Is Now a Good Time to Invest in Crypto?

Introduction

As the crypto markets seem to be making bigger moves in 2024, many may ask themselves if we are seeing the start of a new bull market and if now would be a good time to invest in crypto. While crypto is still a young market, we do have a history of multiple cycles we can reference and try to draw conclusions from.

Obviously no one can read the future, but there are certain instruments, which can help evaluate the market conditions and make informed investment decisions. 

In this article we’re taking a deep dive into the status quo, crypto market cycles, macroeconomic events, risk management and potential pitfalls, so you can pick the best time to invest in Bitcoin and other cryptocurrencies.

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The Basics of Crypto Investing

How do you buy crypto?

There are multiple ways to buy crypto now, most of them involving a centralized intermediary to convert your Dollars, Euros or other FIAT currencies into on-chain assets. 

These so-called “on-ramps” exist in the form of exchanges, brokerages, ATMs or even over-the-counter desks.

It is absolutely essential to stick to regulated providers and never leave too many assets with a centralized custodian. Past events like Mt. Gox, QuadrigaCX or the all-too-recent fall of FTX underline the importance of this.

Looking for a place to get started? Read our guide: Best Crypto Exchanges 2024

Do you need to buy a full coin?

No, you can always buy a fraction of any crypto asset.

The great thing about cryptocurrency and other digital assets is that databases like a blockchain allow a wide range of figures to be saved in them. In contrast to FIAT money, it is theoretically possible to divide a coin into as many fractions as you want–at least before you run out of memory space. 

To avoid this scenario, most coins or tokens limit the number of decimal places, generally ranging from 8 to 18 figures after the decimal point. 

These fractions of a crypto asset might even have their name. In the case of Bitcoin, one Bitcoin is called “Bitcoin”, while fractions of a Bitcoin are counted as “Satoshis”

Learn more about cryptocurrencies and how they work: Cryptocurrencies for Beginners

Keeping Your Crypto Investment Safe

Crypto provides people with absolute freedom, but also requires absolute responsibility. 

The so-called private key grants access to your funds and only the person who knows these keys can effectively move them. 

This means no authority can seize your crypto assets, but if you lose the key, neither can you. 

The basics of crypto safekeeping following:

• Not your keys, not your coins: if you hold your crypto with a centralized custodian (e.g. exchange, broker) they hold the private key and you are dependent on trusting them
• Never store your keys online: a piece of paper will do the trick, but you might be better advised using a hardware wallet
• Don’t keep all your eggs in one basket: diversify your holdings onto multiple wallets, so if you lose access to one, you don’t lose everything

Be sure to read our reviews of the Best Crypto Wallets 2024 to learn about your options!

Should You Buy Crypto?

Much like any other speculative financial instrument like stocks, real estate or other commodities, crypto assets can be very different from each other. 

You could buy an overvalued stock of a company which struggles to generate positive cash flow and ultimately lose out on your investment or you could be the first investor into a startup which will overtake Apple one day.

Taking a step back from the question “Is now a good time to buy crypto?” we can look at another question: “Should you buy crypto at all?”

It would be foolish to say all crypto is either good or bad. Investing in cryptocurrency requires a bit of nuance. With the wide variety of projects and respective tokens out there, I can guarantee that there will be some very good investments–as well as some really, really bad ones.

Crypto can be compared to the revolution of the internet in the early 1990s, where tens of thousands of companies were born to leverage this new technology, with some of them changing our lives forever and now being the most valuable companies in the world and many others failing to assert themselves, resulting in lost investments. 

Learn more about the birth of crypto here: Bitcoin’s Evolution & History

Even considering the risk involved, it would have been a great idea to add such companies to a well diversified portfolio back then. 

We are now at a similar point in time with crypto: So the question shouldn’t be if crypto is too risky, but if it is too risky to not have some exposure to it.

Regardless, one thing has to be clear: crypto is still a very young and volatile market with a lot of speculation, varying degrees of liquidity and opportunistic scammers waiting to take your money. 

