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The world economy is generally volatile, and stock prices are usually along for the ride. Issues like notable dollar inflation, a spike in oil prices and conflicts such as the 2022 Russian invasion of Ukraine will cause investors everywhere to look for places to store their wealth that are recession, inflation and war-proof. Even when the world seems perfectly calm (think of the high-riding, ”Roaring 20s”), investors must continue to search for safe investments that can provide long-term gains. Then, Terra was depegged from the dollar, turning Do Kwon into an international fugitive and tanking much of the crypto sector.
Cryptocurrency was originally conceptualized as a solution to the problems that come along with the centrally-controlled government currency – or fiat – used as money since the dawn of the pharaohs and tax collectors. The crypto market has increasingly begun showing trends that mirror the financial market it was conceived to be an alternative to: booming and cratering in a similar response to global crises just as the Dow Jones Index does. It's not clear whether these movements make crypto a more predictable market or not, but what is certain is that it's not going anywhere anytime soon as a globally recognized store of wealth. The question now is how it stacks up to other places investors look to put their wealth into during a period of uncertainty and a declining dollar. Is now the time to start investing in crypto?
Despite volatility across the stock market – and especially with the price of oil – signs point toward crypto’s staying power in a changing world.
What Determines the Value of Cryptocurrency?
Like the stock market, the cryptocurrency exchanges you see on sites like Coinbase Global Inc. (NASDAQ: COIN) and Binance operate under the same forces that all markets do: supply and demand. Because all the most valuable currencies are programmed to be gradually more difficult to mine as more of the coins are issued on their networks, some have a built-in scarcity similar to gold or oil and others have a generally unrealized utility. This feature, proponents of cryptocurrency argue, makes it a worthy alternative to state-backed fiat money.
While the number of people who use crypto to make everyday purchases is still fairly small, enough people have invested in the concept by purchasing existing coins that this figure is bound to rise and help ensure the staying power of cryptocurrency as a staple in everyday financial lives. Remember, however, that crypto projects can lose value quickly—considering the downfall of LUNA in the spring of 2022—a stablecoin losing its peg and falling to practically $0.
Is Now A Good Time To Buy Crypto?
If you want to preserve the value of your wealth, now is a good time to buy something. Cryptocurrency should be one of the assets you’re considering. However you cannot simply invest in any cryptocurrency, NFT or project for the sake of diversity. You must complete your research and determine which cryptocurrencies or crypto-related investments make the most sense for you.
Financial headlines have mentioned inflation consistently throughout 2021 and 2022, and for good reason. The Bureau of Labor Statistics February 2022 CPI Report announced that commodity prices rose 7.9% over the past year, a record high not matched since the stagflation crisis of the late seventies. In times of inflation, smart investors begin looking to get their wealth out of a currency that is steadily losing its value. Generally, the go-to repository for money in such times has been commodities like oil, but at an uncertain time for global diplomacy, many investors are looking into assets outside of black gold.
As an American or European motorist will tell you, gas prices soared in the summer of 2022 as a result of oil prices rising, due in part to the steady inflation of the past year and more notably to the sanctions Western countries have placed on Russian oil imports in response to their government's invasion of Ukraine. More recently, oil prices have begun to drop as a result of reported progress being made during peace talks between the two nations. In a world at war but eager to get back to buying cheap gas again, it's not clear that oil is the asset anyone looking to preserve their wealth given how dependent its price is on what some diplomats are negotiating in eastern Europe.
Prices across the board rose to meet the unprecedented amount of dollars circulating, prompting Federal Reserve Chairman Jerome Powell to announce a 25 basis point increase in the federal fund's rates banks use to calculate interest on loans and mortgages in an effort to get more money into savings accounts and out of the consumer economy in the summer of 2022. While many economists have felt that this move was a long time coming, Steven Rattner, former counselor to the U.S. Treasury Secretary, warned that this move is too little too late, pointing out that the rate hike is too low to meaningfully curb inflation but will still result in an economic downturn as families feel the pain on their loan and mortgage payments.
The fiat currencies that the world has run on throughout modern history are ultimately backed up by the trust people have in the governments that print them. As these governments lose trust in their ability to maintain global order and monetary discipline, so too can their currencies – especially if they have competition. Cryptocurrency was conceived as the alternative to state-backed money, as the blockchain ledger that they run on eliminates the need for centralized management to approve transactions. It's no wonder many Ukrainian refugees have begun to use it to trade when their own state faces an existential challenge.
