Cryptocurrency Markets Are in the Red - Does That Mean It’s Time to Get In?

Most investors have likely heard this sentiment from Warren Buffett at some point, but, as with most things, it’s often far easier said than done. The cryptocurrency markets have been taking a steep decline in recent months and investors don’t see any signs of it stopping soon.

After reaching it’s all-time high of nearly $20,000, the price of bitcoin has fallen to less than a quarter of that (BTC is trading at $3,411.71 at time of writing). With such a significant drop in price, investors need to start seriously looking at whether it’s time to get out of the market altogether or start buying now at a great discount. So then, which is it?   

The Bear Case

Other investors who have been skeptical of cryptocurrencies from the beginning are seeing the price decline as the final moment for the market. Many compared the crypto-mania of 2017 to the dotcom bubble and tulip mania in the past and that the current downtrend is simply the beginning of the end. Others believe there is still significant room for the market to bleed out before the next uptrend.

Stephen Innes is head of Asia Pacific trading at Oanda and sat down with MarketWatch to talk about why he’s bearish. According to Innes, the bitcoin bear market is going to continue because the cryptocurrency still hasn’t provided a significant use case.

“Bitcoins have gone well beyond the ridiculousness of tulip bulb mania. It’s been a disastrous year for cryptos, and by all indication, the current bear market could go from bad to worse with no fundamental or underlying reasons to buy BTC even more so when the only support offered up is a squiggly line on an analyst chart.”

The Bull Case

While prices are down, there’s no lack of bulls in the cryptocurrency markets. Many investors believe in the future of blockchain technology and cryptocurrencies as an emerging asset class. When looking at the grand scheme of things, these investors aren’t easily swayed and as news of institutional investors entering the market, they may have a strong case.

Eugene Ng is a partner with the upcoming San Francisco and Singapore hedge fund, Circuit Capital. As a former derivatives trader at Deutsche Bank, Ng and the other founders see through the recent downturn towards the future and are still bullish, telling Bloomberg:

“Despite what is happening with prices, we’re seeing adoption growing and a lot of people are looking to scale crypto businesses. We are starting to see talent moving into this space and institutional infrastructure developing.”

Weathering the Storm

Regardless of the long-term prospects of the cryptocurrency markets, many need solutions for what’s going on in the markets today, this week, and this month. As traders are not concerned about the value of a particular asset five years from now, it’s important to know how to handle the current market.

For cryptocurrency investors and traders, there are two clear ways to mitigate the uncertainty.

1. Stable Coins: As the name implies, these cryptocurrencies are designed to remain stable in times of market volatility, often tied to another underlying asset.

2. Social Trading: For those who believe in cryptocurrency and don’t want to rely on non-crypto assets to back up their strategy, social trading is a viable option to reduce exposure to volatility.

With social trading platforms on the rise, it’s not surprising to see that it has become a go-to strategy for many. Some in the crypto community see social trading as a way to tame uncertainty and limit volatility; that’s because rather than making predictions about the future of crypto, traders are keeping their hand on the pulse of others in the market. After all, the driving force in the crypto markets isn’t bitcoin itself, it’s the people trading it.