It’s no secret that chaos arrived in the crypto markets in 2022. A major price collapse in Bitcoin and other cryptocurrencies from April to June sent prices back to late 2020 levels, but that was only the beginning of the chaos.
In the late part of the year, a wave of bankruptcies began upsetting cryptocurrency businesses in the wake of cryptocurrency exchange FTX filing for bankruptcy. The news set off a chain reaction that unsettled markets and caused further price drops.
But every smart investor sees a crisis as an opportunity, and the question is now whether or not it makes sense to buy the dip and invest even more in crypto. Whether or not that seems like a good idea really depends on the future of crypto and whether or not you have an investment strategy that will take advantage of the situation.
#1 Are You Taking Advantage of Capital Losses?
It’s never good news when the value of your investments goes down, but a smart tax strategy can make the most of the situation through capital losses.
In some places, capital losses can be claimed against capital gains when you pay your taxes. As with gains, you have to realize a loss before you can claim it, meaning you will have to sell cryptocurrency.
If you have other investments that have seen significant gains, you can use capital losses to offset the tax bill on assets that have been more successful this year and readjust your portfolio.
For further information on crypto tax planning, check out cryptotaxlawyer.com and see how you can better use the current crypto situation to set yourself up for future success.
#2 Do You Believe in the Future of Crypto?
Before you buy the dip, ask yourself a simple question: do you believe in the future of crypto? When you buy the dip, you hope to exploit a current slump in prices for bigger future gains. If you believe in the future of crypto, buying at today’s prices is smarter than buying at their most recent peak.
As with all investments, there are no guarantees that prices will go one way or the other. Prices could return to previous levels, or they could continue to fall. There is no reliable way of foreseeing where prices are going.
One way you can mitigate the risks is by sticking to established and well-known cryptocurrencies. Over 3,000 cryptocurrencies have failed outright, and there are thousands of small coins that aren’t likely to go anywhere.
#3 Be Careful Choosing Where to Invest
The time to take out-on-a-limb risks in the crypto sphere may have passed for many investors. It’s time to be very particular about what kind of companies you invest in and where you keep your cryptocurrency.
The FTX collapse has shown just how rampant dubious practices may be in the cryptocurrency world. Until the final results of the situation have been resolved, it may be safer to stick with established currencies like Bitcoin and Ether.
Whether or not you want to buy the dip and invest in cryptocurrency now depends on your risk tolerance. If you don’t need the funds and can wait out market turbulence, it could pay off, but there is no guarantee.
Interesting Related Article: “Cryptocurrency – Where Will It Be in the Next 5 Years?“