Fears of a prolonged crypto winter are coming to fruition. On Saturday, prices of major cryptos like Bitcoin (BTC 0.45%), Ethereum (ETH -1.27%), Solana, and Cardano were all down roughly 50% from all-time highs set less than six months ago.
Meanwhile, Lucid Group (LCID -1.24%) passed Rivian Automotive in market cap on Friday for the first time. But Chinese electric vehicle (EV) giant Nio (NIO -2.06%) is hovering around its 52-week low.
Here's the case for buying top-tier cryptos like Bitcoin and Etheruem, as well as the case for buying high-growth, up-and-coming EV carmakers Lucid and Nio.
Image source: Getty Images.
Leaning into a weak market
Daniel Foelber (Bitcoin and Ethereum): Although Warren Buffett isn't a fan of crypto as an investment, his adage to "be fearful when others are greedy and greedy when others are fearful" applies well to the current market environment. Bitcoin and Ethereum set all-time highs on Nov. 10, 2021, of $68,990.90 and $4,865.57, respectively. On Saturday, Bitcoin fell below $35,000 and Ethereum came close to $2,300. Such a swift and brutal sell-off was a painful reminder of the volatile nature of crypto investing, especially given that the crypto market operates 24/7.
The Saturday crypto meltdown was aggravated by the liquidation of $1.1 billion in positions. Exchanges tend to offer their users the choice to use their crypto as collateral to borrow money to buy more crypto. Known as trading on margin, this relationship can provide a catalyst for market outperformance during good times, and potentially catastrophic losses during bad times (just ask banks that defaulted during the financial crisis).
However, retail investors looking to carve out a percentage or two of crypto weighting in their portfolio are in luck. Bitcoin and Etheruem both have attractive long-term investment theses that could allow them to grow over time. The same can't be said for smaller, more speculative altcoins that have the potential to outperform Bitcoin and Ethereum but are also far riskier bets.
In case the crypto sell-off includes more pain ahead, investors would do well to determine their desired crypto allocation, reassess their existing crypto holdings, and mentally prepare for even lower prices before buying the dip. Going into a steep sell-off with a game plan helps you stand a better chance of making calculated decisions. It can also help avoid falling prey to impulse buying or selling that you may regret down the road.
Image source: Lucid Group.
These two EV makers help spread the bet
Howard Smith (Lucid and Nio): There are similarities between investing in cryptocurrency and the EV sector. Both are speculative investments, counting on rapid growth coming in the future. But with so many cryptocurrencies available, and many use cases being debated even by so-called experts, the EV sector offers a more discernible growth market.
Lucid may be a newcomer on the EV scene, but Nio has already proven it can manufacture successfully at scale. The Chinese EV maker had cumulatively delivered more than 167,000 of its SUV models as of the end of 2021. And 2021 shipments were more than double what the company achieved in 2020. This year will mark a turning point in Nio's evolution. It plans to begin delivering its first electric luxury sedan, the ET7, by the end of the first quarter. That will be followed by the midsize ET5 sedan later this year. Nio, along with its state-owned manufacturing partner, is also in the midst of doubling its manufacturing capacity to satisfy strong demand.
Lucid only began shipping its initial product late last year and is taking a different approach. It is starting with high-end luxury sedans, with plans to begin producing an SUV late in 2023. The Lucid Air sedan was named MotorTrend's 2022 Car of the Year, and offers a market-leading 520-mile range on a single battery charge. But Lucid isn't alone in touting its advanced technology.
Nio offers a battery-as-a-service option that allows customers to save on the initial cost of the vehicle and utilize Nio's battery swap stations to quickly replace depleted batteries. The company recently opened its first battery swap station in Norway, where it started delivering vehicles last year. The station is the first in Europe for Nio as the company moves to expand outside of China.
Lucid is also planning on geographic expansion, saying it expects to enter Europe and the Middle East in 2022, and China in 2023. While there are plenty of risks for both Lucid and Nio, the market is tangible and the products are in demand. An investment in these two EV makers brings some diversity to a speculative bet. But it comes with real market demand that is readily apparent.
Stick to your conviction and persevere
Token and share prices of Bitcoin, Ethereum, Lucid, and Nio have all responded to the broader market sell-off in different ways. While it can be a good idea to take advantage of bargains when the market offers them, it's never a good idea to jump in and out of what's working or not working in the short term. By sticking to your convictions and owning assets you believe will compound over time, you stand a better chance to reduce randomness and safeguard your financial health.
