The crypto market has lost $1.5 trillion in value — time to buy?

Posted: 26 January 2022 10:00 am
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With almost half its market value lost in three months, buying into the crypto market seems enticing.

The crypto market inched higher on Tuesday, with Bitcoin (BTC) recovering 8% in the last 24 hours. Despite that, all major cryptocurrencies remain beaten down. Since reaching the highs in November, Bitcoin has lost 46%, while cryptocurrencies Solana (SOL) and Polkadot (DOT) lost nearly 70% each.

Overall, the crypto market wiped out as much as US$1.5 trillion in market value since November. That's a serious rout, but if you're committed to crypto, it may be time to buy.

Why this could be a buying opportunity

If you're a long-term bull on cryptocurrencies, you can buy them at a discount now. If you bought in at higher prices, you get to dollar-cost average, buying less expensive coins now to expand your position and lower the average cost per coin.

Timing the market and predicting tops and bottoms is incredibly hard, though, so you may lose before you gain.

More losses could be ahead

I recently noted that Bitcoin's support level is US$35,000. A break below this number means US$30,000 is next. Bitcoin tried to break US$35,000 for three days and now hovers at around US$36,000, meaning the drop has stopped. For now.

If the price holds above US$35,000, we may see a move up to US$40,000. This is a strong resistance level, and there needs to be a strong catalyst for the coin to push through. This could be something like the US regulating cryptos or large hedge funds and institutions buying the dip.

However, the momentum is still strong on the downside, so this may a consolidation move before another drop lower.

What's causing the drop?

Many factors are driving the crypto sell-off, including profit-taking and Fed's hawkish stance on interest rates. Bank of Russia released a paper last week proposing a full crypto ban in the country. This could be a factor in the recent crypto fall, but it's unlikely to be the main cause.

What has seemed to hurt the crypto market greatly in recent months, however, is that crypto doesn't appear to act as a hedge against inflation anymore. Prices have fallen despite high inflation. Instead, it acts like a tech stock and moves similar to how tech stocks move.

With the Fed raising interest rates, overvalued tech stocks may continue to drop. If the correlation persists, cryptocurrencies will likely see further losses in the coming weeks.

Interested in cryptocurrency? Learn more about the basics with our beginner's guide to Bitcoin, dive deeper by learning about Ethereum and see what blockchain can do with our simple guide to DeFi.

Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade. Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

Kliment Dukovski owns Bitcoin, Solana and Polkadot as of the publishing date.

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