It’s been a rough couple of months for Bitcoin (CRYPTO: BTC) Y Ethereum (CRYPTO: ETH).
After hitting all-time highs in November, both cryptocurrencies have tumbled downhill. Bitcoin is down more than 36% from its peak, and Ethereum is down nearly 30% from its all-time high.
There are several factors that could be driving this recent sell-off, including news that the Federal Reserve could raise interest rates in the coming months, as well as the recent internet shutdown in Kazakhstan, a key country for Bitcoin mining.
While this drastic drop may be concerning, keep in mind that in some cases price drops are a smart opportunity to invest more affordably.
Bitcoin and Ethereum are the two most expensive cryptocurrencies, priced at around $ 41,700 per token and $ 3,200 per token, respectively. But compared to their all-time highs of close to $ 70,000 and $ 4,900 per token, these cryptocurrencies are essentially in liquidation right now.
Does that mean you should stock up on Bitcoin and Ethereum while they’re on sale? Not necessarily. This is what you need to know.
Image source: Getty Images.
Are Bitcoin and Ethereum good investments?
When prices drop during a market downturn, it can be tempting to recharge investments simply because they are more affordable. But before you buy, it’s important to make sure they are the right investments for you.
Like all cryptocurrencies, Bitcoin and Ethereum remain speculative, which means that no one knows for sure how they will perform in the long term. That being said, they both have strong advantages that could help you succeed over time.
Bitcoin, for example, is designed to be a store of value and an inflation hedge. While the jury is still out on how effective Bitcoin is in protecting against inflation, as inflation continues to rise, more investors are looking to Bitcoin as a long-term investment. It also continues to gain ground as a form of payment, even becoming legal tender in El Salvador.
Ethereum is also poised for further growth in 2022 as it moves to its Ethereum 2.0 update, which will make the network faster, more energy efficient, and more affordable to use. This update will not only make it easier to scale Ethereum, but will also help you keep up with younger competitors like Cardano Y Solarium.
Should you invest right now?
Whether you invest in Bitcoin or Ethereum largely depends on your tolerance for risk. Although this recent drop may sound alarming, it is not the worst cryptocurrencies have seen over the years. Bitcoin, for example, has lost more than 80% of its value in the past, and throughout 2018, the price of Ethereum plummeted close to 95%.
Volatility like this has become the norm for cryptocurrencies. While there is a good chance that Bitcoin and Ethereum will survive this recession, prepare for more turmoil if you decide to invest. If you are a risk averse investor, consider whether you are comfortable with this level of volatility.
Also keep in mind that if you invest, it is best to hold your investments for as long as possible. In other words, don’t expect to buy now and then sell in a few weeks for a quick profit. Only invest if you plan to hold your investments for at least a few years, if not decades.
Like all investments, Bitcoin and Ethereum have their strengths and weaknesses, and they are not suitable for everyone. If you can tolerate higher levels of risk and are willing to hold your investments long-term despite volatility, they may be a good fit for you. Otherwise, you’d better wait now.
This article represents the opinion of the author, who may disagree with the “official” recommendation position for a premium Motley Fool consulting service. We are variegated! Questioning an investment thesis, even one of our own, helps all of us think critically about investing and make decisions that help us be smarter, happier, and wealthier.