Cryptocurrency has been a hot topic for many years, but it’s only recently started to become mainstream. The number of people who own cryptocurrencies is increasing daily, and the price of Bitcoin and other cryptos is also rising. However, despite this growth in popularity and value, there still seems to be a lot of uncertainty surrounding crypto investing—especially during economic downturns such as we’re seeing today.
Should you buy crypto when times are good? Or should you wait until things cool down? If you have any questions about investing in cryptocurrency or need help getting started with your crypto portfolio, click here.
Why Invest in Cryptocurrency?
Cryptocurrencies are not correlated to the stock market. The price of Bitcoin, for example, has increased just as much during periods of economic downturn as it has during periods when the economy is booming. This can be attributed to cryptocurrency being a good hedge against economic downturns and inflationary pressures, which is why you should consider investing in cryptocurrency if you’re worried about an upcoming recession or major inflationary event.
Cryptocurrency also offers some protection against geopolitical instability because they aren’t tied directly to any country’s currency—they’re decentralized and decentralized currencies like Bitcoin exist outside of government control or influence (which means that governments may not be able to manipulate them).
Why Not? Reasons to Think Twice
- Cryptocurrency is still a risky investment.
- There are more stable investments available.
- You might not be able to afford to invest your money in cryptocurrency, or you may have other financial concerns that make it challenging to take on the risk of investing in crypto right now. If this applies to you, then wait until the economy improves before investing in cryptocurrency—and even then, consider putting some money into safer options like stocks and bonds instead of relying solely on cryptocurrencies as your primary source of income during tough times (for example, if inflation rises).
How Does an Economic Downturn Affect Crypto Prices?
An economic downturn is not the time to invest in cryptocurrencies. Cryptocurrencies are volatile and not correlated with stocks or bonds, but they affect the economy. When investors panic and sell their crypto holdings en masse, it can send prices plummeting as quickly as they rose during a boom period (think 2008).
In fact, some researchers have found that cryptocurrencies seem to be more volatile than other financial assets like gold or oil because they are less liquid—meaning there aren’t many buyers willing to buy or sell at any given moment—and therefore have higher volatility than traditional investments like stocks or bonds.
The Big Question: Should You Buy or Sell Crypto During a Downturn?
It’s not always easy to determine the answer to this question. Your personal position, the state of the market, how long you’ve been investing in cryptocurrencies, and whether or not it’s a suitable time for you to sell are all relevant considerations (or buy).
If you’re only starting out with a small number of funds, or if they’re tied up in an investment that has not yet been profitable—like buying into an ICO at its ICO price—you might want to consider selling off some of your holdings before it goes up again. However, suppose you’ve had some experience with cryptocurrency over the past few years and are comfortable with its volatility rate (and/or know someone who does). In that case, it may be worth holding on for another day or two when there are fewer buyers than sellers out there looking for their next big score.
You might want to take a sober look at the whole picture before you make a move.
- You might want to take a sober look at the whole picture before you make a move.
- Look at the risks and possible losses involved in investing in crypto, including:
- The volatility of cryptocurrency prices. Crypto markets are notoriously volatile and can change dramatically from day to day or even hour to hour. This makes it difficult for investors who buy or sell during volatile periods (and may lose their entire investment).
- The lack of regulation regarding cryptocurrencies as legal tender (money). There is little government oversight over this market and no legal framework that protects consumers’ rights when dealing with exchanges or wallets—which means they could get cheated by unscrupulous operators who don’t disclose what they charge users upfront, instead taking advantage of them after signing up.
As we’ve seen, there are many reasons why you might want to invest in crypto during an economic downturn. While it’s still unclear what the future holds for the market, at least one thing is clear: this is an excellent time for investors who want to take advantage of their financial situation and those who want to get ahead on a new trend.
Cover Photo by D koi on Unsplash
DISCLAIMER: This article is sponsored and does not substitute for professional advice or help. Any action you take upon the information presented in this article is strictly at your own risk and responsibility.