While some investments have the potential to reward life-changing money, most of them fail. 

<div fs-richtext-component="info-box" class="info-box protip"><div class="flex-info-card"><img src="https://assets-global.website-files.com/65098a145ece52db42b9c274/650c6f4b151815fb0be48cec_Lightning.svg" loading="eager" width="64" height="64" alt="" class="icon-info-box"><div fs-richtext-component="info-box-text" class="info-box-content"><p class="color-neutral-800">You should never invest money, you are not willing to lose - and never ever take on debt to do a highly speculative investment.</p></div></div></div>

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Bitcoin Halving & the Four-Year-Cycle

“History does not repeat, but it often does rhyme.” – This is one expectation which keeps crypto investors excited for 2024. 

Historically, the price of Bitcoin has followed a four-year cycle believed to be associated with each Bitcoin halving event. 

So far, we’ve seen a rather reliable pattern of rallies, pullbacks, and blow-off tops before and after these halvings.

If this pattern continues, we should see another rally and all-time high for Bitcoin after the upcoming halving, which is set to occur in April 2024. 

This inflow of investments into the crypto market has also benefited other crypto assets, as investors are looking to diversify and reinvest their profits.

So, historically, the months leading up to a Bitcoin halving have been good times to invest in crypto.

Of course this is all speculation and might play out in a completely different way, as not only the macroeconomic circumstances including inflation, high interest rates and war have not existed in the past cycles, but other factors could limit the growth of crypto assets or even reverse the trend. 

As always, risk management is a key topic.

<div fs-richtext-component="info-box" class="info-box"><div class="flex-info-card"><img src="https://assets-global.website-files.com/65098a145ece52db42b9c274/650c6f4cef4c34160eab4440_Info.svg" loading="eager" width="64" height="64" alt="" class="icon-info-box"><div fs-richtext-component="info-box-text" class="info-box-content"><p class="color-neutral-800">Past performance is not indicative of future results!</p></div></div></div>

Factors to Consider Before Investing in Crypto

Market Volatility

Before investing into a coin or token, it is important to understand the risks involved, but also the potential return. The crypto market is young, fully digitalized and open to anyone–this means everything is faster, more volatile and involves the international community.

The high volatility of crypto compared to traditional markets results from the immediate liquidity of blockchain-based assets. While a company needs to reach a certain size and reputation to file for IPO and get listed on the public market, everyone can issue a new coin or token in crypto. 

In addition, the fair market value of a traditionally traded company can be tied to actual metrics from balance sheets and company statements, while some crypto assets are already tradable way before there is a product or any traction related to the issuing team.

Research on Specific Cryptocurrencies

If the decision to invest into the crypto market is made, the next question will be which assets to choose. Even though many projects are still in early stages, there are certain parameters to watch before investing. Look out for the fundamentals of product-market-fit, team setup, business model and, most importantly, tokenomics.

Be sure to also read our guide Best Crypto to Invest in 2024 to learn how experts evaluate crypto investments.

Market Sentiment

The past has shown that even the best of projects can suffer or even fail due to a negative market sentiment. 

When fear, uncertainty and doubt are driving the decisions of market participants the price of an asset can move against its fundamental value. This factor is definitely boosted when it comes to crypto, due to low liquidity and the rapid transfer of information mostly dictated by influencers on social media.

Of course this can also go the opposite way, when greed and fear of missing out are the key emotions leading to investment decisions. These emotional cycles are mostly short lived, but might still have substantial impact on the success of an investment.

Regulatory Environment

Something to keep in mind when it comes to crypto assets, is the fact that regulation is lagging behind. This makes it easier for scammers to find ways to separate people from their hard earned money. 

To avoid falling trap to such pitfalls it is important to keep the fundamentals of investing on the top of your mind, but it could also help to opt for service providers and projects, which reside in a country known for strict regulation.

