Crypto Is Crashing: Is Now the Time to Invest?

Last Updated July 23rd 2021

4 Min Read

Cryptocurrencies, like many other investment options, are volatile by nature. As a result, it is common for traders to see prices of these currencies swing wild in a short period. For example, several best-performing digital assets saw their prices reach new all-time highs over the past month before plummeting and experiencing a market-wide crash.

Bitcoin (BTC) reached a new high of around $65,000 per coin in May. But it then fell by more than 30% over the past month, at the time of writing. Other popular digital assets such as Ether (ETH) and Dogecoin (DOGE) are also down around 30% over the same period.

Sometimes, crypto market crashes are advantageous to traders and investors because they present an opportunity to buy digital assets at lower prices. If you have been looking to invest in crypto but are reluctant because of the sky-high prices, a market crash could make them more affordable.

Market-wide Crypto Crash: Possible Reasons

Comments made by Elon Musk, the CEO of Tesla, have impacted the prices of cryptocurrencies significantly. His recent tweets about Bitcoin's high energy usage are likely to have nudged the leading cryptocurrency's price drop.

Bitcoin regulatory uncertainty in the US was brought to light recently when US Treasury Secretary Janet Yellen and SEC Chair Gary Gensler shared their doubts about the cryptocurrency market, according to Cointelegraph. This could have also possibly been a catalyst in the ongoing crypto price drop.

Gavin Smith, CEO of crypto firm Panxora, told Reuters earlier that Bitcoin’s sharp price fall should come as a shock to the market. "Any asset which has risen as much as bitcoin over the past year can be expected to have pullbacks as some investors withdraw profits like we are currently seeing,” he said. But does this mean you should invest in crypto?

Evaluate Your Risk Tolerance

The recent crypto crash is more proof of this market's volatility. However, given cryptocurrencies' history, a 30% drop is relatively mild. Bitcoin, for instance, has fallen by over 80% three different times since 2012, according to data from Visual Capitalist.

In 2021 alone, Bitcoin has already experienced many steep drops. Unfortunately, these price crashes are common, and there will likely be many more crashes like this in the future. So before you invest in digital assets, ask yourself whether you can tolerate this level of risk. Although BTC has historically managed to jump back from its falls, there is no guarantee it will recover every time.

If you are someone who is going to lose sleep when your investments plummet suddenly, crypto may not be the fittest investment for you. But if you can tolerate this type of turbulence, you may have the right temperament for crypto investments.

Crypto asset investing is highly volatile and unregulated in some EU countries. No consumer protection. Tax on profits may apply.

Pick Your Cryptocurrencies Wisely

If you decide to invest in virtual currencies, buying them when prices are lower may be a smart move. This is particularly true if you invest in a higher-priced asset like Bitcoin, as you can get more for your money when "buying the dip."

Be sure you have done your research before investing. A particular cryptocurrency being more affordable does not necessarily mean it is a wise investment. So consider all your options before buying. The goal is to acquire assets you can hold over the long term. Hence, make sure you are choosing the proper crypto for you.

Bitcoin is the biggest name in the market, and it is also the oldest cryptocurrency, giving it a leg up on rival assets. However, it is an energy-intensive asset, which poses environmental concerns. Notably, Tesla CEO Elon Musk recently announced that the firm would no longer accept BTC as a form of payment due to its negative environmental impact.

ETH is the second-most popular crypto, and it uses the Ethereum blockchain, which is also the network behind non-fungible tokens (NFTs) and decentralized finance (DeFi). Thanks to the variety of use cases that Ethereum offers, it is advantageous to investors. Additionally, developers are working on Ethereum 2.0 currently, which will be more decentralized, energy-efficient, and environmentally friendly.

DOGE, on the other hand, is one of the riskiest cryptocurrencies out there. Buying this particular coin is more akin to gambling instead of true investing. If you want to invest in Doge, be sure you have done enough research.

Crypto Is Crashing: Is Now The Time To Invest? Bottom Line

Crypto investments are risky. As a result, higher returns are possible, but there is also a higher risk involved. It is pretty difficult to time the crypto market and buy the dip as a new investor. However, if you have already done your research and decided to buy crypto, now may be a good time to do so.