The cryptocurrency market may not look very inviting right now. Its market value has dropped to less than $1 trillion after soaring past $3 trillion late last year. And even some of the biggest players -- often viewed as more established and secure -- have fallen. For example, Bitcoin (BTC +1.00%) and Ethereum (ETH +0.57%) have lost more than 50%.
This is against a backdrop of rising inflation, higher interest rates, and general economic woes. In this sort of situation, investors often flee risky investments and opt for the safest plays. That's what has hurt cryptocurrency. Of course, cryptocurrency prices look tempting at these levels. So, you may be thinking about getting in on the market. Should you really do that right now? Let's find out.
What to expect
Today's environment isn't the most supportive for cryptocurrency, as mentioned above. This means we shouldn't expect immediate, explosive gains from these players -- even if certain cryptocurrencies attract more and more developers and users.
Instead, we should look ahead to see where certain cryptocurrencies may be once the economic context has improved. The good news is today's situation isn't permanent. Economic slowdowns and times of higher interest rates happen. But they don't last forever.
It's key to examine each crypto player individually. One may offer a very promising outlook. Another may represent a greater risk. Can the particular player keep gaining momentum in development and in attracting users?
This is very possible. Even in a difficult economic environment, developers build decentralized applications (dApps). And users make payments through blockchains or use their dApps for gaming or to borrow and lend money. Those are just a few examples. So, today's economic situation doesn't halt a cryptocurrency's ability to develop. It just puts the brakes on many investors' desire to invest in this newish area.
Even in the best of times, cryptocurrencies remain a high-risk industry. They aim to reshape the way business is done -- and they are even working to play a big role in the world of entertainment. But it's impossible to predict if cryptocurrencies will reach their goal. It's important to remember the risks of cryptocurrency investing, no matter what the general economy looks like.
CRYPTO: ETH
Key Data Points
Your investment horizon
Let's get back to our original question: Should you really buy cryptocurrency right now? That depends on your investment horizon. It's always a good idea to invest for the long term -- at least five years. If you're ready to do that, now may be a great time to snap up some excellent crypto players at rock-bottom prices.
But before you go out and do that, consider your comfort with risk too. Even if you're a long-term investor, if you don't like risky assets, it's best to hold off on a cryptocurrency investment at the moment. It's a better idea to go for safer assets that have demonstrated a track record of recovery after market downturns. Many stocks fit the bill.
If you're an aggressive investor, though, now is a good time to take advantage of cryptocurrency price declines. As mentioned above, even the strongest players have suffered. They've offered us more than a hint about the role cryptocurrencies could play in the world.
Ethereum, for example, hosts more than 2,900 dApps, according to State of the dApps. And people use those for lending, making investments, and even collecting art. This big player is heading for an upgrade this month. It also plans to launch an upgrade next year that could make transactions on its blockchain faster and cheaper.
All of this means that, yes, if you are comfortable with some risk, now really is the time to bet on this exciting industry.
