After a brief spike earlier this week, cryptocurrency prices came back down Thursday.
Several experts we talked to said the prices would likely fall again despite the upward trend, as pressure continues to mount from macroeconomic uncertainty and a liquidity crisis among crypto firms.
And that’s exactly what happened.
Bitcoin fell below $20,000 on Thursday, a near 8% drop over the last seven days. Ethereum experienced a big drop too, falling to nearly $1,000. The largest crypto is down more than 70% from last year’s all-time high of $68,000.
Volatility is par for the course for crypto, and while bitcoin has fallen below the key support level of $20,000, it could easily bounce back up. For investors, a big question still lingers: Is the crypto market on its way to recovery or is it just another false alarm, also known as a bull trap?
Some experts say signs point to a bull trap and investors should be wary, warning the worst may be yet to come amid ongoing macroeconomic uncertainty — and bitcoin’s price, as well as other cryptocurrencies, could drop even further.
“While we have seen bitcoin and ethereum rally recently after creating lows around $17,500 and $880 respectively, we are unconvinced about calling a low in place yet,” says Richard Usher, head of over-the-counter trading at BCB Group, a crypto financial firm. “The general risk environment remains on a knife edge, and while we think risk assets will rally significantly toward the end of the year, we see risks skewed to one more sell-off first.”
Is the Crypto Market Recovering or Just a Bull Trap?
It’s easy for investors to hope the worst is in the past for the crypto market. Bitcoin’s price stayed above $20,000 and ethereum held above $1,100 on Tuesday, a significant jump from their 15-month lows just two weeks ago.
But with war raging in Ukraine, rising interest rates, inflation soaring, and talks of an impending recession, the coast is far from clear, experts say. Many are calling what we’re seeing with crypto prices this week a bull trap.
That’s when a stock or cryptocurrency reverses back down after a convincing rally and breaks below a prior support level. Basically, it’s a false signal, fooling investors into thinking the market is done falling and that it’s a good time to buy.
Experts say there will likely be another sell-off in the crypto market over the next few weeks or months. Wendy O, a crypto expert and educator, expects ethereum could fall as low as $750 and bitcoin could fall to $10,000. Kiana Danial, entrepreneur and author of “Cryptocurrency Investing for Dummies,” predicts bitcoin will fall to $11,000, while venture capitalist Kavita Gupta is calling for a bottom of $14,000 for bitcoin and $500 for ethereum.
Martin Hiesboeck, head of blockchain and crypto research at Uphold, says whether bitcoin holds above $20,000 has little to do with crypto itself and more with the overall geopolitical and macroeconomic situation, which he does not believe will improve significantly in the short term. The crypto market, which has been tracking with the stock markets lately, has been a casualty of the broader market sell-off of risky assets.
“The war in Ukraine, supply chain gluts, and inflation are by far the biggest worries,” Hiesboeck says. “So far bitcoin hasn’t exactly proven to be the inflation-proof safe haven it’s biggest fans believed it to be.”
Is It a Good Time to Invest in Crypto?
The crypto market is volatile and highly unpredictable, so buying cryptocurrencies at any price is risky — let alone during a market dip that might not go away anytime soon.
However, if you’ve assessed your tolerance and can accept the risk, experts say now could be a good time to get in the crypto market since prices are lower than they’ve been in years. There’s no such thing as a “perfect” time to enter the market, so keep in mind that price fluctuations are par for the course and be prepared for crypto prices to fall even more. Don’t invest in crypto if you can’t stomach sharp market swings, which can sometimes be as much as 15% in a 24-hour period.
Additionally, you should invest only what you’re OK with losing and after you’ve prioritized other aspects of your finances, such as building an emergency fund, paying off high-interest debt, and investing in a traditional retirement account like a 401(k).
Financial advisors recommend investing no more than 5% of your portfolio in crypto, and sticking to the two most well-established cryptocurrencies: bitcoin and ethereum. According to the NextAdvisor Investability Score, bitcoin and ethereum are considered to be better investments thanks to their longer track records and long-term value growth, among other key factors. Here’s how our score shakes out for 10 cryptocurrencies that are consistently among the top by market cap, excluding stablecoins, for reference:
|COIN||NEXTADVISOR INVESTABILITY SCORE|
|Binance Coin (BNB)||49/100|