Cryptocurrency has had a rough start this year. After reaching an all-time high in November, the price of Ethereum (CRYPTO: ETH) It has fallen more than 35% since its peak.
It’s not the only one that crashes. After the Federal Reserve warned that it may soon roll back its pandemic-era stimulus measures in order to combat rising inflation, the entire cryptocurrency market witnessed a massive sell-off.
Cryptocurrency prices have also taken a hit as more countries continue to crack down on them Bitcoin Mining. In addition, the turmoil in Kazakhstan – one of the hotspots for bitcoin mining – has been linked to more volatility in the cryptocurrency market.
However, recessions in the market can sometimes be a smart buying opportunity, as you can invest when prices are dropping. And there are a few reasons why Ethereum is still a smart buy.
1. Its fundamentals are still going strong
Anytime the price of a cryptocurrency starts to fall, it is important to think about why. In some cases, this is because the cryptocurrency itself is not a solid investment, and there is some kind of flaw that worries investors. In other cases, it is the result of external forces.
At the moment, Ethereum is the same cryptocurrency it was a couple of months ago when it was hitting record levels. Its fundamentals have not changed, and the drop in its price is likely due to the actions of the Federal Reserve and the general uncertainty surrounding both the economy and the cryptocurrency market.
This does not mean that Ethereum is guaranteed to come back from the doldrums. But since the drop in its price is mainly related to the investor’s uncertainty rather than his fundamentals, it is likely that it will eventually recover.
2. Long-term investment
Regardless of whether you are buying stocks or cryptocurrencies, it is important to maintain a long-term outlook.
No one 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 eventually recover – you just need to be willing to wait for it.
Despite this volatility, Ethereum still has upgrades in the pipeline that could make it a stronger investment. The Ethereum 2.0 update, for example, is expected to make the network significantly faster and more energy efficient, with lower transaction fees as well. This upgrade should be completed sometime this year, which will further boost Ethereum.
3. Volatility is normal for cryptocurrency
While it can be nerve-wracking, this kind of volatility is not unusual in the cryptocurrency market. In fact, over the course of 2018, Ethereum lost nearly 95% of its value. By comparison, this latest drop of 35% is considered moderate.
If you buy now, expect to see more volatility – especially over the next few weeks and months. However, this short-term disruption should not be too worrying. The best thing you can do is to hold your investments for as long as possible and try to avoid getting stuck in the ups and downs of the crypto market.
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. However, it is not the right investment for everyone.
If you are a risk-averse investor, now may not be the best time to buy. Cryptocurrencies, in general, are a highly speculative investment. While Ethereum has a lot of advantages, there is no guarantee that it will succeed in the long run.
In addition, invest only money that you can afford to lose, and do not invest anything that you may need for the next few years. Downturns in the stock market are the worst times to sell your investments, so if the price of Ethereum drops further and you need to withdraw your money, you could end up locking up your losses.
Ethereum has had a rough two months, but it’s still a solid long-term investment. If you are willing to take on higher levels of risk and volatility, this might be a good time to buy.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of the Motley Fool Premium Consulting Service. We are diverse! Asking about an investment thesis — even if it’s our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.