The latest regulatory developments, especially in the EU, set new standards, which aim to help and protect consumers and investors by introducing KYC requirements and 100% mandatory asset backings. 

It’s also a good idea to do a rough background check on the people involved in a project before investing, as it might be a quick way to identify scam artists.

And again, the best strategy is to never leave your assets with anyone, but keep control over your own crypto wallets. 

Dollar Cost Averaging vs Lump-Sum Investing

We’ve now talked about different factors that might have a strong impact on the price of a crypto asset and can be either bad or good, depending on the investment strategy, risk management and time horizon. But the key question remains: Is now a good time to buy crypto?

To take a little pressure off, the answer is: No one really knows. It is almost impossible to catch the top or bottom of a price curve, so it might be best to not even try.

Only approximately 1-20% of active traders actually make money, the rest loses. 

Warren Buffet, one of the most successful investors to ever live likes to say “Time in the market beats timing the market”, which basically means: Get in early, stay invested, don’t try to guess tops or bottoms and keep your emotions in check. 

One investment strategy which follows this advice is called Dollar Cost Averaging (DCA).

What is Dollar Cost Averaging?

Dollar Cost Averaging (DCA) is an investment strategy used to reduce the impact of volatility on large purchases of financial assets such as cryptocurrencies or stocks. By dividing the total amount to be invested across periodic purchases of a target asset, investors aim to reduce the risk of incurring a substantial loss from investing a lump sum at an inopportune time. 

Instead of trying to time the market, investors using DCA invest a fixed amount of money at regular intervals, regardless of the asset's price. This approach can potentially lower the average cost per share over time, as the investor buys more shares when prices are low and fewer shares when prices are high.

Dollar Cost Averaging Pros:

• Risk reduction: DCA helps reduce the risk associated with trying to time the market. By investing regularly, you avoid the need to predict market highs and lows.
• Emotional discipline: DCA can help investors avoid impulsive decisions driven by market fluctuations and emotions like fear and greed.
• Automatic savings: DCA encourages regular saving and investing, which can be an effective way to build wealth over time.

Dollar Cost Averaging Cons:

• Missed Opportunities: As you are investing a fixed amount at regular intervals, it means that you may miss out on significant gains if the asset's price consistently rises during those intervals.
• Transaction Costs: Frequent buying of assets in DCA can lead to higher transaction costs, such as brokerage fees or commissions, which can erode your returns over time, especially for smaller investment amounts.

To summarize, DCA is a great way to systematically invest in the market, reducing the impact of volatility, and potentially lower the average cost of investments over time, making it an effective strategy for long-term financial planning and wealth accumulation.

The opposite to DCA is called Lump-Sum investing, which can be an interesting investment strategy for investors with a higher risk tolerance.

What is Lump-Sum Investing?

Lump-Sum Investing is an investment strategy where an investor invests a large amount of money into a specific asset at one time, rather than spreading the investment out over a period, as seen in Dollar Cost Averaging. 

This approach is often used when an investor believes that the market is currently favorable for investing or when they come into a large sum of money, such as an inheritance or a bonus, and decide to invest it immediately.

Lump-Sum Investing Pros:

• Potential for Higher Returns: If you invest at a favorable time and the market performs well, lump-sum investing can lead to larger returns because your entire capital is working for you immediately.
• Simplicity: Lump-sum investing involves a single transaction, making it a straightforward and efficient way to deploy your capital.
• Reduced Transaction Costs: With fewer transactions compared to DCA, you may incur lower transaction costs, such as brokerage fees and commissions.

Lump-Sum Investing Cons:

• Market Timing Risk: The main drawback is the risk of poor timing. If the market declines shortly after your investment, you could experience significant losses, and it can be challenging to predict the optimal time to invest.
• Psychological Stress: The emotional stress of potentially large losses in a short period can be a significant drawback for some investors, leading to anxiety and potentially hasty decisions.‍
• Missed Diversification Opportunities: A lump-sum investment may limit your ability to diversify across different assets or sectors compared to periodic DCA investments, which can spread risk more effectively.