While most still see crypto as a speculative asset to be bought and sold rather than used to purchase everyday goods, the possibility that more people will use crypto as a store of value increases the more people that own it. As the price of cryptocurrency becomes more predictable, the likelihood of its use as a means of trade rather than just a store of value may increase, which ironically could make its market value reach levels as yet unseen.
Why Is the Crypto Market Moving?
Individual coins move up and down for a variety of factors. The kings of the cryptocurrency world – Bitcoin and Ethereum – have guided the market’s overall trajectory as the two most popular digital assets to buy and trade. As such, nearly all other coins reflect the changes in their prices as the whales of the crypto trade tend to invest across a myriad of different coins in the interest of diversification, with the bulk of their money in Bitcoin and Ethereum. Smaller, more obscure altcoins have a relationship in the market similar to penny stocks. They’re cheap to buy and sell, and as a result, are prime targets for the sort of exponential growth in price that many associate with the crypto market. Analysts study trends in the market, Google searches and social media mentions to scope out the coins attracting the most buzz so they can get on the train early.
Can Crypto Hit a New All-Time High in 2022?
While it’s not guaranteed by any means, new all-time highs may be more likely than many would think. With inflation cutting away at the value of the dollar on top of mounting war in Europe, many have looked toward alternative stores of wealth. The idea of an alternative to a global financial system under more stress than recent memory is appealing to many looking for a contingency plan. While the strategy in face of this conflict for most investors seems to be to avoid anything too risky and have more liquid cash on hand than normal if geopolitical tensions escalate, many will begin to look for ways to store their wealth that will allow them to transfer it to and from anywhere in the world –– one of the selling points of cryptocurrency.
Keep in mind, however, that investors going into FY2023 with large crypto holdings could experience something entirely different. A new global conflict, economic issue, pandemic, etc. could cause the markets to fluctuate unexpectedly, and you should be prepared to adapt quickly. You might want to buy at the dip now, or you may believe that the dip has not actually occurred, and you’ll wait to buy. In short, you’re looking for a good way to hodl and regain value over a long period of time. It’s anyone’s guess what the right decision is, but seeking long-term, value is always a good idea.
Where to Buy Crypto
Some of the most popular sites for trading crypto include eToro, Coinbase, Webull and Crypto.com. These sites, as well as plenty of others, have established good reputations and cooperate with the U.S. Securities and Exchange Commission (SEC) but vary in terms of fees and incentives.
- securely through eToro's websiteBest For:Demo Accounts
Cryptocurrency is offered by eToro USA LLC (“the MSB”) (NMLS: 1769299) and is not FDIC or SIPC insured. Investing involves risk
Don’t invest unless you’re prepared to lose all the money you invest. This is a high-risk investment and you should not expect to be protected if something goes wrong. Take 2 mins to learn more
Will Crypto Keep Crashing?
It is hard to say if crypto will continue its volatility, but it is possible, at least in the short term. The crypto market is still young and is affected by the dynamic shifts seen in an emerging market. One hopeful sign that anyone bullish on crypto can point to is how closely its cycles have begun to mirror those of the stock-trading world, likely because of the influx of institutional investors that set the price of most coins soaring earlier last year. It's likely that crypto, particularly established coins like Bitcoin, will begin to see the sustained growth seen across the stock market as it begins to be traded by the same firms who make a profession out of ensuring their client’s stable returns.
But don’t expect this change right away. None of the investment banks and hedge funds have been in the crypto space long, and the market is still likely to have wild swings before it settles. Even if it does, the market is still likely to go through the same roller coaster ride that the stock market is subjected to during times of uncertainty. Even the most conservative investors have much to gain in volatile markets by employing strategies like dollar-cost averaging to even out the volatility in a given asset’s price.
Frequently Asked Questions
Is crypto a safe investment?
Crypto can be a safe investment if you have done your research and managed your portfolio properly. However, all investments carry some risk, and you must only invest money you are prepared to lose.
How do I secure crypto investments?
The best way to secure crypto investments is to use a wallet that protects your cryptocurrencies and connects to registered exchanges.
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