The crypto market has seen severe setbacks in recent days. Read here why this should not necessarily invite you to invest.
The largest and oldest cryptocurrency Bitcoin has fallen to its lowest level in two years. The last time Bitcoin traded below $16,000 was November 2020. Many cryptocurrencies were swept up in a chain reaction, showing how bitcoin still affects the overall market .
Why was there a crash?
The reason for the commotion in the crypto market is probably the headlines about the second largest crypto exchange FTX. Investors are worried about the company’s possible insolvency, which has led to mass customer withdrawals in recent days. This prompted FTX to stop all withdrawals. At this time, it is not known if the company is able to pay its customers. Meanwhile, the world’s largest crypto exchange wanted to take control of Binance FTX to avoid a catastrophe, but according to media reports, the deal appears to have fallen through. Fears of a liquidity crisis on FTX seem to have spread to the wider market. Not least because the scenario is reminiscent of the rapid fall of the Terra Luna cryptocurrency, which triggered a crypto crash in May 2022.
Should you invest in crypto now?
Of course, the drop in Bitcoin and Co also calls many opportunists to the scene. You sense an opportunity to buy the dip, that is to say to enter during a market dip in order to benefit from an expected recovery in the medium or long term. After all, Bitcoin hasn’t been as “cheap” in two years as it is now.
However, potential buyers should not be fooled by the supposed low point. The German Federal Financial Supervisory Authority (BaFin) has repeatedly warned against “fear of missing out”. Since further development is not predictable, the price drop is not necessarily a good time to enter.
The consumer center also warns of the risks of investing in cryptocurrencies. These are neither regulated by a financial supervisory authority nor deposit guarantee. A high loss is therefore possible, or even a total loss of the money invested.
Moreover, there is no guarantee that cryptocurrencies can be resold in the future, writes the consumer portal Finanztip. If no buyer is found, you’re stuck with the parts. Buying and trading cryptocurrencies is highly speculative, regardless of when you enter the market.
According to the Consumer Advice Centre, the only way to cushion the financial damage is to look at possible investments from a purely speculative point of view and only invest a tiny fraction of your own assets, so you can overcome a total loss.
But even then, you should do your research beforehand and not blindly invest in something you have no idea about, writes BaFin. The Federal Ministry for Information Security offers a good introduction to the topics of blockchain and cryptocurrencies in the guide “Blockchain makes data practically immutable”.