The crypto market has been a sea of red in the past week, headlined by BTC (-22.8%), ETH (-31.7%) and SOL (-33.8%). Below, I explain why prices are sliding, what may happen next, and what I’m doing.
Key Takeaways
- The reasons for this crypto pullback are the same as those for other risk assets, with the main ones being growing recessionary fears in the U.S. and Trump’s declining election odds.
- Managing your emotions and sticking to your plan is of the utmost importance during times like these.
- As for whether now is a good time to invest, it comes down to your risk tolerance.
- For the more risk-averse, it makes zero sense to buy now. Far better to wait for confirmation of a reversal on higher timeframes (e.g. daily, weekly) to reduce the chance of ‘catching a falling knife’.
- For the more risk-seeking, there is a strong argument for buying into this extreme fear.
Why Prices Are Crashing
If I asked you what would happen to crypto if stocks had one of the worst multi-week periods in years, you’d probably tell me that crypto markets would tank.
Well, that’s what has happened.
Indeed, this latest crypto sell-off is happening for the same reasons other risk assets are currently getting slammed. Below are what I consider to be the two main reasons.
Growing concerns of a U.S. recession
This was caused by economic data released late last week, particularly weaker-than-expected U.S. jobs data and one measure of U.S. manufacturing activity dropping to eight-month lows. (Yes, there are some examples where stocks perform well during recessions… but for now, the main thing to understand is that recessionary fears are adding to market uncertainty.)
U.S. election race no longer one-sided
In the days after the attempted assanation of Donald Trump, stock and cryptocurrency markets were buoyed by Trump’s improved odds of winning November’s election. Since then, Democratic nominee Kamala Harris has strengthened considerably in polling data and prediction markets.
While there are other recent events that have contributed to growing uncertainty—namely, the strengthening Japanese yen and related panic regarding Japan’s economy, escalating conflict in the Middle East, and a worse-than-expected earnings season for big tech—I think their impact is minor compared to the above reasons.
Ultimately, Just Another Bull Market Correction
Emotions understandably run high during times like these. So please understand that I’m not trying to be flippant…but my overall take is that this is simply another pullback taking place within a bull market—events that were always going to happen.
What I’m Doing
After recently adding to some altcoin positions, I’m staying put for now. Nothing about this latest pullback has affected my strategy. I still plan on selling my altcoins later in this bull market at much higher prices.
Worth Considering
Bull markets are never ‘up only’. Historically, the period between the halving and all-time highs is littered with periods of low volatility and retracements spanning 20–50%—or ‘chop-solidation’, as Checkmate would call it.
For investors, these periods can absolutely test your conviction.
I can guarantee that many investors will sell everything during this correction only to regret it once the next leg of the bull market kicks in.
If this sell-off is stressing you out, I suggest taking some time to review your strategy. Sometimes, it can also be useful to avoid checking your portfolio multiple times a day, especially if you know you are not going to be selling any time soon. (I still slip into this habit from time to time!)