Crypto prices are down. Way down.
After tick-tick-ticking above $69,000 in November, the Bitcoin roller coaster came careening down to a low point of just $35,000 in late January. Ethereum and other popular altcoins followed a similar trajectory, collectively wiping $1 trillion off the crypto market in a matter of weeks.
However, if you put these numbers in front of a true crypto investor, they won’t get off the ride; they’ll tell you to hop aboard.
“Buy the dip,” they’ll say. Prices will take off again like they always have.
Will they, though? Is now the time to buy (more) crypto? Or is the ride almost over?
Let’s look at what’s already happened and what’s about to happen — and if you should buy crypto in 2022.
Here’s why prices are down in Q1
Before investing in crypto (or anything for that matter!), it’s best to take emotion out of the equation and look at the numbers. Where are crypto prices now, and why?
Well, as mentioned above, we’re in the midst of a crypto crash. Since crypto is so speculative, it’s hard to pinpoint exact culprits — but it’s safe to say that rising interest rates, El Salvador’s botched adoption of Bitcoin, and pandemic-era investors making an exit are all playing a role.
So that’s what’s causing the dip. Now, are prices about to shoot back up again?
Well, let’s look at some upcoming trends that might drive values up — or down.
What trends might push crypto values up?
It’s worth reiterating that crypto is super speculative. It doesn’t have P/E ratios, sector performance metrics, or other data points that help us to predict stock prices or real estate prices.
However, even though crypto prices are largely dictated by perception alone, we can predict what trends will impact that perception.
The war in Ukraine
Crypto’s ongoing role in the defense of Ukraine has given it a much-needed PR boost after the disaster in El Salvador (discussed below).
During the first week of the invasion, when Ukraine had to freeze its own economy to prevent a bank run, foreign donations had a hard time coming through. Luckily, crypto gave donors a way to send money directly to the Ukrainian government, and over $100 million in BTC, ETH, and even NFTs have since flowed through, paying for food, kevlar, and other life-saving supplies.
In Ukraine, crypto has literally proven its value on a world stage — which may reignite global interests and investor confidence.
In the age of skyrocketing inflation, many folks see crypto as a safe place to stash money so it doesn’t lose value (also known as an “inflation hedge”).
Translation: if you have $1 in a checking account, it may only be worth $0.94 next year. But if you put it in crypto, it might be worth $1.36 next year. Since that growth beats inflation, that makes crypto a good hedge.
Naturally, not everyone thinks this way. Some still consider crypto to be too volatile to store any amount of capital safely. But keep an eye on the headlines — if more institutional investors declare Bitcoin as their inflation hedge, prices could rise quickly.
What trends might keep crypto values down?
…The war in Ukraine
Like a force of nature, crypto doesn’t pick sides. Case in point, while it’s brought $100m worth of aid to Ukraine, cryptocurrency has also created a backdoor for Russia to circumvent western economic sanctions and continue funding the conflict.
Granted, western-based exchanges like Coinbase have done everything they can to intercept Russian money in the blockchain. Still, crypto’s dual role in the conflict may lead NATO to see it as a liability overall — harming prices.
The metaverse and NFTs
The metaverse, aka the VR sequel to the internet, is already on its way. I did a full breakdown of how the Metaverse will change our financial landscape, but for the purposes of this discussion, you should know that the impending metaverse may not be good news for crypto prices.
See, the metaverse needs to be powered by cryptocurrencies that are sustainable, controllable, and that support NFTs. Ethereum 1.0 only checks one of these boxes, and Bitcoin checks none of them.
For that reason, the tech giants are already starting to file patents for their own proprietary cryptos, and the encroaching metaverse could just spell the end of Bitcoin.
The disaster in El Salvador
As mentioned, El Salvador becoming the first country to adopt Bitcoin as legal tender should have been a PR field day for crypto, encouraging other nations to follow suit and sending the crypto market to the moon.
Sadly, the opposite has happened. Adoption rates are in the single digits, El Salvador has lost 23% of its initial investment, and the International Monetary Fund is begging President Bukele to back out. Massive oof.
OK, so there are trends for — and against — the resurrection of crypto. Are there any constants in all this?
Yep. The risks of course.
One thing remains constant: risk
Years ago I published a piece on the six biggest risks to a Bitcoin investment:
- Crypto deposits aren’t FDIC insured.
- The blockchain can’t be hacked — but wallets and trading platforms can.
- Losing wallet access.
- Crypto is consuming more energy than Sweden.
- Countries are banning it.
- A Bitcoin Winter could be coming.
I bring these up now because they’re all still true. Actually, the risks are getting worse; more exchanges have been hacked and Bitcoin now consumes more energy than Argentina — which in turn is drawing more ire from global governments trying to reduce emissions.
Anyways, my point is that up or down, crypto isn’t any safer than it was in 2021. If you choose to invest in it, it’s best to start with a small percentage of your portfolio (<10%) dedicated to high-risk, speculative assets.
Need help assessing your risk tolerance? We got you.
Should you buy crypto in 2022?
You might consider buying crypto if:
You have a high-risk tolerance and can dedicate 10% of your portfolio to speculative, high-risk investments, you might consider buying a small amount of crypto.
Which crypto should you buy you ask?
Hmm. Well, diversity always helps. Consider a mix of the OGs (BTC, ETH) and some promising altcoins. For more on choosing criteria, check out How to invest in cryptocurrency.
You can safely pass on crypto if:
The thought of investing in an ultra-risky, speculative asset gives you more anxiety than excitement, and you’d rather watch your money grow more steadily, then you’ll be 100% fine without crypto.
Folks have been achieving financial freedom well before crypto came around. Check out How the rich get rich (and how you can, too!).
The “secret” is to be mundane. Investing should be boring, and perhaps the best, most boring way to invest is by stashing your money in an index fund.
Will 10% APY provide gargantuan returns? Nope.
Will it provide steady returns? Yep.
And you know what they say about slow and steady.
Crypto prices are bouncing up and down like the EKG of a scared chihuahua, and for every trend signaling another bull run, there’s an opposite trend signaling the market’s downfall.
One thing remains constant in 2022: Bitcoin and its ilk are still a risky investment. If you do decide to invest in some crypto, give it a small corner of your portfolio and just see how it performs. See if you can risk (and handle the stress of) having money in the most unpredictable market of our lifetimes.
If not, there are plenty of safer ways to invest money and achieve financial freedom. Let Money Under 30 show you some.
Featured image: Fer Gregory/Shutterstock.com