy crypto from a few different angles. First, we’ll look at past crypto bear markets and consider what they might indicate about this one. Next, we’ll discuss macroeconomic factors that could affect crypto markets.
We’ll also discuss how you can approach buying crypto now - or anytime - while taking measures to protect yourself.
Let’s dive in!
We wish it were that easy: simply ask the experts if now is a good time to buy crypto, heed their advice, and watch our investments grow. We could set up some recurring buys, turn off our computers, and spend the summer in the Greek Isles.
But, unfortunately, it’s not that simple.
There is only one truth regarding crypto market forecasts: no one knows what will happen. A raging bull market can turn around in a heartbeat, and a slumping bear market can get even worse.
Crypto markets are still extremely young. They have not matured like other assets, making them more volatile and even harder to predict.
This article, therefore, is not financial advice. We can’t make decisions for you. We can only give you a framework to help you make your own decisions.
2022 is far from the first time we’ve seen a significant crypto market crash. There have been five major crashes in Bitcoin’s history, and the entire crypto market sank with it each time. To put this current crash into perspective, consider key metrics from past bear markets in the table below.
Time To Recover
(Data sourced from Investopedia and CoinMarketCap)
* These figures do not include the flash crash in June 2011 on Japan’s BitMEX exchange.
** Figures as of August 2022. Not necessarily the bottom.
The first three times Bitcoin experienced a significant crash, it dipped more than 80% each time. The 4th time - 2021 - Bitcoin crashed by a *mere* 53.2% and recovered in six months, leading many to call it a ‘mini’ bear market.
What can we learn from past Bitcoin crashes?
Crypto is not alone in this bear market. The entire global economy has been hit hard in 2022, with global stock markets seeing multi-year lows. The NASDAQ has dipped by more than 30%, and there is no immediate prognosis for when this will improve.
The 2022 crash marks the first time a crypto bear market has been directly tied to a global economic downturn. Therefore, this bear market could be different from the previous ones.
The Federal Reserve has been increasing interest rates throughout 2022 to curb inflation. Higher interest rates negatively affect markets, and aggressive rate hikes strongly correlate with recessions.
The rate hikes have been a leading cause of people selling stocks and crypto assets in 2022.
With no clear timeline for when these rate hikes may cease, this pattern could continue into 2023. If it does, it will be increasingly challenging for crypto to climb out of this bear market in the near future.
Crypto regulations are on the horizon in the United States, Europe, and other countries worldwide.
Thus far, we have seen governments take different approaches to regulating cryptocurrencies. Some have taken a positive approach, such as El Salvador and the Central African Republic adopting Bitcoin as a legal tender. However, other countries, such as China, have been starkly anti-crypto, outlawing them entirely.
With potential regulation looming, institutional investors may steer clear of crypto. Therefore, uncertainty in the market could keep prices down until we get more clarity on regulation.
Ethereum, historically a proof-of-work blockchain like Bitcoin, switched to a new proof-of-stake consensus mechanism in September of 2022.
The switch (aka “The Merge”) is a major upgrade that reduced Ethereum's energy consumption by more than 99% (and reduced worldwide CO2 emissions by about 0.2%)!
It also changed the way Ethereum produces blocks by switching from mining to staking. Energy-efficient staking pools have replaced expensive mining rigs that eat up computational power.
This switch could lead to significant demand for ETH as investors will be able to generate yield by staking it. It also puts ETH on the road to being a deflationary asset, which may be the reason we saw the price of ETH begin to rally in October and early November.
In the short term, The Merge is the most significant potential catalyst for crypto prices, and with ETH continuing on the path to becoming deflationary, we are only just beginning to see the affects of the merge on Ethereum.
With every new block on the Bitcoin blockchain, the block producer earns 6.25 newly minted bitcoin. Every 210,000 blocks (roughly every four years), the number of bitcoin miners receive for producing blocks is reduced by half.
This event is called “The Halvening” (or just the halving, if you’re a normie).
Each halvening event in Bitcoin’s history has led to price increases. Halvening events in 2012, 2014, and 2016 led to bear market recoveries and eventual bull runs.
Coincidence? Not likely. When bitcoin miners earn less bitcoin, there is less selling pressure in the market, which can have a positive impact on price.
The next Bitcoin Halvening will occur sometime in 2024. There’s no telling where the market will be by then, but if this bear market persists, the Halvening could catapult us out again.
The first rule of investing in crypto is not to invest more than you can afford to lose. Most experts advise investing no more than 5-10% of your total net worth in crypto.
Cryptocurrencies are still highly volatile assets. We’ve seen big projects implode, and we can expect the government to begin regulating the market more heavily.
The idea that a crypto token - even a big one - can go to 0 is not a meme. It has happened before and will happen again.
Make sure not to overexpose yourself to the market or any single token specifically.
Limiting your exposure will allow you to outlast this bear market until the market turns around.
Dollar-cost averaging crypto is just like dollar-cost averaging stocks. It means setting up a recurring buy to continuously invest every week, month, or other pre-determined time. This strategy takes the decision-making and emotion out of investing and helps you stop overthinking if now is a good time to buy crypto.
Dollar-cost averaging crypto is an easy system for any new or casual investor to adopt.
Most notable centralized exchanges make dollar-cost averaging crypto easy.
On most platforms, you can create a recurring buy for the same time every week, month, or twice a month. Set it, forget it, and let the purchases automatically add up without thinking about it.
By compounding incremental investments over time, you can prepare yourself to have a nice nest egg for the next bull market.
Technically, it all counts as buying the dip when we’re already in a bear market. However, price swings during the bear still make buying at some times more opportune than others.
Since May, Bitcoin has seen lows under $16,000 and highs of just under $25,000. Before buying, consider recent price trends. If it’s at the top of its range, it may very well go back down, and vice versa.
When crypto is trending upwards, the temptation is to buy. When it’s dropping, many are induced to sell.
Buying the dip is the exact opposite strategy. It may be the best time to buy when the market has seen a rough couple of weeks.
However, market-timing is notoriously tricky. Therefore, it should not be your primary strategy and should be avoided by most. For average investors, dollar-cost averaging crypto is a much better option, since it takes the guesswork out of it. With a good dollar-cost averaging plan, you will never need to think about whether or not now is a good time to buy crypto.
Before investing, it’s essential to know your goals. A clearly defined plan will help you decide when to take gains or cut losses. That is especially true when thinking about if you should buy crypto now during a bear market.
Are you saving for a down payment? Retirement? To quit your job and travel for six months? If you need funds in the immediate future, now might not be a good time to buy crypto.
If you are saving for 5-10 years from now or more, buying crypto now might change your life someday.
Write down your goals and how much you need to save to meet them. Once you meet them, deciding to take your profits will be easier.
As they say, 99% of good investing is doing nothing.
HODL is simple - it means having conviction in your investments and not selling them. It means mastering your emotions, not panicking when markets are down, or getting excited when they’re up. HODLing is the last tool you need to reap the rewards from your investments.
If you have a good dollar-cost averaging strategy and clearly defined goals, HODLing will be much easier!
As we initially said, there’s no way to know if now is a good time to buy crypto. Many factors in this market could have positive or negative effects or even a mix of both.
It could be years until we reach previous all-time highs again - if we ever reach them.
However, crypto is still one of the most innovative technologies in the world. Its potential upside makes it an attractive investment vehicle that could outpace all other asset classes.
As long as you are not overexposed, dollar-cost averaging and HODLing crypto could be a strategy that pays off big time during the next bull run.