With “crypto winter” upon us and one scandal after another rocking the industry, is it now the right time to adopt a contrarian approach and start investing in crypto?

investing in crypto

Experts say you make most of your money during bear markets. You just don’t know it at the time.

Although they have shown some signs of a possible rebound, the crypto markets are still far off their last peaks. There is plenty of room for growth here. The question is: will it happen? And how should you approach crypto investing?

Dissecting Ubiquitous Crypto Investing Advice

When it comes to investing in this asset class, everyone seems to be an expert. Yet few people know what they’re doing. As the recent FTX meltdown has made it clear, not even the best-known celebrity investors are immune to the caprices of the crypto landscape. Let’s look at some much-trumpeted, ubiquitous crypto investing “truths” and see how they hold up in 2023.

This is a New and Risky Asset Class

At this point, it is fair to say that the crypto scene is no longer new. Bitcoin, the flagship digital asset, has been around for more than a decade. Many wild investment cycles came and went on the crypto scene, beginning with the ICO craze and wrapping up with NFTs and the FTX debacle.

That said, crypto is still mostly unregulated and a magnet for those looking to confuse and fleece would-be investors. The volatility of the sector is off the charts. To mitigate potential risks, some experts advise investors to dollar-cost-average instead of rushing into an asset.

An alternative way to blunt risk would be to choose a solid investment vehicle with a proven track record, like bitcoin, and take a long-term approach. A 5-10 year horizon may yield handsome returns while tuning out the noise that various crypto fads create in the meantime.

Investing in Multiple Cryptocurrencies

Not keeping all your eggs in one basket is an old investors’ adage. And it tends to be correct.

In the crypto industry, however, asset allocation should reflect careful research. Not all crypto assets are equal. Some would argue that, except for one, they all carry a higher risk than regular investors can assume.

Investors should understand the assets in which they invest. US financial authorities like the SEC and CFTC consider bitcoin to be a commodity, for instance. From their perspective, the laws governing commodities apply to bitcoin. The CFTC does mention, however, that neither it nor the SEC regulates the spot bitcoin markets.

With an objective eye, none of the other cryptocurrencies fulfill the criteria of commodities. Many of them look suspiciously like unregistered securities. And if the authorities decide to crack down on these illegal schemes, their values can drop massively.

Many unreasonable meme-based digital assets saw parabolic increases in price over the last few years. Rollercoaster price action always reflects a fad-like rush into an asset by investors. Such inflated prices are unrealistic and are purely the results of increased investor interest.

Investors should choose their crypto investment vehicles carefully. In some cases, their contributions may fuel a Ponzi scheme that will defraud others, even if they manage to get out of it in time.

Taking Advantage of Presales

Buying a freshly launched digital asset before it becomes available to the general public is something some crypto investors like to do. When buying pre-mined assets, they may benefit from steep discounts. The problem is that pre-mines are often signs of scams. 

At any rate, a pre-mined digital asset offers an unfair advantage to those closely involved with the project.

Considering Fundamentals

Many crypto investors focus only on technical analysis. They use charts with short and long time frames to determine when an up or downtrend is likely to develop. Considering fundamental factors is often more important, however. Many real-world events have significant impacts on the price evolutions of digital assets and crypto investment vehicles.

The state of the US and world economy, geopolitical events, worldwide inflation rates, and other events can often foretell up- and downswings in the crypto and legacy markets.

Events taking place in the “crypto sphere,” like the recent FTX meltdown, can tank or boost the entire industry. Contagion from such events can reverberate for weeks and months, causing crypto winters and sending investors fleeing the asset class.

Is Now the Right Time to Invest in Crypto?

Given the gloom and doom that has transpired lately and the crypto market downswings that have knocked 70% off the prices of various assets, now would be a decent time to enter the crypto fray.

Investors should be extremely cautious about picking their investment vehicles, however. As long as the industry is unregulated, fraud-inclined people will always create and implement new pump-and-dump schemes.

James West has more than 15 years of experience writing about finance and particularly cryptocurrencies, covering emerging tech, trading and industry trends.

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