This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
After reaching all-time highs on Nov. 10, leading cryptocurrencies Bitcoin (CRYPTO: BTC) and Ethereum (CRYPTO: ETH) are both down around 15% from their peaks.
Meanwhile, Cardano (CRYPTO: ADA) and Solana (CRYPTO: SOL) are down over 20% from their highs. Fears of an impending cryptocurrency winter and crackdowns by the U.S. and China may signal a short-term market top. Here’s what to do if you’re worried about falling cryptocurrency prices.
Bitcoin and Ethereum are not a bubble
Long gone are the days of calling Bitcoin and Ethereum a craze. Yes, many doubters remain, but there’s no denying that Bitcoin and Ethereum are much more established than they used to be.
Bitcoin provides a store of value and an inflation hedge, especially in countries that lack a stable fiat currency. New financial products centered around Bitcoin are being introduced. Bitcoin is even being stored on companies’ balance sheets. And most importantly, Bitcoin has remained safe and secure even as adoption has grown exponentially.
Meanwhile, Ethereum is the backbone of decentralized finance (DeFi). The growth of new applications that run on the Ethereum blockchain expands the importance of its network. One reason Bitcoin is so valuable is that it has a peak supply of just 21 million coins. Ethereum doesn’t have a fixed supply, but coin-burning has successfully kept the asset scarce.
Ethereum is burned on purpose by those that try to limit its supply, as well as in transaction volumes for non-fungible tokens (NFTs) on sites like OpenSea. Without getting too much into the details, Ethereum has proven it is in fact scarce, which gives it more value and differentiates it from infinite-supply altcoins like Dogecoin or Shiba Inu.
The impending Ethereum 2.0 upgrade, which is expected in the first half of 2022, will transition Ethereum from a proof-of-work to a proof-of-stake consensus mechanism. In theory, the transition would make Ethereum more safe, secure, and scalable, not to mention less environmentally taxing. In a proof-of-stake method, users will validate transactions based on how many coins they hold, not by deploying computer power as is done in a proof-of-work method.
Distinguishing Bitcoin and Ethereum from altcoins
Bitcoin’s unparalleled decentralization and safety make it a linchpin in the cryptocurrency market, whereas Ethereum is well-rounded and balanced — acting like a smartphone that hosts innovative projects.
According to CoinMarketCap, there are over 14,500 cryptocurrencies currently in existence. Many of these projects will get hyped up, fail, and lose money for a lot of people. But it’s important not to tangle fads and fringe markets in the Bitcoin and Ethereum investment thesis.
How to approach the market now
Whether you’re new to the cryptocurrency market or wondering how to adjust your position amid falling prices, the most important thing is to respect your personal risk tolerance. Despite the potential, there’s no reason to get overly involved in cryptocurrencies, especially the risky ones, if it doesn’t suit you.
If you believe that we are in the early innings of decades of cryptocurrency growth, then simply dollar-cost averaging into Bitcoin and Ethereum over time should do the trick. If you want to expose yourself to other options as well, then adding a high-growth name like Solana is OK too.
Some risk-averse investors may even find the high interest rates offered by stablecoins providing an attractive income stream.
The cryptocurrency market is sure to go through cycles of boom and bust for the foreseeable future. But if you think the growth trajectory is headed up, then there’s no reason to fear a short-term market top so long as the investment position is an amount you can afford to lose.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
The post Did the Bitcoin and Ethereum bubble burst just signal a crypto market top? appeared first on The Motley Fool Australia.
Should you invest $1,000 in crypto right now?
Before you consider crypto, you’ll want to hear this.
Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now… and crypto wasn’t one of them.
The online investing service he’s run for nearly a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.
*Returns as of August 16th 2021
More reading
- Why ASIC chair warns ‘great caution’ needed when investing in crypto
- Planning to gift Bitcoin (CRYPTO:BTC) or another crypto for Christmas? You’re not alone
- Could carbon credits become the new crypto? This fundie thinks so
- How has Bitcoin (CRYPTO:BTC) performed since this weekend’s Taproot upgrade?
- Getting paid in cryptocurrency will be the norm, says expert
The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Bitcoin and Ethereum. Daniel Foelber owns shares of Bitcoin, Cardano, and Ethereum. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
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