Is Now the Best Time to Invest in Cryptocurrencies?27th February 2019
If you’ve been watching the fluctuations of cryptocurrency prices without directly investing, you’ve been part of a wild ride. You’ve heard experts tell you crypto is a sure bet for the future and you’ve seen people become overnight millionaires, but you’ve also heard experts warning you that crypto is a garbage investment and you’ve seen people lose fortunes on a market’s whim.
Now, the dust is settling. Over the past month, the price of Bitcoin has been hovering near $3,400 after a few slow, steady downturns over the course of 2018. Depending on your outlook, it’s possible to take that as an indication that interest in crypto is declining to the point of irrelevance. But it could also be an attractive entry point, representing a reasonable price if you believe in the future of the currency. If this represents crypto prices bottoming out, this may be near the best possible entry price.
So is now the best time to invest in cryptocurrencies?
Considering Crypto as an Investment
First, you should know that investing in cryptocurrency shouldn’t be treated as a get-rich-quick scheme. If you’re interested in growing your wealth over time or maximizing your return, crypto shouldn’t be your go-to solution. Instead, it’s much better to prioritize optimizing your saving and spending habits, and making use of several types of investments to diversify your holdings. Crypto is also intended to be used as a currency—that is, exchanged for goods and services, rather than simply held to achieve gains—though it’s certainly possible to treat it as an investment.
The Crypto Boom and Bust
Let’s take a closer look at the boom and bust that’s unfolded over the past few years. Over the course of 2017, Bitcoin—which we’ll use as the flagship and prototypical cryptocurrency for the bulk of this article—went from a mere $900 to nearly $20,000. That’s a massive leap, and an unprecedented one for any investment. Even though crypto optimists were celebrating, there were many reasons to suspect that the price explosion was unjustified (or overblown).
- Rapidly emerging crypto competitors. After Bitcoin started cultivating public interest, blockchain developers started coming up with their own alternative cryptocurrencies. The sheer number of available crypto opportunities increased public interest in crypto overall, and therefore made it seem more commonplace or more secure than it otherwise would have seemed.
- Inordinate media attention. Media outlets loved writing and talking about cryptocurrency as it started to rise in price. This sensationalism and disproportionate coverage led investors to believe that crypto was more of a surefire investment than it actually was, and inflated prices even further.
- Ease of obtainment. Crypto has always been relatively easy to obtain. You could set up a mining operation, or easily buy some using a crypto wallet. As the number of ways to buy crypto increased, more people bought in—regardless of whether they were educated on how crypto works.
- No clear value. Crypto is still a relatively new type of asset, so there isn’t much precedent for pricing it. This makes it much more difficult for prices to remain consistent, and as consumers get excited about the potential of the asset, prices are much more susceptible to skyrocketing.
In other words, prices probably shouldn’t have ever gotten that high. Following that logic, the massive drop in price that followed wasn’t a sign of crypto losing value, but instead was a sign that crypto prices were reverting to something more reasonable—and more reflective of their intrinsic value.
However, investors didn’t generally take this as a sign of returning to a reasonable value. Instead, there was a major panic; investors who bought at the peak started selling off, afraid of more losses, and people who invested earlier tried desperately to sell at a point where they could at least recognize some gains. This, in turn, drove prices further down, resulting in a feedback loop that caused prices to plummet to where they are currently.
The Future Potential for Cryptocurrency
Let’s consider whether crypto still holds value as an investment. By all measures, crypto still has a ton of future potential. It has several advantages over traditional types of currency, and could easily grow in both use and value over time, thanks to:
- Low fees. You’ll have to pay a small fee to exchange cryptocurrency if you enlist the help of online services, but overall, crypto has the potential to require far fewer fees than comparable mainstream financial services. In fact, it has the potential to completely overhaul our current financial industry—in a good way.
- Crypto is also decentralized. It’s not dependent on any one government or central institution to manage it, which means it has more freedom and may be less susceptible to fluctuations over the long term—which is a bit ironic considering its recent volatility.
- Universal accessibility. Anyone with a digital device could feasibly trade cryptocurrency. It’s not limited to any one country or region, and doesn’t exist in a physical form. Though there’s a bit of a learning curve if you’re new to it, ultimately, it’s easier than conventional currency.
- Security and protection. The safeguards in place with transactions make exchanging crypto inherently safer than exchanging cash. Consumers are better protected against fraud, and a communal ledger makes manipulation nearly impossible.
This means crypto certainly has the potential to develop, and increase in price significantly—especially over the next few decades. Considering the price of Bitcoin is the lowest it’s been since early 2017, if your faith in the future of the currency isn’t shaken, this is objectively a better entry point.
Stock Volatility and Uncertainty
The tail end of 2018 was a bad time for the stock market. Volatility and falling prices made even the most optimistic investors concerned about the future of the market. Things have stabilized slightly, but experts are still nervous that a recession or further volatility are waiting for us on the horizon. Ordinarily, stocks are a good investment (as long as you diversify your holdings and invest for the long term), but if the volatility makes you nervous, crypto could be a good alternative investment to tide you over or balance out your holdings.
Other Developments on the Horizon
We should also consider what other developments may be in store for crypto on the near horizon. Considering the diversity of different cryptocurrencies available to the general public, it’s likely that investors will have more options with each passing month. On top of that, ETFs and other forms of asset trackers will make it possible to invest in many different cryptocurrencies simultaneously. If you’re waiting for an especially attractive type of crypto, it may be worth waiting.
Is Now the Best Time to Invest in Cryptocurrencies?
While most crypto investors and speculators have been crestfallen at the massive decline in crypto prices since the end of 2017, in reality, it could have been the stabilization event we needed to ensure a sustainable rate of growth for the currency. With plenty of room for development in the future, new opportunities on the immediate horizon, and increasing pressure from other investment types (i.e., stocks), this could prove to be a valuable time to enter the crypto market. If you do, make sure you do your research, so you know exactly what type of coin you’re buying, and as always, diversify your portfolio. No investment is a sure thing, so you’ll need many types of investments to keep your growth rate balanced.
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