Crypto Is Crashing: Here’s What Investors Should Do
This past weekend we took the dogs out for a hike. We weren’t off the grid. More like grid-adjacent. A mile or so in, the push-to notifications started coming in one after the other. Ethereum was down. Bitcoin was down. Solana was down. Same went for Immutable X, PolySwarm and Stellar Lumens. The message was clear. Crypto is crashing. But I didn’t have enough of a connection to find out why at the time.
By the time we got home, the deed was done. The selloff had started. And it was likely to continue for a while. If I had better cellphone service while hiking, maybe I could have stopped the bleeding. Fear has shaken almost ever asset class out there… with the exception of I bonds and gold.
Most stock portfolios are down so far this year. And our crypto portfolios are a shadow of what they once were. So who’s to blame? Fear mongers? Institutional investors? The Federal Reserve? Maybe Jerome Powell… But none of that really matters.
In less than a week, crypto markets have shed more than $200 billion in market cap. In fact, the total market cap has fallen to its lowest level in nearly a year. That’s cooled the jets on a lot of institutional investors. And the Fed’s recent interest rate hikes (with more likely to come) has pushed lots of investors back to more traditional assets.
So, how long is the bleeding going to continue in the crypto markets? This is where things start to get interesting…
Crypto Is Crashing: Now What?
Like we mentioned above, fear is ruling the markets. After once we got back from the mountains, we started to dig into the fact that crypto is crashing. And what we found was surprising.
We’ve noted in the past that crypto markets had been correlating pretty close with tech stocks. But over the past few months an even more significant trend has emerged. Bitcoin and its brethren aren’t just growing increasingly correlated to tech stocks. They’re growing increasingly interconnected with stocks as a whole.
An interesting study from Arcane Research showed just how prevalent this is becoming. While gold and the U.S. Dollar Index (DXY) are showing bullish signs, the stock and crypto markets are facing major headwinds amidst the Fed’s newfound hawkish policies.
As fear spreads and selloffs continue, it’s presenting one heckuva buying opportunity. But this also presents a dilemma. What cryptos are actually worth buying amidst the dip? And is now the time to buy?
The first question above is the easy one. We recommend looking for cryptocurrencies with an established use case. Take Ethereum (ETH) for instance. It’s one of the oldest and most established blockchain platforms out there. Likewise, this isn’t the first time Bitcoin’s (BTC) price fell while crypto is crashing. Litecoin (LTC), Cardano (ADA) and Stellar (XLM) have also overcome similar downturns in the past.
For these reasons, we think these tokens will recover… eventually. But when remains a big question.
Buy Now or Buy Later?
To figure out the best time to buy is a tricky proposition. Yes, crypto is crashing. But for how long? Well nobody really knows for sure. Furthermore, will crypto continue to follow the trendlines of the stock market?
For the latter, we think that’s likely to continue. It’s growing evermore correlated. And until we see some evidence to the contrary, we’re going to assume that will continue. So timing your investment comes down to one last big question… Will the market crash this year?
At the recent Investment U conference in San Diego, we hosted a debate between two brilliant investors. One the one hand, Bryan Bottarelli argued that a market crash this year was unlikely. On the other, Marc Lichtenfeld made the case why he thought a crash was likely this year.
If these two experts in their field can’t see eye-to-eye, we’re not sure anyone can. What this means is maybe the markets have bottomed out. If so, now would be a great time to start gobbling up crypto.
However, if we’re heading for further losses in the greater markets, not only is crypto crashing now, it’ll continue to do so. So buying now could be like trying to catch a falling knife. But trying to time the market perfectly is almost always a losing strategy. You’re likely better off just spending more time in the market.
Until we have a better idea of which way the markets are going, we’re going to avoid panic selling. In fact, we’re seeing this downturn as a buying opportunity. We’re averaging down our crypto portfolio. We haven’t seen prices for our favorite cryptos this low in almost a year. And if the markets continue to fall, we’ll buy more when it’s cheaper down the road.
What You Should Do While Crypto Is Crashing
Every investor is different. Only you can know what your risk tolerance is. For us, we only invest money into crypto that we could afford to lose. Even if Bitcoin, Ethereum and Solana vanished tomorrow, we’d be able to avoid going back to a diet of ramen and boxed mac and cheese.
That’s not to say that we think there’s much of a chance of major cryptos going away. However, we do keep this in mind when considering any investment… Especially something as speculative as crypto.
On top of this, we admit it’s been a little frustrating to see crypto trend in the same direction as the stock market. It’s made it harder to diversify. That being said, we’re not planning on retiring anytime soon. We can afford to take our lumps for a few years before cashing out.
So for any asset that you’re long on, we think it might make sense to double down while they’re selling at a discount… Even though they could get cheaper in the coming months.
About Matthew Makowski
Matthew Makowski is a senior research analyst and writer at Investment U. He has been studying and writing about the markets for 20 years. Equally comfortable identifying value stocks as he is discounts in the crypto markets, Matthew began mining Bitcoin in 2011 and has since honed his focus on the cryptocurrency markets as a whole. He is a graduate of Rutgers University and lives in Colorado with his dogs Dorito and Pretzel.