Crypto crash: Should you buy Bitcoin, Ethereum, Solana, and other falling knives now?

It turned out to be a disappointing year for crypto investors as the market value of the universe has tanked by over $1 trillion during the past six months till June 30. The ongoing dampened sentiment is a function of multiple factors. The aggressive raising of interest rates by the US Federal Reserve has been commonly viewed as a recession indicator that led to the massive downfall of the crypto market. Second, the cumulative impact of the meltdown across markets is also building a cascading effect on the crypto market.

Additionally, the US-based platform Celsius Network freezing users’ withdrawals and transfers also had a huge impact on the market. These factors had a snowball effect on the crypto industry globally and in India which is currently the largest hub of crypto investors. Terra Luna’s liquidity crisis further eroded investors’ wealth.

Coming to popular cryptocurrencies, Bitcoin has tumbled nearly 60 per cent since January 2022. Solana, Ethereum, Cardano, Ripple and BNB have also plunged over 80 per cent, 70 per cent, 65 per cent, 60 per cent and 58 per cent, respectively. Overall, the market capitalisation of crypto tanked to $0.90 trillion on June 30, 2022 from $2.18 trillion on January 1, 2022, according to coinmarketcap.com.

Commenting on the ongoing wealth erosion, Smit Khakhkhar, tech diligence at Delta Blockchain Fund said, “Not only cryptocurrencies but all asset classes have seen a dip in their value since January 2022, though crypto has been more bearish than stocks etc, multiple factors contributed to it. First, of them was the collapse of Terra-UST Stablecoin, it wiped off around $20bn of investor value within three days. That led to cascading effect on other crypto projects and insolvency of crypto companies having direct exposure in it.”

Should you buy falling crypto now?

Market experts hold mixed on crypto. Khaleelulla Baig, co-founder and CEO, Koinbasket said, “Though the near-term roadmap for crypto looks murky, the second half will be more about consolidation around the current market cap levels. We may see a few smaller crypto projects built around leverage going bust thereby triggering a further tightening of regulations, which may appear painful in short term but healthier for the long-term crypto markets.” He further added that investors should look at long-term gains. The fall in cryptocurrencies offers a great entry opportunity for long-term investors.

Gaurav Dahake, co-founder and CEO, Bitbns added that usually, crypto is expected to bounce back post the third quarter. However, it will depend on the global policies towards crypto. That will more or less shape the investor sentiments.

How to judge the quality?

In the stock market, an investor can judge the company based on the balance sheet, promoters’ background and return ratios, among others. But how investors can identify robust cryptocurrencies from the universe?

Khakhkhar said, “Similar to the stock market, one can do their due diligence based on the background of their founders, company roadmaps, their revenues and the problems they are solving. Think of this similar to venture capital investment in startups with a twist that there exists a liquid secondary market to trade the tokens. The ethos of decentralisation promotes open-source, most crypto projects open source their technology for anybody to review it, judge it, build on top of it.”

On the other hand, Baig of Koinbasket said, “In crypto, too, there are multiple metrics that help investors identify good crypto projects. To state a few, investors should look at the background and pedigree of the founders, real-world use cases, rational token economics, technology and market adoption, an increasing number of developers joining the community, high growth in active wallet addresses, and funding by well-known blockchain and crypto VCs.”

Dahake of Bitbns added that as a gauge of how readily a crypto asset may be purchased or sold, a low trading volume might be a warning sign. “Higher the number of cryptocurrencies traded, higher will be the liquidity for a given coin or token and therefore trading volumes should be considered before investing,” he added.

Is Bitcoin still relevant?

The price of Bitcoin declined to less than $20,000 on June 30 from $46,331 on January 1, 2022. Dahake said, “It is speculated to rise from the current price point and may shoot up to a new high. A SIP sort of an approach works best. However, it is imperative to do thorough research on risks and rewards before delving into investing in crypto assets; additionally, bitcoin is not relevant for intraday trading. It will reap benefits only in the longer run.”

Baig said, “At the current price of Bitcoin, I think it’s a great entry opportunity for long-term investors. Bitcoin is one of the blue chips investors can look to enter in three-five tranches over the next two quarters.” He further added that the total value of the crypto market may cross $10 trillion within the next five years. However, the space is highly volatile and risky. Therefore, investors should not allocate more than 5-10 per cent of their savings to crypto.