The crypto market is causing investors far and wide to sweat bullets. A market-wide crash is affecting nearly every asset of note. And crypto prices aren’t just being dragged downward, they are plummeting — fast. Some plays are down 25%, while others are down nearly 50%. As this massive volatility continues to siege the asset class, investors are wondering whether this is a time to buy, hold or sell. So, will crypto rebound soon? Or is it time to cut losses ahead of more red candles?
Crypto is seeing a downturn in the wake of some major global powers looking to crack down on the asset class. After China’s ban last year, the U.S. is looking to regulate crypto assets. India is looking to follow as well, with the government voicing an interest in banning digital currencies. And this week, a massive driving force behind the downturn is the Russian central bank’s scathing report on cryptocurrencies. The report is fueling calls for the nation to ban mining and trading of digital currencies within its borders.
These countries alone account for over 3 billion of the world’s population. Of course, bans in any combination of the four nations would be devastating to global crypto adoption. The fear of these blows to adoption are certainly helping along the market crash. Now, investors are witnessing Bitcoin (CCC:BTC-USD) tumbling 20% in just seven days. Ethereum (CCC:ETH-USD), meanwhile, has lost over 30% in the same span, as has layer-1 competitor Solana (CCC:SOL-USD). Tokens are being spared no mercy, either, with Shiba Inu (CCC:SHIB-USD) tumbling 30%.
Will Crypto Rebound, or Is it Time to Sell?
With the market so drastically falling, investors are wondering whether a crypto rebound is becoming less likely. Indeed, one of the hallmarks of a crypto correction is in “buying the dip;” but if a rebound is not going to happen, investors will want to get out as fast as they can to prevent further loss.
Fear not, for only the most bearish on crypto are those expecting crypto to fall into the oblivion with this one crash. Even Peter Brandt, the well-known crypto trader who predicted 2017’s crash, is not warning of doom to the industry. Brandt says Bitcoin will bottom out at around $25,000 before regaining its footing, about $8,000 lower than current values. It’s certainly not as pretty as its $60,000 values of late autumn. However, that’s still a higher price than any other crypto in history has been able to reach.
InvestorPlace analyst Luke Lango is one of the majority who believe crypto will be righted once again after all of this is said and done. But, he compares the current market woes to those suffered in the late 1990s, where only the strongest survived. Like the dot-com bubble, crypto projects will be spared only if they are fundamentally strong:
“The crypto market will rebound, of course, because the decentralized architecture underlying blockchain technology represents the future of application development. However, not all cryptos will rebound.
We’re seeing a re-run of the bursting of the Dot Com Bubble. Throughout the 90s, the internet was the hottest emerging technology, but not everyone fully understood it, so investors blindly gave huge valuations to anyone that bought a domain. Bubble burst. Internet went on to change the world. But most internet stocks went to zero.
Same thing here. Crypto crash 2022 represents Nasdaq crash 2001. The Nasdaq rebounded from that crash, but lots of internet stocks didn’t join the rebound — and few (like Amazon) soared thousands of percent.”
The vast majority don’t see this as an “end of days” moment for crypto. However, there are plenty of traders who are not looking at holding their crypto for the long term. Should those traders start selling, so as not to lose more money?
Holding Crypto and Knowing Your Tolerance for Volatility
As the Liquid crypto exchange covered in its blog last autumn, crashes demonstrate the importance of setting limits, both for gains but also for tolerable losses. It’s important for investors to know when to sell and walk away with profit. But, it’s almost more important for one to know how much volatility they can tolerate before getting out.
In an already volatile industry, users need to have set prices for themselves when it comes to selling off their assets. Those who can’t tolerate losses like those recently demonstrated by SOL or BTC or ETH should consider cycling those investments into other areas. However, it’s worth noting that if Brandt’s prediction holds true, we are almost at the bottom of the Bitcoin correction. If one has held this far along, they can likely see the light at the end of the tunnel.
There’s also virtue in being selective with one’s investments. There’s no sense in buying a coin or a token whose only claim to value is in being a meme or a deflationary currency. As Lango puts it, the crash will be a major test for those less practical currencies:
“So what’s the game plan here? Don’t buy the dip in crashing coins that you don’t fully understand or whose value prop is questionable. Be selective. Only buy the dip in top tokens with great projects, great teams, great value props, and preferably great usage statistics and tokenomics. Those tokens will rebound big — many others may not.”
On the date of publication, Brenden Rearick did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.