Does the bursting of the bitcoin and Ethereum bubbles mark the peak of the cryptocurrency market?

Spark Global Limited reports:

After hitting all-time highs on November 10, the leading cryptocurrencies, Bitcoin (BTC) and Ethereum (CRYPTO), are both down about 15% from their peaks.

Meanwhile, Cardano (CRYPTO: ADA) and Solana (CRYPTO: SOL) are down more than 20% from their highs. Fears of a coming cryptocurrency winter, as well as a crackdown in the US and China, could signal a short-term top for the market. If you’re worried about falling cryptocurrency prices, here’s what you can do.

Bitcoin and Ethereum are not bubbles
The days of calling Bitcoin and Ethereum manias are long gone. Yes, there are still many skeptics, but there’s no denying that Bitcoin and Ethereum are more solid than they used to be.

Bitcoin provides a store of value and a hedge against inflation, especially in countries that lack stable fiat currencies. New financial products centered around bitcoin are being launched. Bitcoins are even stored on corporate balance sheets. The bottom line is that bitcoin, despite its exponential growth, remains safe and secure.

Ethereum, meanwhile, is the backbone of decentralized finance (DeFi). The growth of new applications running on the Ethereum blockchain expands the importance of its network. One reason bitcoin is so valuable is that its peak supply was only 21 million. Ethereum has no fixed supply, but coin burning has succeeded in keeping the asset scarce.

Ethereum has been deliberately burned by those trying to limit the supply of Ethereum, and by those trading irreplaceable tokens (NFTs) on sites like OpenSea. Without going into too much detail, Ethereum has proven that it is actually scarce, which gives it more value and distinguishes it from the unlimited supply of altcoins like dogecoin or Shiba Inu.

The upcoming Ethereum 2.0 upgrade (expected in the first half of 2022) will transform Ethereum from a proof of work mechanism to a proof of interest consensus mechanism. In theory, this shift will make Ethereum more secure, secure, and scalable, not to mention less environmentally burdensome. In the proof-of-claim approach, users will validate transactions based on the number of coins they hold, rather than by deploying computer power as in the proof-of-work approach.

Spark Global Limited
Spark Global Limited

Distinguish bitcoin and Ethereum from altcoins
Bitcoin’s unparalleled decentralization and security make it key to the cryptocurrency market, while Ethereum is comprehensive and balanced — like a smartphone hosting innovative projects.

There are more than 14,500 cryptocurrencies in existence today, according to CoinMarketCap. Many of these projects will be exaggerated, fail, and lose money for many people. But it’s important not to get caught up in fashion and fringe markets when it comes to investing in Bitcoin and Ethereum.

How to approach the market now
Whether you’re new to the cryptocurrency market or wondering how to adjust your position as prices fall, the most important thing is to respect your personal risk tolerance. Despite the potential, there’s no reason to get too involved in cryptocurrencies, especially high-risk ones, if it’s not for you.

If you think we’re in the early stages of cryptocurrency’s decades-long growth, then simply averaging the dollar costs into Bitcoin and Ethereum will do. If you want to give yourself other options, adding a high-growth name like Solana is fine.

Some risk-averse investors may even find that the high interest rates offered by stablecoins provide an attractive income stream.

The cryptocurrency market is sure to go through boom and bust cycles for the foreseeable future. But if you think the growth trajectory is upward, there’s no reason to worry about short-term market tops, as long as your investment position is an amount you can afford to lose.

This article was originally published on Fool.com. All figures are quoted in US dollars unless otherwise stated.

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