The crypto market has already been making large moves in the first half of 2024, generating new all time highs for Bitcoin and many other tokens. And just like you, many are asking themselves if now is still a good time to invest or if it is better to wait until things start cooling down again.
Obviously no one can foresee the future, but there are tried and tested strategies to help you pick the right time for your crypto purchase.
What to Know Before You Buy Crypto
Even today, more than a decade after Bitcoin's introduction, cryptocurrencies are still a highly volatile asset class that can experience significant price swings. This volatility is driven by a number of factors, including market speculation, regulatory news, technological advancements, and macroeconomic trends.
So be sure to familiarize yourself with the specific cryptocurrency you’re interested in, its underlying technology, use cases, tokenomics and the team behind it.
The security of your investment is just as important. Use reputable exchanges and secure crypto wallets to protect against hacks and theft.
Is Crypto a Good Investment Today?
Yes, crypto is a good investment today – but only if you understand the risks involved. Much like stocks, real estate, or commodities, crypto assets vary widely. You could invest in an overvalued company struggling to generate positive cash flow and lose money, or you could be an early investor in a startup that eventually surpasses giants like Apple.
Instead of asking, "Is now a good time to buy crypto?" consider, "Should you buy crypto at all?"
Investing in cryptocurrency requires nuance. With a wide variety of projects and tokens, there are both excellent and poor investments. Crypto resembles the early internet era, where many companies emerged, some becoming industry leaders and others failing, leading to lost investments.
Even with the risks, adding such companies to a diversified portfolio back then was wise. We are at a similar juncture with crypto now. The real question is not if crypto is too risky, but if it's too risky not to 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.
Is It Too Late to Buy crypto?
It is still possible to make considerable profit with cryptocurrencies today, but timing and strategy are crucial. Bitcoin was priced at around $0.10 back in 2010 and has since seen an increase of 74.999.900% to its all time high of roughly $75.000 in March 2024.
I’m just going to say it: There won’t be another investment like it. But newer projects with innovative technologies still emerge, offering the potential for significant returns.
These emerging projects often bring unique solutions to existing problems, create new use cases, or improve on the technology pioneered by their predecessors. For example, decentralized finance (DeFi) platforms have revolutionized the way we think about financial services, and non-fungible tokens (NFTs) have opened up new avenues in digital ownership and art.
Blockchain technology continues to expand into various industries, from supply chain management to gaming, creating new investment opportunities. If you stay up to date and can identify promising projects early, you might still have a chance to capitalize on an evolving landscape.
For everyone else, there are two main concepts to consider when looking for the best time to buy crypto.
Time in the Market vs Timing the Market
Time in the Market refers to the strategy of holding onto investments for an extended period, capitalizing on long-term growth rather than short-term price fluctuations. This could mean buying and holding assets like Bitcoin or Ethereum for several years, regardless of market volatility.
Let's take Bitcoin as an example. Suppose you bought 1 Bitcoin in 2015 when the price was around $300. By holding onto your investment through the ups and downs, including the dramatic rise to nearly $20,000 in December 2017 and the subsequent drop, you would have seen your Bitcoin reach an all-time high of more than $75,000 in March 2024. Despite periods of significant volatility, you benefit from the overall upward trajectory of Bitcoin's value as a long-term holder.
Timing the Market involves attempting to predict and capitalize on market movements by buying low and selling high within shorter time frames. This strategy requires more frequent trading and a keen eye on market trends and news.
Consider trying to time the market with Bitcoin. Youmight have bought Bitcoin at $10,000 in early 2020, anticipating a price surge. When Bitcoin's price rose to $30,000 by the end of 2020, you sold your holdings, tripling your investment. Later, seeing Bitcoin rise again, you might have bought in at $40,000, hoping for continued growth. However, if the price dropped to $25,000 shortly after, you would face losses if you sold in panic or impatience.
While both strategies have their merits, "time in the market" tends to be more suitable for investors looking for long-term growth and stability, whereas "timing the market" may appeal to those seeking short-term gains and willing to take on higher risk and active management.
Dollar Cost Averaging
There is an investment strategy that can be seen as a compromise between timing the market and time in the market: Dollar Cost Averaging.
Dollar Cost Averaging (DCA) involves investing a certain amount of money at regular intervals without aiming for specific price points. This strategy reduces the impact of short-term crypto volatility by spreading out the purchase over time.
Instead of investing a large sum of money all at once, you invest smaller amounts regularly over a period of time. By doing this, you avoid the risk of buying a large amount of cryptocurrency when prices are high, only to see the value drop shortly after.
By spreading out your investments, you buy at different price points, which averages out the cost of your investment. You might end up seeing smaller returns than if you had invested a larger amount at just the right time, but you might also avoid losing a significant amount compared to entering the market right at the peak.
Dollar Cost Averaging is a good way to stay disciplined as an investor without having to guess for the ideal moment to invest.
Current Crypto Events Affecting the Market
There have already been a number of events in 2024 that have opened the way for the current crypto bull market. Starting with the approval of several spot Bitcoin ETFs by U.S. regulators, this has provided a more accessible and regulated entry point for institutional investors, significantly boosting market confidence and liquidity.
The Bitcoin halving in April, which reduced the block reward for miners and increased Bitcoin's scarcity, has also been a significant driver, historically leading to substantial price increases due to the reduced supply.
Additionally, increased institutional interest, with major corporations like BlackRock and Mastercard entering the crypto space, and rising consumer adoption, particularly among younger investors, are set to drive demand and integration of digital assets in everyday transactions and business operations.
Looking towards the end of the year, the U.S. presidential election in November 2024 is also expected to impact the market. Different candidates have varying stances on cryptocurrency regulation, which could either foster a more crypto-friendly environment or introduce stricter regulations.
Overall, these factors create a complex but generally bullish environment for cryptocurrencies in 2024.
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.
Our crypto tax calculator supports you in optimizing your crypto taxes and generates your individual crypto tax report with just a few clicks!