Is now a good time to invest in cryptocurrency?

The crypto market has been declining recently, market sentiment is low, and most altcoins have shown signs of decline. Although mainstream BTC and ETH have been cut in half, some investors are still confident in their prosperity. In this context, some analysts believe that now is a good time to invest, while there are also extreme opponents who believe that the market will soon go down. Some technical analysts also pointed out that the market will show more weakness after a short rebound, followed by a bigger rise. There are many different opinions, so is now a good time to invest in cryptocurrencies?

Diversity of groups

In fact, groups with different costs, different risk preferences, different values, etc. have completely different views on whether now is a good time to invest in cryptocurrencies.

For example, different views on the value of cryptocurrencies have led people to have different investment strategies. Dalio, founder of Bridgewater Funds, pointed out that the Federal Reserve began to "sell" because it had to provide funds for high deficits. Cash is garbage, stocks are more garbage, and the question is what will bring you real returns. So our environment has changed, just like the 1970s - as long as you can get real returns, assets in any form are the best investment. Bitcoin has made great achievements in the past 11 years - so it has begun to occupy a place in my investment portfolio.

In contrast, the founder of Microsoft and the world's fourth richest man said he has not invested in any crypto assets. He said he only invests in assets with valuable functions. Gates believes that the value of a company is based on the production of great products, while the value of cryptocurrencies, in his view, is simply based on speculation that someone will pay for them in the future. Gates has long been skeptical of cryptocurrencies.

In addition, different risk preferences also lead people to have different strategies. Judging from the surface returns alone, if you are willing to accept that cryptocurrency is a high-risk gamble that may bring returns, then it may be a good investment. But on the other hand, there is a high probability that you will lose all your money. Because amid the global cryptocurrency price plunge, the prices of cryptocurrencies, including Bitcoin, have been falling in 2022. Different risk preferences prompt people to make different choices.

Investors who pay even a little attention to cryptocurrencies should know that governments and financial regulators in almost every country warn investors about the risks of buying cryptocurrencies. And the risks do exist. When an investment starts appearing in headlines, advertisements, or through celebrity endorsements as a way to get rich, investors will flock to it without considering the risks.

Humans are wired to get caught up in narratives. We see this in politics, personal opinions, and society. Markets are no different. In fact, it happens even more in cryptocurrencies. Investors are frequently hurt by volatility, fake scams, false high-return schemes, and virtually no compensation or protection.

In addition, different costs also lead investors to adopt different strategies. In fact, most investors may suffer losses in large-scale pullbacks, but it does not seem to completely block investors. For mature investors, pullbacks like this are not new in the cryptocurrency field. In addition, although retail enthusiasm has faded, venture capital and fund investment in the crypto field are still being laid out.

As many people in Africa continue to adopt crypto and blockchain, more venture capital flowed into the continent in the first quarter of 2022 than in the first quarter of 2021, according to a new report from blockchain investment firm Crypto Valley Venture Capital (CV VC) and Standard Bank. The report shows that blockchain startups were able to raise $91 million in the first quarter of 2022. Compared to the first quarter of 2021, cash inflows in the first quarter of 2022 increased by 149% year-on-year, and according to CV VC, an increase of more than 11 times. Although Africa has not yet seen the emergence of a "blockchain unicorn," the report predicts that unicorns may emerge from the region's cryptocurrency and blockchain sectors within two to three years as more venture capitalists show interest in the region.

At the same time, many investors choose to invest in funds. It is reported that Fidelity's Bitcoin Index Fund investment has raised a total of US$126.5 million, indicating that overall growth is slowing compared with the previous reporting period. Although the size of the fund has grown modestly in the second year, the number of investors has increased from 83 to 689. Fidelity recently announced that it will allow its customers to allocate part of their retirement savings to Bitcoin.

Bitcoin has been around for more than 10 years, so what will the crypto industry look like in another 10 years? Different groups have different expectations for the future market and the returns they hope to get. In addition, the differences among groups lead to different natural choices.

But if you understand the value and risks of cryptocurrencies and are still interested in investing, then investing based on facts rather than hype is necessary. Make a comprehensive judgment on whether this is a good choice for you and your finances. Note: Any information or analysis in this note is not intended as investment advice and should not be used as a basis for investment decisions.

Find out what the market is saying about cryptocurrencies

Are cryptocurrencies a good long-term investment? According to sophisticated investors such as banks, hedge funds and pension funds, the answer is a resounding yes. More of them are investing in cryptocurrencies, with investment banking giant JPMorgan suggesting in February 2021 that investors could consider putting 1% of their investments into Bitcoin as a way to diversify their portfolios. However, this investment advice is aimed at financial professionals, not ordinary investors with a few thousand pounds in stocks.

Investing in cryptocurrencies that are not particularly well-known or well-supported is fraught with serious risks. Most serious cryptocurrency investors would not consider putting their money into a project that is not yet well-known. The most important tip is to observe what sophisticated investors are buying. Pension funds or university endowments that manage billions of pounds in cash and specialize in long-term investments will usually only invest in Bitcoin. Bitcoin is the original cryptocurrency and has a high long-term value because it has never been hacked and has maintained 100% uptime since its launch.

Also, is Bitcoin a good inflation hedge? Investment professionals have been talking about digital currencies as a way for investors to hedge against inflation. When inflation rises, as it is currently doing, the value of cash in a savings account decreases over time. As the years go by, we can buy fewer goods and services with the money in our bank accounts.

Investment options touted as “hedges” — such as government bonds or gold — tend to either retain more value than cash over the long term or are often unaffected by downturns in other parts of the economy. That’s why so much long-term investment advice focuses on moving cash out of our bank accounts and into assets like cryptocurrencies that are likely to appreciate in value over time.

The promise written into the Bitcoin code is that more than 21 million Bitcoins will never be created. As a result, some experts argue that Bitcoin is not an inflationary currency like the British pound or the US dollar, but the opposite: it is deflationary, appreciating over time.

Of course, the deflationary argument in favor of Bitcoin would fail if the government decided to regulate specifically for Bitcoin. For example, India proposed a ban on cryptocurrency trading, suggesting that it would fine anyone holding any type of digital asset.

Regulatory uncertainty surrounding Bitcoin and cryptocurrencies in general is one of the key factors affecting investment.

It is worth noting that with the release of funds since the pandemic and the impact of the recent Fed rate hike, we have seen that the crypto market is increasingly linked to US stocks, which has also caused more and more investors to believe that Bitcoin is a risky asset rather than an asset to hedge inflation. However, since crypto assets have outperformed traditional risky assets such as stocks during many crises, they are still the choice of many professional investors.

We can see that risk, regulation, and even uncertainty in the macro environment are all affecting the development of Bitcoin and the crypto market. There is no one answer to whether cryptocurrency is a good investment. But if you want to invest, cryptocurrency investors should do due diligence like any other investment. Think carefully about which cryptocurrency has the real potential to change the world. Try not to be swayed by malicious people shouting that this or that cryptocurrency is "going to the moon".