Cryptocurrencies have made a comeback recently, with the prices of major cryptocurrencies such as Bitcoin and Ethereum soaring. After experiencing a long cryptocurrency winter, many investors are relieved to see positive momentum in the market.
But others are skeptical that this comeback will last. Known for its volatility, the cryptocurrency industry has proven it can collapse as quickly as it can go up.
With prices continuing to soar, it can be a tempting time to buy. But it's really safe invest Right now? Here's what you need to know.
The future looks promising - for now
There are countless reasons why cryptocurrencies are rising right now.
Part of this growth could be related to the fact that Ethereum recently set a date for its latest update, “The Merge,” which will help it move from a proof of work (PoW) protocol to a proof of stake (PoS). This is promising news for investors as a PoS protocol will lead to significantly faster transactions, lower costs, and a more energy efficient network.
Cardano is also working on its own update, the Vasil hard fork, which will bring a series of improvements to the blockchain. Its release is currently slated for late July, and the excitement surrounding the update could help fuel investor optimism and drive up cryptocurrency prices.
However, this doesn't necessarily mean the worst is over. Many Americans are bracing for a recession, and tough economic times can sometimes spell trouble for riskier assets like cryptocurrencies. If stock prices take a bad turn, cryptocurrencies could take a hit too.
Furthermore, being a generally volatile investment, it is certain that cryptocurrencies will experience further turmoil in the future. When a downturn will occur or how severe it will be, it is not known, but volatility is a normal occurrence when it comes to cryptocurrencies.
Is it safe to invest right now?
Whether prices are rising or falling, there isn't necessarily a bad time to invest in cryptocurrencies.
It can be intimidating to invest when prices are lower, but it's also the perfect opportunity to invest at a discount. Cryptocurrencies are an expensive investment and buying during a downturn can save you a lot of money. If you buy when prices are rising, it will cost you more, but it can also be less nerve-wracking than investing during a slump.
The best way to assess whether it is the right time to invest is to consider your financial situation and risk tolerance.
For many investors, money is scarce right now and not everyone can afford to invest in something as risky as cryptocurrencies. If you don't have any emergency savings, it's best to focus on this goal first. It is also worth checking that the rest of the portfolio is adequately diversified, in the event that investments in cryptocurrencies fail.
Then, think about how much risk you can tolerate. Cryptocurrencies are still speculative and the recent price hike doesn't necessarily mean they will be successful over time. We will likely see greater volatility in the future, and it is wise to invest in crypto only if you are comfortable with high levels of risk.
Cryptocurrency prices may be rising, but it's still important to invest carefully. It is not the right investment for everyone, and considering your overall tolerance for risk and volatility, it will be easier to determine if it is right for you.
