After reaching record highs in November, both cryptocurrencies have been on a downhill slide. Bitcoin is down more than 36% since its peak, and Ethereum has fallen by nearly 30% since its all-time high.
There are several factors that could be fueling this recent sell-off, including news that the Federal Reserve could raise interest rates in 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 dips 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 high prices of close to $70,000 and $4,900 per token, these cryptocurrencies are essentially on clearance right now.
Does that mean you should stock up on Bitcoin and Ethereum while they’re on sale? Not necessarily. Here’s what you need to know.
Are Bitcoin and Ethereum good investments?
When prices fall during a market downturn, it can be tempting to load up on investments simply because they’re more affordable. But before you buy, it’s important to make sure they’re the right investments for you.
Like all cryptocurrencies, Bitcoin and Ethereum are still speculative — meaning nobody knows for certain how they will perform over the long run. That said, both have strong advantages that could help them succeed over time.
Bitcoin, for example, is designed to be a store of value and an inflation hedge. While the jury is still out when it comes to how effective Bitcoin is at hedging against inflation, as inflation continues to soar, more investors are looking to Bitcoin as a long-term investment. It’s also continuing to gain traction as a form of payment, even becoming legal tender in El Salvador.
Ethereum is also poised for further growth in 2022 as it transitions to its Ethereum 2.0 upgrade, which will make the network faster, more energy-efficient, and more affordable to use. This update will not only make it easier for Ethereum to scale, but it will also help it keep up with younger competitors like Cardano and Solana.
Should you invest right now?
Whether you invest in Bitcoin or Ethereum depends largely on your tolerance for risk. Although this recent slump may seem alarming, it’s not the worst these cryptocurrencies have seen over the years. Bitcoin, for instance, has lost more than 80% of its value in the past, and throughout 2018, Ethereum’s price plummeted by close to 95%.
Volatility like this has become the norm for crypto. While there’s a good chance Bitcoin and Ethereum will survive this downturn, be prepared for more turbulence if you choose to invest. If you’re a risk-averse investor, consider whether you’re comfortable with this level of volatility.
Keep in mind, too, that if you invest, it’s 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’re not right for everyone. If you can tolerate higher levels of risk and are willing to hold your investments for the long term despite volatility, they may be a good fit for you. Otherwise, you may be better off waiting for now.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.