Trading Signals 05/02 – 09/02
How to Approach Crypto Investments in 2023
Investing in crypto this year hasn’t changed, but the trading environment has.
This year is proving to be a challenging, but extremely opportunistic one for crypto investors. As such, the “smart money” for investing in crypto in 2023 is returning to trading basics and average traders are highly recommended to do the same. Let’s cover some of the key points to remember as we approach the 2nd quarter of the year.
Global Economic Woes
The world is facing some serious economic hurdles in 2023 especially in the US and Europe. There are a plethora of factors for these challenges including surging inflation caused by massive money printing during the Covid lockdowns, an energy crisis stemming from sanctions on Russia, and skyrocketing food prices resulting from the Russia-Ukraine conflict and supply chain issues.
As these factors begin to affect individual households and businesses, there will likely be periods of time where sell-offs take place in the crypto sphere (as well as other financial markets) causing sharp declines in prices.
Buy the “Dip”
Taking advantage of these drops, will allow traders to accumulate more assets at cheaper prices adding to their general wealth when the markets stabilize or even experience an upward breakout sometime in the future.
Still, traders shouldn’t simply just buy because a coin has lost value. Some evaluation is necessary beforehand even for the “big boys” like BTC and ETH.
Price and Value Assessments
Self-anointed trading gurus love to say things like “buy low, sell high”. Of course, that makes sense, but just because a coin has dropped in price doesn’t always mean it is a great time to buy. There are many things to consider here, but let’s start with these two:
- How long will the price stabilization take? This is (and always has been) the million dollar question. However, don’t look for most crypto assets that experience declines to erase those losses in 2023. Next year is probably a more likely time frame.
- Does the coin have intrinsic value or usefulness that will generate enough interest to help it rebound? This is one of the most challenging aspects of crypto investing as many coins make price gains without any real value.
In the first case, even if the price rebounds, investors need to look at the total expected increase in value. For example, if BTC drops to 15k and you think it will rebound to 25k in 12 months. That’s a 66% increase on your investment in 12 months. Awesome! However, if it drops to 22k and you expect it to rebound to 25k in 12 months, it’s only a 12% increase. Would you be better off buying a safer investment with a 12% return? This should at least be considered.
In the second case, what is the true or “real” value of the coin? If we were speaking of a non-crypto entity such as a business, does that business have the potential to increase its value based on the services or products it provides? Does it serve a special function that would generate revenue or additional investors raising its stock value?
All too often we see crypto investors buying coins because they “think the price will go up”, but why do we think it will go up? Base your purchases on the utility and value of the coins and not on their market presence or some so-called influencer’s opinion.
Beware of the Store of Value Argument
One of the most common phrases I hear in the crypto sphere is that Bitcoin is a “store of value” like gold. Well, this argument is problematic just as much as the argument with the “gold hawkers” out there spelling doom and gloom in the economy to generate interest in gold.
In the event of an economic collapse, nobody is going to want your Bitcoin or your gold. They are going to want to trade with you in a medium that has immediate utility. Do not count on these assets as safe haven assets. Treat your coin purchases like businesses. If nobody is drinking coffee, don’t buy Starbucks stock. In crypto, look for coins that have some usefulness and liquidity in any economic environment now and into the future.
By keeping these concepts in mind when investing and trading cryptocurrencies, you are already a step ahead of many other traders that are making decisions on whims. Be thoughtful and patient and 2023 could set you up for amazing cryptocurrency gains and profits in the next year or two.