Cryptocurrency has been off to a rough start this year. After reaching an all-time high in November, the price of Ethereum (ETH 1.78%) has plummeted by more than 35% since its peak.
It's not the only one crashing, either. After the Federal Reserve cautioned that it could soon roll back pandemic-era stimulus measures in order to combat rising inflation, the entire crypto market saw a massive sell-off.
Crypto prices have also been hit as more countries continue cracking down on Bitcoin mining. In addition, unrest in Kazakhstan -- one of the hotspots for Bitcoin mining -- has been linked to more volatility within the crypto market.
That said, market downturns can sometimes be a smart buying opportunity, as you can invest when prices are lower. And there are a few reasons Ethereum is still a smart buy.
1. Its fundamentals are still strong
Any time a cryptocurrency's price starts to fall, it's important to consider why. In some cases, it's because the crypto itself is not a strong investment, and there's some sort of flaw that's concerning to investors. In other cases, though, it's a result of outside forces.
Right now, Ethereum is essentially the same cryptocurrency that it was two months ago when it was reaching record highs. Its fundamentals haven't changed, and its price drop is most likely due to the Fed's actions and overall uncertainty surrounding both the economy and the crypto market.
This doesn't mean Ethereum is guaranteed to bounce back from its slump. But because its price drop is primarily related to investor uncertainty rather than its fundamentals, it's more likely to recover eventually.
2. It's a long-term investment
Regardless of whether you're buying stocks or crypto, it's important to maintain a long-term outlook.
Nobody knows how long this downturn will last, and things could get ugly for Ethereum in the near term. However, there is a good chance its price will recover eventually -- you just need to be willing to wait for it.
Despite this volatility, Ethereum still has upgrades in the pipeline that could make it an even stronger investment. Its Ethereum 2.0 update, for example, is expected to make the network significantly faster and more energy-efficient, with lower transaction fees as well. That upgrade should be completed sometime this year, which will strengthen Ethereum even further.
3. Volatility is normal for crypto
While it can be nerve-wracking, this type of volatility is not unusual for the crypto market. In fact, over the course of 2018, Ethereum lost nearly 95% of its value. By comparison, this recent 35% drop is mild.
If you buy now, expect to see more volatility -- especially over the next few weeks and months. However, this short-term turbulence shouldn't be too concerning. The best you can do is hold your investments for as long as possible and try to avoid getting hung up on the crypto market's ups and downs.
Is Ethereum right for you?
Ethereum is one of the strongest players in the crypto space, and it has a promising future -- despite the short-term volatility. That said, it's not the right investment for everyone.
If you're a risk-averse investor, right now may not be the best time to buy. Crypto, in general, is a highly speculative investment. While Ethereum does have plenty of advantages, there is no guarantee that it will succeed over the long run.
In addition, only invest money you can afford to lose, and don't invest anything you may need within the next few years. Stock market downturns are the worst times to sell your investments, so if Ethereum's price falls further and you need to withdraw your cash, you could end up locking in your losses.
Ethereum has been having a rough couple of months, but it's still a strong long-term investment. If you're willing to tolerate higher levels of risk and volatility, it may be the right time to buy.