It is a difficult time to be a cryptocurrency investor. The cryptocurrency industry as a whole has lost more than $ 1.000 trillion in just a few months, as major tokens have seen their prices plummet.
Bitcoin, for example, has fallen nearly 53% since its November peak. Ethereum fell nearly 60% over the same time frame. And Solana, one of the fastest growing cryptocurrencies of 2021, plummeted by more than 80%. Recall that however, with trading it is possible to make profits with both growing and falling cryptocurrencies. Which platform to choose? Take a look at Bitcoin system.
If you've invested in cryptocurrencies (or are considering buying them now), this collapse can be alarming. Will prices ever recover? Here's what you need to know.
What does the future hold for cryptocurrencies?
Cryptocurrencies are different from many other types of investments because they are still speculative. Unlike stocks, cryptocurrencies don't have a long history. Bitcoin, the original cryptocurrency, was created in 2009, so the industry has never had to endure a bear market or slump (other than the brief slump in March 2020).
For this reason, it's hard to say how cryptocurrencies will handle this downturn, especially if the entire market continues to slide.
That said, many single cryptocurrencies have faced extreme volatility in the past and managed to survive. Bitcoin, for example, has lost more than 80% of its value several times, but has recorded positive average returns over time. Also, in 2018, the price of Ethereum dropped nearly 95% over the year, but it still recovered.
In comparison, the current slump appears mild. Of course, this does not guarantee that these investments will recover. But cryptocurrencies have experienced a lot of turmoil in the past, and while not all individual cryptocurrencies have survived, the industry as a whole has held up.
Is it still safe to invest in crypto?
Since cryptocurrencies are speculative, it is a riskier investment. There is a chance that prices will not recover and if so, you could lose everything you invested. But there is also the possibility that cryptocurrencies can thrive, becoming a potentially profitable investment.
Whether or not to invest (or to continue investing) depends on your risk tolerance. If you are willing to take on higher levels of risk for the possibility of making substantial gains, cryptocurrency could be for you. If not, it would be best to avoid them for now.
Also, if you decide to invest, focus on choosing solid long-term investments. The cryptocurrencies that are most likely to rebound are those with strong competitive advantages and utility in the real world. Although all cryptocurrencies are still speculative, the more a cryptocurrency is used, the greater its chances of long-term growth.
Finally, invest only as much money as you can realistically afford to lose. Cryptocurrencies are risky and there are no guarantees that your investment will recover from this crisis. If you're struggling to make ends meet or don't have an emergency fund, perhaps it's best to focus your efforts there before investing in cryptocurrencies.
Nobody knows exactly what the future of cryptocurrencies will be. While there is a good chance the sector will be able to overcome this downturn, it is not certain that individual cryptocurrencies will recover. By considering your risk tolerance and choosing the strongest investments, it will be easier to resist any future volatility.