Hearing about crashing (global) markets doesn’t immediately sound like a good time to get involved in a new asset class, however, there might be some logic to this. While many on the fence are wondering if it’s too late to enter the crypto market, we’re taking a broader look at market timing and estaxblishing if now is a good time to get involved.
The State of Crypto in 2021
2021 was a big year for cryptocurrencies. A big year for prices, and a big year for adoption. Many large companies optto move their US dollar reserves into Bitcoin, while many others incorporated cryptocurrencies into their already established services (PayPal, Square, etc.). El Salvador officially made Bitcoin a legal tender, and the Bahamas and Nigeria launched their own CBDC (Central Bank Digital Currencies).
With adoption soaring, it came as a big surprise when the markets took a turn and entered a bear trend. Observing the bigger picture, this was an accumulative result of the conflict in Ukraine, the highest inflation rate increases in decades (globally), and the demise of two big cryptocurrencies (TerraUSD and Celsius).
Is it still worth entering the market?
Bitcoin, the biggest cryptocurrency by market capitalization, tends to set the path for other cryptocurrencies when it comes to bull and bear trends. Evaluating Bitcoin’s success, and mapping a path for its future potential, provides an insightful look into the market’s trajectory.
Despite trading at lows last seen in late 2020, Bitcoin still displays an ROI of 14,400%. The cryptocurrency has also seen a substantial increase in the number of wallets created, with a 450% increase in users in the last five years.
Looking at year-on-year growth, there were 15.2 million wallet holders in July 2017, 26.82 million in 2018, 40.91 million in 2019, 52.03 million in 2020, 75.11 million in 2021 increasing to 83.4 million users in July 2022.
Crypto use cases
We’re all aware that Bitcoin has become a powerful store of value in the last several years, and other cryptocurrencies have turned early adopters into millionaires. But what purpose is crypto serving, and how much value does it contribute to?
Bitcoin was created as a peer-to-peer cash system in 2009, and while it still serves this purpose, it has ignited an industry far beyond just digital currencies. The decentralized finance industry is currently worth $43 billion, and the NFT industry was worth $41 billion in 2021 and is expected to grow 35% in the coming five years.
Blockchain and cryptocurrency development in recent years points to a massive trend in decentralized applications (dapps) branching from the “money” space to the technology and tech app space.
Timing the market
Without sugar-coating it, timing the market (finding the right moment to enter and exit the market) is notoriously difficult. While the aim is to buy low and sell high, few traders outside of professional circles are able to successfully execute this.
Having said that, many savvy investors are currently using the market downturn to accumulate Bitcoin, Ethereum, and other cryptocurrencies at the low price that they are currently trading at. While there is speculation that these prices could decrease further, the potential for them to realise previous highs is probable (based on trading history and trading chart analysis).
While price points obviously make a significant difference in when you’re willing/able to enter the market, evaluating the fundamental value and long-term prospects also contribute to this decision. Users who believe wholeheartedly in the fundamental value of Bitcoin (or other cryptocurrencies) have no problem entering the market when prices are not favourable.
Look to Michael Saylor, the founder and CEO of Microstrategy, for an example of this. Saylor is such an advocate for Bitcoin that the company has continued to purchase Bitcoin with little regard to how high the price might be.
So, is crypto the right fit for you?
With large firms like JPMorgan, Morgan Stanley and Goldman Sachs exposing themselves and their clients to cryptocurrencies, it solidifies the case that cryptocurrencies are here to stay. The real question is, whether it’s a proper type of asset for your risk appetite.
When determining whether it’s a coherent idea to enter the crypto market, consider the golden question of any investment: do you believe that the value and user base are more likely to strengthen or decrease over time?
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