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Other Best Practices for Crypto Investing

Risk Management

Effective risk management is crucial in investing to help protect your capital and achieve your financial goals while minimizing potential losses. Here are some key principles for good risk management in investing:

• Risk Assessment: Understand your risk tolerance, which is your ability and willingness to withstand fluctuations in the value of your investments. Make sure your investments align with your risk profile.
• Diversification: Spread your investments across different asset classes (e.g., crypto, stocks, bonds, real estate, commodities), sectors, industries, and geographic regions. Diversification can help reduce the impact of poor performance in any single investment.
• Stop-Loss Orders: Consider using stop-loss orders to limit potential losses on individual investments. These orders automatically sell if the price of an asset falls to a certain predetermined level.
• Portfolio Rebalancing: Regularly review and rebalance your portfolio to maintain your target asset allocation. This helps ensure that your risk exposure remains in line with your objectives.
• Emergency Fund: Keep an emergency fund in a liquid and easily accessible account to cover unexpected expenses and taxes. This prevents the need to sell investments during market downturns.

Remember that risk is an inherent part of investing in crypto and other assets, and there is no one-size-fits-all approach to risk management. Your risk management strategy should be aligned with your specific financial goals, investment horizon, and risk tolerance. 

Stay Updated

Continuously educate yourself about the investments you hold and the broader financial markets. Informed decisions are less likely to be driven by emotions.

You can get information on crypto assets through different channels:

• News sites like Coindesk or Cointelegraph
• Social media like X, Telegram or Reddit
• Market intelligence data from providers like Glassnode or Nansen   

Avoiding Scams and Pitfalls

To stay safe when investing in crypto or other assets, there are a few common signs and red flags, which likely indicate a bad investment or outright scam:

• Too Good to Be True Promises: Be skeptical of investments that promise guaranteed high returns with little or no risk. If an opportunity sounds too good to be true, it probably is.
• Pressure to Act Quickly: Scammers often use high-pressure tactics to push you into making a hasty decision. They might claim that the opportunity is limited or that you must invest immediately to secure your spot.
• Lack of Regulatory Compliance: Verify if the investment complies with relevant securities laws and regulations. Investments that operate outside the legal framework are often scams. 
• Overly Complex Strategies: If the investment strategy is overly complex and difficult to understand, it may be a deliberate tactic to confuse and deceive investors.
• Missing or Altered Credentials: Check the credentials of the individuals involved in the investment. Scammers sometimes use fake credentials or alter documents to appear legitimate.
• Check for Complaints: Research online for any complaints, reviews, or news articles related to the investment opportunity or the individuals promoting it.

Pros and Cons of Investing in Crypto Now

Here are some factors which indicate that it might be a good time to invest:

• If the four-year-cycle holds true, we are right now in the accumulation phase before a rally after the halving in 2024.
• Many projects in the space which were founded multiple years ago, have been building during the bear market. The price of the related coin or token fell heavily during the negative sentiment and might now be undervalued if compared to the fundamentals of the product.
• Inflation is still high, which is a good reason to invest your money into other assets.

And here are some factors which indicate caution:

• We are still experiencing high interest rates, which is generally a bad sign for high-risk investments, as people prefer to keep their money to accrue save interest.
• Many companies who are at the brink of bankruptcy could delay this process due to covid measures, but might meet the end of their runway soon.
• The current wars in Ukraine and Israel might have a large unforeseen impact on the economy.

Taxes on Cryptocurrency Earnings

An important thing to keep in mind when investing into crypto assets is the taxation of crypto profits. 

While regulation might still be catching up, tax rules for crypto investments are relatively clear in most countries and might fall under either capital gains tax, income tax or wealth tax. 

