Did the bursting of the Bitcoin and Ethereum bubble just signal a peak in the crypto market?

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After hitting historic highs on November 10, the major cryptocurrencies Bitcoin (CRYPTO: BTC) and Ethereum (CRYPTO: ETH) are both down around 15% from their highs.

Meanwhile, Cardano (CRYPTO: ADA) and Solana (CRYPTO: SOL) are down more than 20% from their highs. Fears of an impending cryptocurrency winter and crackdowns from the United States and China could signal a near-term market peak. Here’s what to do if you’re worried about falling cryptocurrency prices.

Image source: Getty Images.

Bitcoin and Ethereum are not a bubble

Gone are the days when Bitcoin and Ethereum were called a craze. Yes, many skeptics remain, but it is undeniable that Bitcoin and Ethereum are much more established than they were before.

Bitcoin provides a store of value and a hedge against inflation, especially in countries that do not have a stable fiat currency. New Bitcoin-centric financial products are introduced. Bitcoin is even stored on company balance sheets. And more importantly, Bitcoin has remained safe and secure even as adoption has grown exponentially.

Meanwhile, Ethereum is the backbone of decentralized finance (DeFi). The growth of new applications that run on the Ethereum blockchain extends the importance of its network. One of the reasons Bitcoin is so valuable is that it has a maximum supply of just 21 million coins. Ethereum does not have a fixed supply, but the burning of coins has managed to keep the asset scarce.

Ethereum is on purpose burnt by those trying to limit its supply, as well as in the transaction volumes for non-fungible tokens (NFTs) on sites like OpenSea. Without going into too much detail, Ethereum has proven that it is in fact rare, which gives it more value and differentiates it from infinite supply altcoins like Dogecoin or Shiba Inu.

The impending Ethereum 2.0 upgrade, which is expected in the first half of 2022, will move Ethereum from a proof-of-work mechanism to a proof-of-stake consensus mechanism. In theory, the transition would make Ethereum more secure, secure and scalable, not to mention less impact on the environment. In a proof-of-stake method, users will validate transactions based on the number of coins they hold, and not by deploying computing power as is done in a proof-of-work method.

Distinguish Bitcoin and Ethereum from altcoins

Bitcoin’s unparalleled decentralization and security make it a mainstay in the cryptocurrency market, while Ethereum is comprehensive and balanced, acting like a smartphone that hosts innovative projects.

According to CoinMarketCap, there are currently over 14,500 cryptocurrencies. Many of these projects will be overkill, fail, and lose money for a lot of people. But it’s important not to entangle fringe fads and markets in the Bitcoin and Ethereum investment thesis.

How to enter the market now

Whether you are new to the cryptocurrency market or wondering how to adjust your position in the face of falling prices, the most important thing is to respect your personal risk tolerance. Despite the potential, there is no reason to get overly involved in cryptocurrencies, especially the riskier ones, if that isn’t right for you. If you think we are at the start of decades of cryptocurrency growth, then a simple average of dollar costs in Bitcoin and Ethereum over time should do the trick. If you want to expose yourself to other options as well, adding a high growth name like Solana is also acceptable.

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 experience boom and bust cycles for the foreseeable future. But if you think the growth path is heading upwards, then there is no reason to fear a short-term market top as long as the investment position is an amount you can afford to lose.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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