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Cryptocurrencies including bitcoin and ether have suffered steep price declines. How long will the crypto bear market last, and what should investors do?
The speed and extent of the crypto market crash in 2022 has rattled many devout cryptocurrency enthusiasts. But such steep and extended downturns, known as “bear markets,” are an unavoidable and normal part of investing.
However, at a time like this, and as much as we try to stay level-headed, emotions can play a significant role in determining investing outcomes. Let’s look at how to navigate a bear market and invest strategically for the longer term—and where to buy crypto, if you plan to add to your holdings.
“A bear market is defined as any market or asset that sees a 20%-plus decline over a short period of time,” says Brian Mosoff, chief executive officer of crypto investment firm Ether Capital Corp. in Toronto.
Given the precipitous crypto market decline over the past few months, “crypto certainly fits this definition,” he adds.
This downturn isn’t specific to crypto, though. The stock market is also in the middle of a broad-based sell-off, led by tech stocks, many of which have lost 40% to 50% of their value this year.
It should be noted, too, that many cryptocurrencies have gone through several cycles of wild price swings. Bitcoin (BTC), for instance, has lost over 70% from its November 2021 all-time high of about $67,000 (all figures in U.S. dollars). Similarly, ether (ETH), the top altcoin, was down by over 65% from its peak of $4,847, as of Sept. 8, 2022.
“I would say that crypto is in a bear market right now, although it does seem that the prices have begun to recover,” says Mosoff, pointing out that bitcoin has snapped back above $23,000.
Despite this rally, the crypto market is nowhere close to its peak back in 2021. The global crypto market has lost more than 60% of its value from its high of $3 trillion; as of Sept. 8, 2022, it’s worth about $1.03 trillion.
We’ve seen crypto bear markets before, including those in 2011, 2013 and 2018. How long the current one will last is anyone’s guess—for new and experienced investors alike, it’s difficult to predict when the market will bottom out, and to get the timing right to “buy the dip.”
The crypto market is influenced by the usual suspects that can cause downdrafts in the stock market—a range of factors that include spiralling inflation, hawkish central bank moves such as this year’s aggressive rate hikes, economic uncertainty and geopolitical risks. For instance, BTC and ETH prices fell when Nancy Pelosi, speaker of the U.S. House of Representatives, made a much-publicized visit to Taiwan in August 2022.
Worried about crypto’s volatility, many investors are choosing to ride out the storm on the sidelines, particularly as central banks continue to raise interest rates, says Mosoff. “People who were over-leveraged are now looking to move to cash to ensure they can meet their liabilities and their debt obligations, whether it’s mortgages or they just want to have cash around.”
Another contributor to the current bear market is the huge run-up in the price of crypto assets. At the beginning of 2020, BTC was around $7,000 and ETH was $130. But by the first quarter of 2021, BTC had skyrocketed to $63,000 and ETH to $3,500. “Those big multiples meant a pullback in price was expected,” says Mosoff.
People booking profit and taking money off the table is part of investing and how crypto cycles change from one to the next, he adds.
“On a positive note,” says Mosoff, “the Ethereum merge is taking place within the next few months, where the network will upgrade and there’s plenty of positive momentum happening in the crypto space.”
What does that mean for investors? Bear markets are temporary phases, and it’s prudent to stay focused on the fundamentals of cryptocurrencies—such as developer activity and increasing crypto adoption—and take a longer-term view of their utility and application.
Bear markets can spook both newcomers and seasoned market players. On the flip side, though, they also provide an opportunity to “buy assets at distressed prices for those who are either sitting on the sidelines or those with extra cash,” says Mosoff.
If you already hold crypto, buying more at a lower price would bring down your average cost base—but you also risk losing more money.
“It’s really about an investor’s time horizon and if they are willing to stomach the volatility and treat this as a long-term investment,” says Mosoff. Those are the investors who will likely do well and be able to again buy these assets at attractive entry points, he adds.
Another thing to consider is that crypto is still an emerging asset class and an emerging technology—we don’t yet know how all of the new crypto platforms and protocols could change the digital-finance landscape. Some investors choose to ignore the short-term price volatility and “focus instead on the developments and the developer activity taking place in this space,” says Mosoff.
“Regardless of the bear market, I have not heard of [decentralized app and blockchain] developers who have given up on crypto, thrown their hands in the air and submitted resumes to traditional financial institutions,” he says.
While no one can predict the direction of the crypto market, analysts recommend weathering the bear market by staying focused on long-term goals and keeping your portfolio diversified.
Portfolio diversification helps spread risk across different assets during a bearish wave. It’s really up to the individual investor and what they feel most comfortable with. “There are pros and cons to each side of that barbell,” says Mosoff, but he stresses “don’t jump into any steep position without doing a fair amount of research.”
There is no right or wrong answer to the question of getting exposure to crypto, but “investors need to consider, both in bull and bear markets, what their access point should be and what’s most appropriate for what they’re trying to achieve,” Mosoff says.
If you’re thinking about investing in crypto, research your options. Mosoff doesn’t hesitate in recommending digital coins that have stood the test of time. “Certainly, the blue-chip assets such as bitcoin and ether,” he says. “We have conviction that they will be around in the next market cycle whenever that may be.”
Bitcoin has been around for well over a decade and has been the number one cryptocoin by market cap since the beginning. Ethereum, launched in 2015, remains the second biggest, and it’s about to get a major upgrade. These two assets are likely to remain key to the crypto ecosystem in the coming years.
Some other crypto assets—such as cardano, avalanche and solana—have shown promise but have yet to prove themselves over the longer term. “There’s certainly a lot of really interesting development and activity taking place on other smart-contract platforms [besides Ethereum] and other assets within that space, but new assets don’t yet have as robust developer communities and infrastructure surrounding them,” says Mosoff.
He encourages investors to focus on BTC and ETH and then look to the other assets after they’ve built a position in the blue chips. “It’s not that bitcoin or ether won’t be volatile,” he says. “It’s just that they have the highest chance of price recovery as we move into the next cycle.”
The key to navigating through a bear market is paying even closer attention to the quality of crypto assets. When the tide of volatility subsides, the best of the lot—coins with blue-chip credentials—will recover the fastest and go the farthest.
Video: Is crypto a good investment?
You can purchase BTC, ETH and several other crypto coins on CoinSmart (ticker symbol SMRT), a fully regulated Canadian crypto platform. It offers an easy-to-use interface, a transparent fee structure and 24/7 customer support by phone, email and chat. CoinSmart’s security features include two-factor authentication and offline cold storage.
It’s fast and free to open a CoinSmart account, and investors can access their funds the same day they make a deposit. Sign up for an account* with the code money30 and receive CAD$30 in bitcoin when you deposit a minimum of CAD$100.
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