With the Fall in the Price of Ethereum, Is Now a Good Time To Invest?
Cryptocurrency markets have plummeted in recent weeks, with the total crypto market capitalization falling from nearly $3 trillion in November to just over $2 trillion at the time of writing. Ethereum, a market leader, is now trading at $2,397, a drop of more than 50% from its all-time high of $4,891 in November last year. So, what exactly caused the Ethereum market to crash? Is it a good time to buy now? Here are some of the reasons for Ethereum’s recent price drop, as well as some things to look out for before purchasing the cryptocurrency.
The US Federal Reserve plans to raise interest rates
According to data from the US Department of Labor, the current rate of inflation in the US is 7%, significantly higher than the 39-year average and is one of the primary reasons why the Federal Reserve announced the gradual withdrawal of its economic stimulus measures. According to sources, the Fed is planning to raise interest rates in March and tighten its quantitative easing program.
People are looking for more stable and safe ways to invest due to the Fed’s actions, as well as concerns about the potential impact of the new COVID-19 variant on the global economy. In short, with liquidity decreasing, many investors believed that risky assets such as cryptocurrencies would be unable to adapt to current market demands, causing the overall market to plummet.
The entire crypto market is falling
Ethereum (ETH) isn’t the only cryptocurrency that has seen its value plummet. For example, Bitcoin (BTC) has dropped more than 45% in the last two months, while Cardano (ADA) has fallen more than 40%. Furthermore, crypto derivatives trading has exacerbated the market’s decline. As a result, thousands of traders are forced to sell their cryptocurrency holdings, a process known in the cryptocurrency space as liquidation, because they no longer have enough funds to support their positions.
In 2021 Ethereum’s price increased more than 400%, while Bitcoin was up roughly 70%
Some traders use margin trading to increase their positions. Still, if the price of cryptocurrencies fluctuates dramatically, as it has over the last two months, they may not have enough collateral to back their positions. As a result, with investors facing the risk of losing everything, these fears are further dampening down the cryptocurrency market price as demand falls.
Ethereum’s competitors are taking market share
Because Ethereum is the first programmable cryptocurrency, it also serves as the first ecosystem capable of hosting other applications and cryptocurrency projects. Currently, the Ethereum network hosts more applications than any other network, attracts the most developers and has the most money locked up on its platform. However, Ethereum’s development has been hampered by high fees and severe traffic congestion issues. As a result, Ethereum is undergoing a phased upgrade to Eth2 to make it “more scalable, more secure, and more sustainable” though that the entire upgrade won’t be completed until 2023. Indeed, according to a recent JPMorgan report, as a result of its slow progress Ethereum is losing market share, with signs that its competitors may overtake it entirely in 2023.
Is now a good time to buy Ethereum?
‘Buying the dip’ is a classic investment strategy; everyone wants to buy low and sell high. But it’s not as simple as it appears because everyone would be a millionaire if everyone could buy low and sell high! We don’t know if the price of Ethereum has bottomed out, and it’s difficult to predict when it will reach a new high or a low. As a result, BigONE believes that before purchasing Ethereum, you should consider the following questions.
Are you ready for a further drop in Ethereum?
The current price of Ethereum appears to be low, but can you afford to lose if the price falls further? Some people have a high-risk tolerance, but not all investors do. As a result, cryptocurrency investors should brace themselves for extreme volatility, and while there is still significant upside potential, there is no guarantee that prices will return to their 2021 highs.
Have you done research?
Before putting your money into any investment, you should thoroughly research the project. In the case of Ethereum, you must understand such factors as how the smart contract cryptocurrency operates, how it compares to its competitors, the potential impact of an Ethereum upgrade, and how it will fit into your future crypto portfolio. For example of assessing its future potential, as reported by Motley Fool, “throughout 2021, momentum has been building for NFTs, Decentralized Autonomous Organizations (DAOs), Decentralized Finance (DeFi), and the metaverse. Those cryptocurrency applications all favor Ethereum over Bitcoin, and they’re likely to gain steam in 2022 as well.”
Can you afford to lose money from your investment?
The golden rule of cryptocurrency investing is to only invest what you can afford to lose. If cryptocurrencies are only a small portion of your overall portfolio, you should be able to withstand future price volatility.
BigONE believes that if you believe in Ethereum’s long-term potential and are willing to accept a further drop in its price, purchasing Ethereum now is a wise decision as a long-term investment.
To review the latest Ethereum price and to make a purchase visit BigONE today.
