It may still be too early to tell, but the merger has been a disappointment so far from an investment perspective. This technological upgrade from Ethereum (ETH 0.67%) It was one of the most exciting events of the year, but the price of Ethereum did not respond as planned. The cryptocurrency is down nearly 65% this year and has been in the limelight by 20% since the merger took place on September 15th.
One of the main takeaways from The Merge is that the overall macroeconomic environment will far outweigh any news from cryptocurrencies, no matter how positive it may be. For now, investors are focusing on bigger issues, such as inflation, Fed rate hikes, and the risks of an ongoing recession.
With that in mind, here are three crypto investing lessons from The Merge.
1. Buy only cryptocurrencies that you want to hold for the long term
This sounds like something Warren Buffett would say, and for good reason. Buffett often used this advice to justify his investment decisions in the stock market. But this advice can be applied just as easily in the cryptocurrency market. The people most likely to lose their money on Ethereum are all the investors who have been chasing an easy profit by buying a cryptocurrency that they didn’t really understand.
They were hoping to buy Ethereum cheap during the summer, hold it long enough to make a good profit, and then cash in. That won’t happen anytime soon with Ethereum, given the current market conditions. So they are either stuck with a poor performing asset they don’t like in their portfolio, or they are forced to take a loss on their position. Ouch!
2. It is almost impossible to perfectly time the market
Crypto investors who accumulated in Ethereum over the summer believed that the cryptocurrency’s price would generally rise for some time before finally hitting an escalation at or near the date of the merger. The media was filled with stories about “why you need to buy Ethereum before The Merge.” The logic seemed pretty simple: go in during the summer, watch your cryptocurrency rise in value, and then tell all your friends that you’re “early” on Ethereum. Unfortunately, the only people who were “early” on Ethereum were the people who started accumulating Ethereum back in 2015.
Furthermore, if you look at the Ethereum stock chart before The Merge, this is amazing visual evidence that it is almost impossible to time the market perfectly. There are zigzag, zigzag lines, peaks and valleys, all while the market was trying to find the “real” market price of Ethereum. If you bought Ethereum in mid-August, just 30 days before The Merge, you are likely to be paying close to $2000 for Ethereum. Yes, I was ‘early’ on Ethereum, but not early enough.
3. Cryptocurrencies have business essentials
In the cryptocurrency industry, the decision to buy a cryptocurrency for many people usually comes down to one question: “Is it currently rising, or is it currently declining?” But this is a very lazy way to think about investing in cryptocurrency. It also explains why so many people feel like they have been burned by investing in Ethereum. The painful lesson here (sorry, folks) is that you have to do your homework if you want to find quality coding.
The difficulty, of course, is that cryptocurrencies are not companies. They don’t have “earnings,” they don’t generate cash flow, and they don’t have quarterly calls where you can sit down with company executives and look at the numbers.
But there are plenty of places around the web where you can find important metrics that give you insights into the true fundamentals of cryptocurrencies. For example, Total Value Locked (TVL) has emerged as the preferred metric for measuring how much activity is actually happening on the blockchain. There are a lot of cryptocurrencies that claim to have a lot of activity going on, but when checking the TVL number, the argument seems to be more hype than reality.
So is Ethereum buying?
The good news is that Ethereum’s fundamentals are still looking good. In terms of TVL, Ethereum remains the recognized leader by a wide margin, responsible for more than 57% of all TVL among blockchains. If you take a look at the position of Ethereum in the non-fungible token (NFT) market, it is still the dominant blockchain by almost any measure. So we know, basically, that Ethereum is still high-quality crypto. Over time, its price should rise.
However, if you are thinking of buying Ethereum, then you should forget to try to set the time for this market. It is still almost 75% off its all-time high at $4,891.70 so it is currently for sale. Buy it now and keep it forever. Your crypto wallet may thank you later.
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