The cryptocurrency market has been hit hard this year, losing over $2 trillion in value since reaching its height in 2021. The crypto market reached $3 trillion in November 2021. In eight months, however, the market has dropped by over 60% to about $920 billion, its worst first half year ever. With crypto hitting lows not seen since 2020, is this a good time to buy?

Massive losses

In addition to the huge sell-off, numerous crypto funds and platforms have also gone under. Crypto lender Celsius had $25 billion in assets under management. After declaring bankruptcy last month, it was left with $167 million in cash and owed $4.7 billion to its users.

Hedge fund Three Arrows Capital (3AC) managed $10 billion in crypto and now its assets have been frozen by a federal bankruptcy court. Voyager Digital, another popular lending platform with 3.5 million customers, also filed for bankruptcy in the past several weeks.

Employees have also felt the sting of crypto’s collapse. Coinbase laid off 1,180 employees, almost a fifth of its workforce last month. Other crypto platforms such as Gemini, Crypto.com, BlockFi, Bitpanda, and OpenSea have done the same, cutting 5% to 20% of their workforces or announcing a hiring freeze.

Is the crypto rout over?

With the crypto market in turmoil, many are calling it a “crypto winter.” A crypto winter is where prices remain low for an extended period of time. It isn’t just crypto that is down, though. The S&P 500 at one point fell by more than 20% this year, which is considered bear market territory.

According to the latest GDP data, the U.S. economy contracted for a second straight quarter in Q2. Two quarters of consecutive GDP contraction is the typical indicator for a recession. High inflation, supply chain issues, and the war in Ukraine have added to the downturn. The Fed rate hikes have also impacted the crypto market.

Is it a good time to buy crypto?

Like any investment, it is next to impossible to know when we will hit the bottom. Buying the dip is a good strategy when price drops are temporary and over the long-run prices continue to go up. Cryptocurrencies are volatile and as the market has shown over the past 5 years, prices can move rapidly in either direction.

Dollar-cost averaging (DCA) is an approach to buying the dip without exposing yourself to too much risk. DCA is buying a set dollar amount on a regular basis regardless of the price. This way you buy more shares when the prices are low and less shares when prices are expensive. DCA is also a good way to avoid emotional investing and avoid mistiming the market.

When investing in crypto, it is important to take your risk and long-term goals into consideration. Prices can continue to fall so putting all of your eggs in one basket is not wise. Diversifying will help you spread your risk out among different asset classes. While there are opportunities to buy when prices are lower, there is no guarantee they will go back up.

There are countless stories of crypto investors who have lost their life savings during this downturn. The focus should be to find the right investment portfolio that will help you reach your goals without taking unnecessary risk.