Cryptocurrencies are attracting a lot of new investors these days. Among them some friends and family members who had stayed on the sidelines for years, even though they often talked about it with me. Seeing the current extreme success of cryptocurrencies and surrounding hype, they now suddenly want to be part of it too!
Unfortunately I fear that now is the most dangerous time in years to start with cryptocurrency investments. Although there still is upward potential, the extreme gains cryptocurrencies have made recently and the hyped up expectations, in my view, significantly increase the downward risk in the short term.
For people who have been in this market for quite a while, like myself, a 50% drop in market prices will still leave us with a healthy profit, but for those who start to invest now, such a drop will instead cause a painful loss.
There have already been bear markets in crypto's short history. They weren't pretty. During the previous bear market for instance, the price of Bitcoin dropped from a peak of around 850 Euros to a low of around 200 Euros. It took the market 3 years to recover.
While I do still want more people to be part of this revolution, and experience the liberating power of crypto, it is important to stress how risky it is at this point in time to invest significant amounts of money. The most important advice remains to only invest that which you are willing to lose. In case of a bear market, instead of huge quick profits, be prepared to have to wait months or years for your investment to recover.
Five or ten years from now, crypto will most likely be much bigger than it is today. It is not going away, like the Internet was not going to go away in 1998. But the road ahead is going to be rather bumpy. Be careful, and if you join the ride now, hold on tight!