Is Price Still A Key Factor When Deciding Whether To Invest In Bitcoin And Crypto Assets Or Not?
Is Price Still A Key Factor When Deciding Whether To Invest In Cryptos Or Not?
The current state of the cryptocurrency market doesn’t evoke any confidence. If anything, it’s at a place where many potential investors wouldn’t touch it with a very long spoon.
The prices of crypto tokens have crashed from its all-time high at the beginning of the year; and it doesn’t seem to be letting up. Bitcoin for instance, has lost another $500 in value in the last week, bringing it down to a $3,000-$3,500 low that no one would have imagined early this year.
Some speculators think it might crash further to $1,500. Ethereum which used to be the “darling” of the market and enjoyed a four figure price point early this year, has seen its prices tumble down to a mere two digit value –and looks like it’s still falling with many predicting and $30-$60 price band.
Tether however, seems to be performing well, even if it has lost a significant part of its earlier value this year. The coin has plummeted from a $3 value to a mere 30 cents. Although, in spite of that, it has risen through the ranks to attain fifth position according to market cap.
Bitcoin Cash on the others hand, has seen its price crash to the point where it’s competing in market cap with EOS and Litecoin. The point is that the market is no longer what it used to be right now. Prices have plummeted, tokens have lost huge value, and investors are incredibly wary of the market.
Which begs an important question: is price a deciding factor when you’re thinking of investing in the crypto market? Should the rapidly falling prices deter you from investing right now? Do these prices mean the crypto industry will crumble and disintegrate?
The answer to this is that it depends. More specifically, price may play a role in the first two questions, but none in the third. Cryptocurrency projects raised a ton of money last year, from ICOs and private sales. Most of these funds were converted into hard cash and stored away in various banks.
This means that most worthwhile cryptocurrency projects have enough cash to stay solvent and afloat for a long time. They can probably fund their projects for 3-5 years, with or without help from external investors.
For investors however, these rice drops are highly alarming, thus forcing many to stay away, while those whose cash are trapped are just waiting to either break even or earn something close so they can pull out of the market.
The drastic reduction in value of each cryptocurrency has resulted in significant loss for many retail investors.
What Caused This?
Most likely, it’s volatility. The crypto market has always been a highly volatile one, and will probably remain that way for a long time. There are often cycles of extreme price hikes, followed by corrections.
This has happened over and over in the market. The reason for this is probably because of the Proof of Work (PoW) consensus. Unfortunately, this most recent crash has seen many “experts”, calling cryptocurrencies a bubble.
Interestingly, bubbles don’t ever recover or even soar to untold heights after a crash. If anything, they remain there, at the bottom, never to rise again. Cryptocurrencies on the other hand, have exhibited contrary characteristics.
They rise, then fall, then rise to even higher heights, then fall and back up again, to even higher heights, and so on. It has always done this and will probably do the same thing again.
More interestingly, projects that are bubbles are typically abandoned by their user base. This is not so with cryptocurrencies. If anything, their user base has stayed steady and constant, in spite of the significant drops in value.
For instance. Bitcoin is still executing transactions valued at almost $5 billion daily, while ethereum has retained its handling over 500k transactions in 24 hours. So, activities on both networks have stayed fairly constant, regardless of the price.
What this means is that the projects are being continually used by dedicated individuals. Whether the price goes up or not is irrelevant to these people.
Recovery In Price Possible?
Most likely, yes. This is what usually happens to crypto projects after a lull in pricing or value: some folks suddenly discover it, others actively promote it, and before you know it, there’s a lot of speculation, which results in significant price appreciation.
That, combined with the increased usage and transaction volume, keeps the prices high. Once the limit of the projects’ scalability is reached, users become disillusioned, and there’s a resultant price crash.
However, as long as the network can handle the necessary transactions, there will be consistent price recovery. Volatility though, will probably be fairly constant until the major issues surrounding cryptocurrency infrastructure and its limit are resolved.
Some projects are very likely have these issues resolved, resulting in increased price stability in the near future. For instance, Ethereum is preparing to move from the Proof of Work consensus to the Proof of Stake. Named the Proof of Stake Beacon Chain, it is estimated to lower inflation by 0.8 percent annually.
That, combined with sharding should lift the current limits on daily transactions to over a billion transactions per day on the ethereum network.
At the end of the day, we just might see a more stable market, with investors taking a long term approach as against the short term that can result in massive speculation and the resulting price volatility.
Till then, investors worried about the current state of the market might want to relax and ride it out. The cryptocurrency market always rebounds, and makes a people a lot of money. In fact, many traders are currently profiting from shorting trades, and making decent money from the plummeting prices.
These same traders buy when it’s at rock bottom and sell high when the prices recover. So, take advantage of these falling prices, because they won’t last for too long.