Bitcoin and Ethereum are crashing: Is now the time to invest?

Downturns can be smart buying opportunities, but are Bitcoin and Ethereum good investments right now?

| More on:
A male sharemarket analyst sits at his desk looking intently at his laptop with two other monitors next to him showing stock price movements

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

It's been a rough couple of months for Bitcoin (CRYPTO: BTC) and Ethereum (CRYPTO: ETH).

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 was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Katie Brockman owns Bitcoin and Ethereum. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and recommends Bitcoin and Ethereum. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on International Stock News

A male investor sits at his desk looking at his laptop screen holding his hand to his chin pondering whether to buy Macquarie shares
International Stock News

If you invested $10,000 in Nvidia stock the day ChatGPT came out, this is how much you'd have today

Buying Nvidia when the disruptive AI chatbot launched would have been a smart move.

Read more »

A Tesla car driving along a road at sunset
International Stock News

Why Tesla stock was climbing today

Investors were encouraged by news of a price hike on the Model Y.

Read more »

Plate with coloured wedges being parcelled out like a slice of pie representing a share split
International Stock News

Stock-split watch: Is Nvidia next?

Nvidia last split its stock when it traded for a pre-split $744 in 2021.

Read more »

A woman in jeans and a casual jumper leans on her car and looks seriously at her mobile phone while her vehicle is charged at an electic vehicle recharging station.
International Stock News

1 Wall Street analyst thinks Tesla stock is going to $125. Is it a sell?

Tesla is no longer a magnificent stock, according to a Wells Fargo analyst.

Read more »

A young man goes over his finances and investment portfolio at home.
International Stock News

Is Nvidia stock a buy?

The company's stock could rise 40% over the next two years and outperform the S&P 500.

Read more »

Man with hands in the middle of two items with money bags on them.
International Stock News

Is Nvidia headed for a stock split?

Nvidia stock has split five previous times in the company's history.

Read more »

Digital rocket on a laptop.
International Stock News

Nvidia shares surged (again) today. Is it too late to buy the red-hot artificial intelligence (AI) growth stock?

Nvidia stock has gained nearly 300% over the past year. Can investors still profit from this AI stock?

Read more »

A woman holds a soldering tool as she sits in front of a computer screen while working on the manufacturing of technology equipment in a laboratory environment.
International Stock News

Can you buy Nvidia shares on the ASX?

This stock has rocketed higher. How do we get access to it?

Read more »