Crypto investors beware: Experts say there could be at least one more big crypto crash on the horizon.
It’s the second time in recent weeks that bitcoin has fallen below $20,000, a price point that remains pivotal as experts debate whether it will see further declines akin to 2013 and 2017, when it tumbled 85% below its high. Ethereumthe second most valuable digital currency, has lost more than two-thirds of its value since November and continued to hold above $1,000 on Friday.
And things could get even worse now that bitcoin’s price has dipped below $20,000 again, experts say.
The crypto market could experience one more drastic sell-off before it’s on the road to recovery, says Edward Moya, a senior market analyst at brokerage firm OANDA — with bitcoin dropping close to $10,000. Ethereum could fall as low as $500, an additional 50% decrease from the current price, says venture capitalist Kavita Gupta.
“It seems everyone is becoming a snowbird and avoiding this crypto winter,” Moya says. “If the bloodbath on Wall Street remains the theme in the third quarter, bitcoin could be vulnerable to one more ugly plunge that could have many traders fearing a fall toward the $10,000 area.”
Will There Be Another Crypto Crash?
Plenty of experts say another “crypto winter” is already setting in. Between a collapse in the market, layoffs, and the ongoing liquidity crisis in the crypto industry, experts say crypto prices will likely remain low for the foreseeable future, such as they did in between early 2018 and mid-2020.
And while some experts say we’ve hit the bottom, the majority of experts we’ve spoken to say crypto prices will likely drop even further in the coming weeks or months. They point to what past bear markets have looked like for crypto — which experienced 85% corrections from all-time highs — and fresh concerns that the macroeconomic environment could get worse going forward.
Additionally, crypto companies have laid off staff, frozen withdrawals, and tried to mitigate losses, raising questions about the health of the industry. It started with the implosion of Terraform Labs in May, but the crypto bear market has effected other firms since. Coinbase, the largest crypto exchange in the US, announced in June it was cutting 18% of its employees, after layoffs at other crypto companies like Gemini, BlockFi, and Crypto.com. Crypto bank Celsius abruptly halted withdrawals in recent weeks due to “extreme market conditions,” and crypto hedge fund Three Arrows Capital may be facing liquidation.
Alarm bells went off in particular this week after bitcoin dropped below $19,700, and so far, has stayed below $20,000. Crypto expert and educator Wendy O says bitcoin now could potentially fall below $17,600 and if that happens, “it’ll get scary.”
Bitcoin has not yet retested the $19,000 level as resistance, but if it does and falls back down, it would be “a very bearish signal,” according to Marcus Sotiriou, a market analyst at GlobalBlock, a digital asset trading firm. Resistance is the level at which demand is not strong enough to stop an asset from falling any further, and support is the opposite.
“This is because it would be the first time that this level has been broken on a long-time frame and could suggest an extended bear market is on the horizon,” Sotiriou says.
What Investors Can Do to Prepare
The crypto market has crashed before, and it will likely crash again so it’s important to be ready. Cryptocurrencies are notoriously volatile and risky, so investors can see market swings of more than 50% in a matter of months and as much as 15% price gains within 24 hours.
In moments of extreme volatility and uncertainty in the crypto market, here are things you can do to protect your finances:
1. Prioritize Your Budget, Debt, and Savings
Before investing in crypto, make sure you feel confident about your budget, debt, and savings. Having a strong budget and emergency fund can give you the reassurance to know you can still meet your financial goals and help relieve any stress you may be feeling toward your investments.
The amount you should have saved in an emergency fund — cash in an accessible high-yield savings account — is open to debate, but most experts say at least 3 months of expenses is a good starting point. If you don’t yet have a well-stocked emergency fund, don’t buy crypto and instead start putting a small amount aside each month until you do. Along with an emergency fund, experts say you should have a conventional retirement savings strategy in place and should carry no high interest debt.
2. Diversify Your Investments
It’s a good idea to take some steps to safeguard your investments from the whims of the market. The best way to do that is to diversify what you invest in. Crypto should only take up a small portion of your overall portfolio of stocks, bonds and mutual funds to help you achieve your long-term financial goals.
If you’re thinking about investing in crypto, experts say now could be a good time to get in the market while prices are low, but keep in mind that prices could fall even more. In terms of which cryptos you should invest in, the majority of experts recommend sticking to the most established cryptocurrencies: bitcoin and etheruem.
3. Invest What You’re OK With Losing
You should have a high risk tolerance to invest in crypto, and you should only invest an amount that you’re OK with losing. Experts suggest following the 5% rule — that is, don’t contribute more than 5% of your portfolio to risky assets like crypto. As with any new investment, it’s important to do your research and understand all of the risks associated with cryptocurrencies.