With inflation, and falling markets everything seems to be going south for crypto. The crypto market’s capitalization is down over 60% from it’s all-time high last year. Many have described this as a “crypto winter” and investors are unsure of their investments. However, What if now is when the tides start turning for the better?
State of the Crypto Market
In November last year, the global crypto market reached a market capitalisation of almost $3 trillion. Since then, it has fallen sharply. When it reached its lowest point in June, it almost touched $800 billion. However, after a rally in July and August the market is back above $1 trillion.
In addition, some of the most popular crypto tokens have also experienced a resurgence. Bitcoin, which fell below $18,000 in June, is now back up to almost $25,000. Ethereum also had a similar rise. After dropping below $1,000 in mid-June, it is now trading at over $2,000.
Fears of Bankruptcy
The downturn in the crypto market brought with it a crisis of bankruptcy. Several high-profile crypto firms declared bankruptcy and ended their operations. One of the first major incidents was the collapse of crypto hedge fund Three Arrows Capital. At the time of failure, it was valued at almost $10 billion. This collapse sent waves throughout the industry and affected other firms severely. One of these firms was Voyager Digital.
Voyager Digital is a crypto lender that filed for bankruptcy on 6 July. In its filings, it cited losses from its exposure to Three Arrows Capital as a significant contributor to its situation. A week later Celsius, another crypto lender, declared bankruptcy after freezing customer assets. The firm cited extreme market conditions as its cause of failure.
Is the Market Bottoming Out?
Investors and analysts in the space hope that the failure of Voyager Digital, Celsius and the deleveraging of other firms in the industry has reduced the downward pressure on the crypto market. Analysts from JPMorgan Chase believe that the recent resurgence in prices is driven by retail investors rather than massive hedge funds, indicating strong user sentiment.
This may also mean that the worst days seem to be behind us. When the market is pushed by individual investors with lower buying power, it may not experience the same immediate collapse as the failure of a large firm may bring. This makes the market more stable. In addition, most analysts believe that after it is through this low point in its cycle, crypto is due for a massive bull run that dwarfs any so far.
Added to this are the expected developments in the crypto space. Next month, Ethereum is expected to finally initiate “The Merge”, a process through which it will shift from proof of work to the more efficient proof of stake. This has been a long time in development and is highly anticipated by the entire crypto community.
Finally, governments have been more accepting of crypto or have sought to regulate the market without outright banning it. While it may seem like government action in this decentralised market is a negative, clarity in regulations and actions is a net positive for stability in the industry. It also brings benefits in innovation and development with government support for technologies.
What is Dollar Cost Averaging
All this information presents us with the question, “Is this the best time to buy crypto?” The market might stay low for the next few months as factors like climbing interest rates are affecting liquidity. However, there are some strategies you can use to prepare for the inevitable bull run.
The most important of these strategies is Dollar Cost Averaging (DCA). DCA is when you choose to invest a sum of money into the market in smaller increments rather than a lump sum. This enables you to take advantage of a falling market by acquiring more units of an asset. It helps offset the negative effects of market volatility in the short term while ensuring your investment remains profitable in the long run.
It starts with picking a set of diversified tokens to invest in. It is best to diversify your portfolio so any losses in one token do not influence your entire investment plan. After choosing, some crypto exchanges offer an option to set up recurring orders for crypto tokens. Once the system is set up, you do not need to go through the hassle of making purchases each time they are due.
Some of the potential downsides include losing out on windfall gains and buying when the market is high. However, both these downsides rely on being able to time or predict the market. Even analysts, with all the data in the world, are sometimes unable to predict precisely when the market will be at its lowest. DCA allows you to balance out your losses and gains to ensure you build wealth over time rather than try to get lucky in a volatile market.
When to buy crypto and when to sell? It seems like an easy question but the answer involves a multitude of considerations. The market seems to be down right now, but there is a lot of hope on the horizon. With overleveraged firms out of the market, it seems “bad money” is no longer influencing crypto. A crypto market driven by retail investors promises more stability and security for all. Added to this are the highly anticipated developments in the industry, like the Ethereum Merge. The future’s looking bright, and strategies like dollar cost averaging can help you receive great returns while staying safe in the current market.
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