The cryptocurrency market may not look very attractive right now. Its market value has fallen to less than $1 trillion after surpassing $3 trillion at the end of last year. And even some of the biggest players – often seen as more established and secure – have fallen. For instance, Bitcoin (BTC 2.03%) and Ethereum (ETH 1.75%) lost more than 50%.
This against a backdrop of rising inflation, higher interest rates and general economic difficulties. In this kind of situation, investors often shy away from risky investments and opt for the safer games. This is what has hurt cryptocurrency. Of course, cryptocurrency prices look tempting at these levels. So, you might be thinking about entering the market. Do we really have to do it now? Let’s find out.
What to expect
The current environment is not the most favorable for cryptocurrency, as mentioned above. This means that you should not expect immediate and explosive gains from these players, even if some cryptocurrencies are attracting more and more developers and users.
Instead, we should look ahead to see where certain cryptocurrencies might find themselves once the economic backdrop improves. The good news is that the current situation is not permanent. Economic downturns and periods of higher interest rates occur. But they don’t last forever.
It is essential to examine each crypto reader individually. We can offer a very promising prospect. Another may represent a greater risk. Can the particular player continue to gain traction in development and attract users?
It is very possible. Even in a tough economic environment, developers are building decentralized applications (dApps). And users make payments through blockchains or use their dApps to gamble or to borrow and lend money. These are just a few examples. Thus, the current economic situation does not prevent the ability of a cryptocurrency to grow. This only dampens the desire of many investors to invest in this new area.
Even at the best of times, cryptocurrencies remain a high-risk industry. They aim to reshape the way business is done – and they’re even striving to play a big role in the entertainment world. But it is impossible to predict whether cryptocurrencies will achieve their goal. It is important to remember the risks of investing in cryptocurrencies, regardless of the general economy.
Your investment horizon
Back to our original question: should you really buy cryptocurrency right now? It depends on your investment horizon. It’s always a good idea to invest for the long term – at least five years. If you are willing to do so, now might be the perfect time to pick up some great crypto readers at bargain prices.
But before you go out and do that, also consider your comfort with the risk. Even if you are a long-term investor, if you don’t like risky assets, it’s best not to invest in any cryptocurrency at this time. It is a better idea to opt for safer assets that have demonstrated a history of recovering from market downturns. Many stocks fit the bill.
If you are an aggressive investor, however, now is a good time to take advantage of falling cryptocurrency prices. As mentioned above, even the strongest players suffered. They offered us more than a hint about the role cryptocurrencies could play in the world.
Ethereum, for example, hosts more than 2,900 dApps, according to State of the dApps. And people use them for lending, making investments, and even collecting art. This great player is heading for an upgrade this month. It also plans to launch an upgrade next year that could make transactions on its blockchain faster and cheaper.
All of this means that, yes, if you are comfortable with certain risks, now is definitely the time to bet on this exciting industry.
Adria Cimino holds positions in Ethereum. The Motley Fool has positions and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy.