It's a tough time to be a crypto investor. The cryptocurrency sector, as a whole, lost more than $1 trillion in a matter of months, as major tokens have seen their prices plummet.
Bitcoin (BTC -0.63%), for example, has fallen nearly 53% from its peak in November. Ethereum (ETH 1.63%) is down nearly 60% in that time frame. And Solana, one of the fastest-growing cryptocurrencies of 2021, has plummeted by more than 80%.
If you've invested in crypto (or are considering buying now), this slump can be alarming. Will prices ever bounce back? Here's what you need to know.
Image source: Getty Images.
What does the future hold for crypto?
Cryptocurrency is different from many other types of investments because it's still speculative. Unlike stocks, crypto doesn't have a long history. Bitcoin, the original cryptocurrency, was created in 2009, so the sector has never had to endure a bear market or crash (save for the brief crash in March 2020).
That makes it tough to say how crypto will handle this downturn, especially if the entire market continues to slide.
That said, many individual cryptocurrencies have faced extreme volatility in the past and managed to survive. Bitcoin, for instance, has lost more than 80% of its value on multiple occasions, yet it's experienced positive average returns over time. Also, back in 2018, Ethereum's price fell by nearly 95% over the year, yet it still rebounded.
By comparison, this current slump appears mild. Of course, that doesn't guarantee that those investments will rebound. But crypto has experienced plenty of turbulence in the past, and while not all individual cryptocurrencies have survived, the sector, as a whole, has stuck around.
Is it still safe to invest in crypto?
Because crypto is speculative, it's a riskier investment. There's a chance that prices may not rebound, and if that happens, you might lose everything you've invested. But there's also a chance that crypto could thrive, becoming a potentially lucrative investment.
Whether or not you choose to invest (or continue investing) depends on your tolerance for risk. If you're willing to take on higher levels of risk for the chance of earning substantial gains, crypto may be right for you. Otherwise, you may be better off avoiding it for now.
Also, if you do choose to invest, focus on choosing solid long-term investments. The cryptocurrencies that are most likely to rebound are the ones with strong competitive advantages and real-world utility. While all cryptocurrencies are still speculative, the more uses a crypto has, the better its chances of seeing long-term growth.
Finally, only invest money you can realistically afford to lose. Crypto is risky, and there are no guarantees that your investment will recover from this downturn. If you're struggling to make ends meet or don't have an emergency fund, it may be best to focus your efforts there before investing in cryptocurrency.
Nobody knows exactly what the future holds for crypto. While there's a good chance that the sector will pull through this downturn, it's uncertain which individual cryptocurrencies will rebound. By considering your tolerance for risk and choosing the strongest investments, it will be easier to weather any future volatility.
