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

Posted: 25 January 2022 5:59 pm
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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 $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

In a recent article, I said Bitcoin’s support level is $35,000. A break below this number means $30,000 is next. Bitcoin tried to break $35,000 for three days and now hovers at around $36,000, meaning the drop has stopped. For now.

If the price holds above $35,000, we may see a move up to $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.

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

The value of any investment can go up or down depending on news, trends and market conditions. We are not investment advisers, so do your own due diligence to understand the risks before you invest.

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