I don’t think we’re in a crypto bull market yet. There’s too much near-term regulatory uncertainty with the SEC going after Coinbase and Bittrex and declaring Algorand (ALGO), Dash (DASH), OmiseGO (OMG), and others securities. That combined with economic uncertainty and inflation concerns means there is still significant downward pressure in the markets.
I do think the bear market is mostly over, though. There will likely still be some steep drops. But the entire market is unlikely to spiral downward for an extended period of time. So let’s call this a volatile recovering market.
In a volatile recovering market, coins don’t move in unison. Bitcoin and ethereum typically lead the way. Really good altcoins eventually follow. But in the midst of all of this, some coins will take a huge step forward and then tank and never recover. Others will look like they’re surging and then tank for good. It’s incredibly difficult to make a momentum play in this environment because the sharks and whales are out looking to make a quick buck. And with the low liquidity levels we’re seeing, they have an outsized influence on the markets.
It’s easy to get destroyed investing in this type of market. But there are also some good opportunities. So you have to invest with care.
That’s why I’m recommending Arbitrum (ARB) this month. Arbitrum is a Layer 2 scaling solution for Ethereum. It’s designed to handle thousands of transactions per second and process transactions more cheaply than Ethereum. According to the Arbitrum website, it has 4.8 million users and has saved users more than $1.1 billion in ETH gas fees. That’s pretty impressive for a project that launched in 2021.
ARB, the coin that you would be investing in, only began trading on March 23. So it’s brand new. And it’s been on a roll so far. It began actively trading around $1.13. And as of this writing, it sits at $1.66.
Investing in such a new coin is a huge risk. There’s almost no trading history to look back at or rely on. But Arbitrum has two important things going for it.
First, it’s not an entirely new project. It launched in 2021 and has been gaining momentum ever since. Second, and just as important, timing matters. Arbitrum is the new Layer 2 solution on the block. And because it doesn’t have any “history” with investors, there are no preconceived notions. It doesn’t have any historical price resistance points or ceilings to contend with. Its newness will appeal to investors. And it has a chance to keep climbing as the crypto markets (hopefully) continue to recover.
Because ARB is so new, we’re adding it to our speculative portfolio. We’re also keeping a close eye on it. If ARB hits an extended drought later this year, we plan on cutting bait quickly.
Rules of the Road
This is a tricky market to invest in. But it’s important to be opportunistic. So if you have capital to invest — and you’re psychologically and emotionally willing to enter what promises to be a highly volatile market — here are some guidelines to follow.
- Do not invest money you can’t afford to lose. If you can’t afford to lose the money, don’t risk it.
- Focus on projects with strong use cases.
- Look for teams or communities that are active and committed to their projects.
- Always enter a position using dollar cost averaging. That means buying a small amount each week rather than buying your entire position at once. That way, if prices fall, you lower your overall acquisition cost.
- Don’t try to time the market perfectly. Nobody can. So if you want to wait, that’s perfectly okay. But when you do invest, make sure you utilize dollar cost averaging to buy into the market.
- Diversify your crypto portfolio. From a percentage standpoint, bitcoin and ethereum should be the biggest investments in your crypto portfolio. But you need exposure to a much broader and more diverse set of coins to take advantage of the full upside of the crypto markets.
Remember, investing in crypto is risky. Less than 5% of your overall portfolio should be invested in crypto. That said, I believe Arbitrum provides an attractive risk-reward ratio.
Arbitrum can be acquired on Coinbase.