We’ve written comprehensive tax guides to provide you with the most accurate information and useful guidance. Read them here: Crypto Tax Guides

An essential part of risk management is to keep enough liquidity to be able to pay your taxes in time. Trading highly volatile assets like crypto over the course of multiple tax years might lead to a rough awakening once the tax man knocks on the door. 

Especially in countries like the USA or Germany, where even a trade between different crypto assets is regarded as a taxable transaction, it is important to put aside enough money to cover your tax liabilities after the close of a tax year. 

In the years 2018 and 2022, where big crashes following a bull market occurred, multiple people had to declare bankruptcy due to the inability to pay their taxes. 

If you bought Bitcoin in January 2017 for 1,000$ and traded it for XRP at the end of December 2017, when Bitcoin was at almost 20,000$, you realized 19,000$ taxable profit. 

Holding on to those XRP and not putting money aside for your tax payments would have left you with less than 2,500$ in XRP at the tax deadline–not nearly enough to cover your payments.

Our crypto tax calculator supports you in optimizing your crypto taxes and creates your individual crypto tax report with just a few clicks!

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Conclusion

Crypto is a new asset class, which is here to stay. Holding a portion of your portfolio in crypto assets will help diversification and might even yield great returns as an early investor in this emerging market and technology, which aims to remove the trust for middlemen in financial markets and other sectors.

While the movement is still young, many principles of traditional investing apply and additional ones might want to be considered. 

Having tradable shares of startup-like projects comes with additional benefits, as well as risks. 

Be aware of liquidity, volatility, market sentiment, business fundamentals and of course regulatory clarity when investing in cryptocurrencies.. 

Frequently Asked Questions (FAQs)

Is cryptocurrency a bubble?

In early investment stages, assets can undergo rapid, unsustainable value surges due to speculation and investor exuberance, often leading to sharp corrections or crashes. 

However, fundamentally strong blockchain projects, offering innovative technologies and real-world applications, attract institutional interest and mainstream adoption, paving the way for sustained long-term value growth in their coins or tokens. 

This emphasizes the importance of distinguishing speculative hype from genuine investment opportunities with potential for lasting impact.

Is crypto a safe investment?

Crypto is as safe as any other investment, as long as it fits the risk profile of the investor. While the immutability of blockchain punishes mistakes harshly, it also enables a newfound form of freedom, control and reduced costs.

Will crypto go back up?

The basic principles of a market also apply for crypto investments: supply and demand. If the demand outweighs the supply, then the price of an asset will move up. Factors such as a great product-market-fit, business model and sustainable tokenomics can have a positive impact on the price development of a crypto coin or token.

Which cryptocurrencies are considered most stable?

Bitcoin has the highest market capitalization of all crypto assets, which means it will need the most amount of money to move the price into a direction, decreasing its volatility. With increasing market capitalization of an asset, the stability should in theory also increase.

Among crypto there are also so called “asset-backed tokens” or “stablecoins”, who intend to mirror the value of an asset in the real world. Depending on the chosen asset, the stability shall also be reflected in the token. 

How do I safely store my cryptocurrency investments?

The safest way to store crypto assets is via an offline hardware wallet like trezor or ledger. These types of crypto wallets offer full control, but also full responsibility over your assets. If the responsibility is too much for someone to bear or technical knowledge is very limited, a centralized custodian like an exchange or broker can be used to take custody of someone's assets. It is of utmost importance to choose a provider who is strictly regulated by financial authorities in this case.

Is crypto a good long term investment?

A well diversified portfolio and good risk management have proven themselves very valuable for long-term investment strategies. Adding crypto into your portfolio will add exposure to a new asset class, helping with diversification.

Is crypto a good hedge against inflation?

Any asset limited in supply can be seen as a hedge against inflation. Bitcoin, which is limited to 21M coins by mathematics, could turn out to be the best inflation hedge in existence. Then again, the basic principles of the market–supply and demand–apply. This holds true not only for crypto but also assets like gold and real estate, who are said to be a good inflation hedge.