Why Crypto’s Value Has Plummeted and How to Weather the Storm

Many individuals want to invest in the crypto market. They see that some traders have struck it rich with crypto by investing in the top currencies and selling them when their value skyrockets. That is certainly possible, and getting rich quickly appeals to people from all of life’s walks.

However, if you sink your life savings into a diversified portfolio with a crypto index investment, you should know about how many crypto forms have lost their value lately. It’s a complex phenomenon, and one we’ll break down in the following article.

What is Cryptocurrency?

First, we’ll make sure you understand the basic crypto concept. Cryptocurrency is digital currency. A single country or bank does not control it. In other words, it’s digital payments for things you might buy in the real world. You can also pay for certain services with it.

Crypto appeals because you can use it to conduct nearly instantaneous transactions. Many who use it also like it because it’s not tied to any particular government, country, or financial entity. You can exchange it freely, and merchants the world over might accept it.

However, not all merchants will accept crypto, and you must remember that if you’re going to buy some. Some companies might also accept it, but not all kinds. They may only take Ethereum, Bitcoin, or a few of the other most prominent varieties.

Why Did Crypto Crash in 2022?

In early 2022, the crypto market experienced a dizzying rise. You might remember crypto ads starring various celebrities that debuted during the Super Bowl.

Just as quickly as crypto trading rose to prominence, though, it crashed just as spectacularly. What caused this? The main factor was FTX, a well-regarded crypto exchange run by some young capitalists.

FTX was one of the largest and busiest crypto exchanges, boasting more members than any other. It declared bankruptcy due to mismanagement. It also had a very public spat with Binance. Binance is another crypto exchange, and Changpeng Zhao runs it. Zhao is a developer famous for creating high-volume trading software.

What Happened After FTX Crashed?

Following FTX declaring bankruptcy, many investors panicked. This happens in the stock market all the time. It is a notion that some have compared to frightened pigeons all taking flight when one of them spots a cat.

The sell-off left crypto more volatile than ever. Few people like putting their money into shaky investments. You can lose or gain millions in a single trading day, and that’s hard to accept. Individuals who didn’t have millions to invest in the first place were particularly worried about the FTX disaster.

At the moment, the crypto market as a whole does not have the same liquidity that it did one year ago. That means many casual investors are holding onto their money instead of investing it. They might also put money into the stock market or other proven investment vehicles. For the moment, crypto investing seems foolish to many seasoned traders.

What Should You Do if You’re Holding Crypto Now?

It’s genuinely difficult to know whether to sell or hold your crypto assets right now if you have any. The FTX disaster does reveal one thing, though. Crypto is not a golden ticket, and anyone who thought that just received a serious wake-up call.

Most experts feel that if you own crypto, you should hold onto it for now. Like most stocks, crypto can regain value if you’re patient and don’t hit the panic button.

If you’re thinking about investing in crypto, though, and you don’t hold any right now, you should probably dip a toe in cautiously. You should definitely not sink all your money into crypto and hope you’ll get rich quick that way. That backfired for many casual investors last year, and the market probably isn’t going to regain significant momentum any time soon.

Diversify Your Investment Portfolio

Diversifying your investment portfolio is always a smart idea, and that’s true for anyone targeting crypto as a potential growth asset these days. You might buy some crypto, but if you do, you should also have stocks, bonds, and other assets to balance out the risk factor.

You might put some money into mutual funds or other proven investment vehicles. They won’t make you piles of cash immediately, but they should grow slowly and steadily as time passes. That can mitigate potential losses if crypto plummets again.

You should also note the most popular crypto forms and the ones that mostly retain their value. If you buy some of the cheaper ones, that’s similar to penny stock investing. They might go through the roof at any moment, but they’ll just as likely lose value.

Is Crypto Still the World’s Future?

Some investors insist that despite the FTX situation, crypto remains viable as the present and future’s chosen payment form. They like the digital format and feel it’s practical and convenient.

Whether they have the right idea isn’t certain. Some investors shun crypto and think it’s a fad. They see the current volatility and mention it when buying into more traditional investments.

Right now, a global recession looms, if you believe bankers and financial pundits. They say the pandemic caused it to some extent, while others mention Brexit, the Russia-Ukraine war, and other factors.

If that’s true, then crypto probably won’t see the same highs it did last year for a long time. It’s simply not proven as a commodity, and during economic hardship, investors turn to safer places to stash their money.

Perhaps crypto and fool’s gold have something in common, but frankly, it’s hard to say right now. You can’t deny one thing. Only the most reckless would put all their money in a risky venture like an all-crypto portfolio. If you’ve done that already, you may need to hold onto it and hope the value gradually recovers. You can also sell it at a loss, but that’s probably not a very palatable notion.