Is this the time to buy cryptocurrencies?

The market has crashed and many cryptocurrencies are cheaper than they’ve been in months, so is it a good time to make an investment?

Even by cryptocurrency’s standards, the past few months have been volatile leading up the big crash of last week.

Aussies with skin in the game may have already lost a fair chunk of their crypto investments, but the crash is being seen by some as a good opportunity to pick up some coin for a discounted price.

Bitcoin which reached a high of around $65,000 per token last month, has fallen by more than 30 per cent over the past 10 days. Other popular cryptocurrencies ethereum and dogecoin are also down around 30 per cent over the same time period.

It means that many of us who had perhaps never thought about investing in crypto are seriously considering it.

Should you make an investment?

The latest crypto crash is further proof of its volatility – and if you’re going to put money into something that can fluctuate as wildly as the entire crypto market did last week you’d better be prepared for a few downturns along the way.

Despite all the headlines last week, a 30 per cent drop is fairly tame for crypto. Bitcoin, for example, has fallen by more 80 per cent on three separate occasions since 2012, according to data from Visual Capitalist.

This year alone it has plunged several times before recovering again. All in all, it’s almost certain there will be many more crashes like this in the future.

However, there’s no guarantee it will recover and when the market shoots up and down at the whim of Elon Musk’s tweets you’ve got to consider whether that’s a risk worth taking.

Tesla CEO Elon Musk has had a big influence on the market trends. Picture: AFP

So if you’re the type of person who’s going lie in bed every night worrying you’re going to lose your money, investing vast amounts of money into crypto probably isn’t for you.

“Bitcoin remains an extremely volatile asset, and its future purchasing power remains a fundamentally speculative proposition,” said investment expert Jonathan Armitage.

“Compared to established stores of wealth, such as gold, real estate, or ‘safe-haven’ government-issued currencies, bitcoin faces a much wider range of outcomes in terms of its future value.”

In other words it could become a part of everyday life in the future, or it could implode and be looked back on as a harebrained pipe dream in a few generations’ time.

Right now though, crypto currencies have very little utility in the real world – as most places don’t accept it as payment for goods and services.

However, MasterCard has said it expects to support certain crypto transactions on its network this year.

None of us can see into the future, but the returns from a successful investment in crypto tend to be much higher than your traditional investments on the ASX so it might be appealing if you have the type of personality that can withstand the rollercoaster ride of the market.

Is now a good time to buy?

You can get more for your money when buying during a downturn, but that doesn’t mean you’re making a smart decision to invest now.

Money experts at The Motely Foolsay one of the most important things for investors is doing your research.

“The goal is to buy investments you can hold for the long term, so make sure you’re choosing the right cryptocurrency for you,” they said.

Bitcoin’s price crashed by over 30 per cent last week. Picture: Justin Tallis/AFP

However, the golden rule above all else is this, only invest money you can afford to lose. “Crypto is still a high-risk investment, even if it is more affordable right now,” they wrote. “While cryptocurrency isn’t right for everyone, if you’ve decided to invest, you can save some money by investing when prices are lower.”

‘Extreme fear’ in the market

After soaring to over $65,000 per bitcoin in April, the world’s biggest and most well-known digital currency dropped to just under $30,000 before making a small recovery.

The slight uptick at the end of the week is fuelling optimism among many investors who are hanging onto their coins and remaining upbeat that a recovery is on the horizon.

However, some analysts say last week’s crash could be just a little taste of what’s to come, labelling the crypto market a “bubble” that could pop at any time.

Over the past week, the bitcoin and crypto “fear and greed index”, where a value of 0 means “extreme fear” while a value of 100 represents “extreme greed,” fell to 11 – down from over 90 earlier this year.

The index, calculated by Germany-based software comparison company Alternative using market volatility, volume, social media sentiment, media trends and bitcoin’s dominance over the market, currently suggests “investors are too worried,” which “could be a buying opportunity”.

“The crypto market behaviour is very emotional,” the experts behind the index said.

“People tend to get greedy when the market is rising which results in FOMO [fear of missing out]. Also, people often sell their coins in irrational reaction of seeing red numbers.”

They say the index is about trying to warn investors away from making emotional overreactions to market trends.

Before last week’s crash, the index showed investors were getting “too greedy” – that means the market is due for a correction.

In other words, last week’s crash, fuelled by Tesla CEO’s Elon Musk doubts about bitcoin and China’s crackdown on bitcoin operations – could actually be a good thing.

Rebalancing ‘healthy’ for crypto market

Some in the crypto community feel this correction is a rebalancing, needed for the market to move higher over the long term.

“The large falls in valuations seen this week are, in one way, healthy as they enable the market to clear excess speculative positions and consolidate before its next phase of expansion,” Anatoly Crachilov, the chief executive of investment manager Nickel Digital, told Forbes.

RELATED: Cryptocurrency founder’s grim ‘bubble’ warning

It has been a rough old week for crypto investors. Picture: AFP

He pointed to bitcoin’s “122 per cent gain from the beginning of the year” through to April.

“We have seen this pattern time and again across multiple cycles and expect this to remain in place until the market matures and achieves a larger involvement of institutional capital,” he added.

Mr Crachilov is one of many investors who believe bitcoin and other currencies will bounce back.

Pete Humiston, manager of Kraken Intelligence, part of the US bitcoin and crypto exchange Kraken, said on Twitter that although the value of bitcoin had dropped, the funding rate had picked back up in the past few days.

Shorts are still paying longs...

But the #bitcoin funding rate has almost completely mean reverted up to 0%. 👀🐂🚀 pic.twitter.com/V1ND1qiBW5

— Pete Humiston (@1337_pete) May 22, 2021

He said this is a sign that the market is “resetting” – paving the way for a recovery.

However, other analysts are warning that cryptocurrencies could implode at any time, leaving everyday investors in a world of strife.

Crypto billionaire and founder of digital coin ethereum, Vitalik Buterin, said late last week he believed cryptocurrencies are in a bubble and it was “notoriously hard to predict” when it will pop.

“It could have ended already,” Mr Buterin said. “It could end months from now.

“We’ve had at least three of these big crypto bubbles so far. And often enough, the reason the bubbles end up stopping is because some event happens that just makes it clear that the technology isn’t there yet.”

Meanwhile, the ABC’s business editor Ian Verrender said investors should be “prepared to lose everything”.

“Bitcoin is a bubble,” he wrote in analysis piece. “While its value has risen exponentially in recent years, its incredible volatility makes it anything but a safe harbour. Given it isn’t much good for transactions and holds no proprietary technology or intellectual property, about the only thing it is good for is speculation.

“Who knows, it could go beyond $US100,000 [$A129,999] sometime in the near future. But if everyone suddenly decides to abide by the rules of economics and starts acting rationally, be prepared to lose everything.”