How to Avoid Investing in Cryptocurrencies During a Slump

How to Avoid Investing in Cryptocurrencies During a Slump

Investors of all types have had a difficult few months. Many investors have lost sight of the importance of making huge gains. Instead, they are focusing on staying afloat while inflation woes and ongoing effects from Russia’s war against Ukraine prolong the market’s downward trend.

It’s up for debate if the U.S. is experiencing or heading towards a recession. However, it is clear that investors aren’t enjoying the post-pandemic boom they had hoped for.

Investors tend to be more cautious during times like these. Investors tend to be more cautious during times like these, and cryptocurrencies, which are known for their volatility, are not the first thing that comes to mind. Although this idea is plausible, there are still reasons to believe it will be worthwhile to keep an eye on crypto in near future.

“To see where cryptocurrency might go from here it’s important to look beyond the headlines and look at the history,” Zain Jaffer, tech entrepreneur, CEO of Zain ventures, an investor firm that focuses on crypto, real-estate, and proptech initiatives.

We tend to focus on the present in slumps like these. However, we risk missing huge opportunities if not also learning from the past and looking towards the future.

Recessions and Cryptography: A Short History

While it remains to see how cryptocurrency will perform in a recession, it is important to recall that cryptocurrencies were originally created in 2008 to counter growing distrust in central banks.

These currencies can be used to eliminate the need for third parties by creating peer-to-peer networks that are backed up by transparent and immutable records on blockchain.

These currencies offer an alternative to government fiat which is vulnerable to inflation and devaluations based upon geopolitical events. may gain popularity as trust in fiat drops.

Since cryptocurrencies aren’t tied to any one country’s economy, or to any single economic event in particular, fluctuations in currency value can have no effect on them. Receding economies have a tendency affect countries with common economic interests. This is because, for example, the economies of the U.S.A. and E.U.

Because they are so closely linked, both were hard hit by the 2008 recession, but some developing countries actually experienced growth during this period. These currencies are not subject to the same national interests or alliances as other countries, so a recession in one country or group may not have an effect on their value.

Jaffer says that Cryptocurrencies are still in a recession and cannot predict how they will perform. However, their technology was designed to fix the problems that lead to an environment very similar to ours. Their global use is expected to increase as their value increases.

Potential Risques

However, just because cryptocurrencies aren’t tied to any particular country’s economy doesn’t mean they are immune from macroeconomic factors. The value of cryptocurrency can be affected by changes in regulations and institutional adoption.

It’s important to keep up with these developments. It is important to have a diverse portfolio. Moving too much money into crypto can be risky, especially with tighter regulations.

Furthermore, the past has shown that there is a correlation between the value of cryptocurrency and the overall performance of the tech sector.

While correlation doesn’t necessarily mean causation, and we don’t have enough data to determine the causes of this phenomenon it is still useful. As with all investments, cryptocurrencies are affected deeply by fear and hype.

This is because cryptocurrencies are highly volatile and subject to fluctuation within the community. It is therefore essential to stay on top of crypto trends and understand the general attitudes and moods within the space.

Opportunities

However, there are still great opportunities in the crypto market. Even if the global economic downturn causes crypto prices drop, it will be temporary. The most recent periods of crypto-devaluation occurred in 2015 and 2018. 

Those who bought assets at a low price and kept them until their value rose again saw massive returns. Jaffer states that while it’s not a good idea to have all your eggs in one basket and invest in crypto when they are cheap, Jaffer suggests keeping an eye on macro trends as well as setting aside funds for investing in crypto.

A larger scale view suggests that current economic problems might lead more people and institutions to seriously consider cryptocurrencies as an alternative to the limitations of current banking and currencies.

To accelerate this transition, however it is not enough that the crypto community waits for things to change. It is important to educate others about the history and potential benefits of these currencies in order to bring a wider population aboard.

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