Why the sudden collapse?
Cryptocurrencies have seen big sell offs over the last number of months, since the highs in November last year. However in April and May these are deteriorated further. Much of it is because of the fact that investors are more concerned about risk and there is a “risk off” mentality creeping in. This is somewhat due to globally raising of interest rates and the war in the Ukraine has exacerbated this. To give you an example of this, depending on how long it takes you to read this response, the value of cryptocurrencies could be up or down by anything up to 10%. Stock markets have suffered also since the start of February but Cryptocurrencies are like the stock market on steroids.
Is now a good time to buy the dip?
A lot of “investors” have approached me recently asking is now a good time to buy the dip. This means invest when prices have fallen. I tell them that they need to remember a popular investor’s phrase of “be careful of trying to catch a falling knife”. This means buying something that is falling making it appear to be good value. The logic of the warning is that it just isn’t possible to know how far a stock might drop before it eventually finds support and it is easy to bury yourself when your timing is off. Whether you are invested in or considering investing in cryptocurrencies there is one fundamental rule you need to stick to. This is the five year rule. Don’t invest in any investment (cryptocurrencies being one of these) if you have less than a five year investment horizon.
My advice
Whilst some cryptocurrencies are down about 50%-80% on highs of 4 months ago it doesn’t necessarily mean it is a good time to invest in these. Whether you understand the Metaverse, NFTs or Smart Contracts or not, the same basic rules of investing apply to this asset class than any other. My advice is to firstly consider your current financial position. Whilst a lot of financial advisors steer well clear of this murky area of investing I feel it is important to be educated in how you can get exposure, whether it be personally, through a company investment or a pension fund.
Get your savings in order
The main consideration for all of you is to ensure that they are saving sufficiently in areas such as retirement plans or children’s education and are investing in the right vehicles. There is no point putting monies for a new born child for their third level education into the bank, post office or credit union. Don’t forget the five year rule applies. These institutions are only for monies you need access to within five years.
Beware of further crypto downfall
Once your time horizon goes beyond that you are then able to look at risk assets. Risk warnings should apply to anyone investing in this market for anything other than speculation. Please don’t buy into these because you think the market is “cheap” as I said early what goes down can go down can always go down further.
Nick Charalambous, Managing Director at Alpha Wealth – Book a review with me today to discuss this further or let us know your query through our contact form