The cryptocurrency market is once again proving that in order to invest in Bitcoin, Ether or any other virtual currency, you have to be able to stomach massive price drops.
Bitcoin’s price was around $33,000 per coin Monday morning. That’s a six-month low and a 50% decline from its high of $68,000 in November.
Ether, the second largest cryptocurrency by market value, is down near $2,200, compared to $4,800 record in November. Many other coins and tokens have gotten off to a rough start in 2022, with prices dipping sharply over the last few days.
Here are 3 things to remember.
1. Cryptocurrency prices aren’t the only investments falling
The cryptocurrency crash is part of a broader market sell-off. Meme stocks and tech stocks are also having a particularly bad start to the year.
Popular meme stock GameStop’s price is already down more than 35% from the start of 2022 and the Nasdaq Composite, a tech-heavy market index is down around 15% from its record close in November.
Last week was the worst week since March 2020 for the S&P 500, which is a common benchmark used to measure the overall stock market.
So while cryptocurrency is especially volatile, it’s not the only area being hit as Wall Street reacts to the Federal Reserve’s comments that it may raise interest rates sooner than earlier anticipated.
2. Volatility is expected for the crypto market
Bitcoin, Ether and other cryptos are no strangers to volatility — even when it comes to drops this dramatic. Before Bitcoin hit an all-time high of $68,000 in November of 2021, it had lost 50% of its value between April and July of last year.Play online for free. Play nowAdHero Wars
We’ve also seen that crypto prices can be impacted by seemingly trivial elements, like when Tesla CEO Elon Musk’s tweets have sent Dogecoin and Bitcoin soaring.
“Bitcoin investors should expect this kind of volatility,” Adam Grealish, head of investments at the financial technology company Altruist, told Money via email. “Not only are 50% drawdowns not unusual in the asset, but so are 70% and 80% drawdowns.”
We should expect Bitcoin to become less volatile when it is more widely adopted, but we are not there yet, he adds.
So remember: Whiplash-inducing moves in the crypto market have happened before, and they’ll more than likely happen again.
3. Your portfolio shouldn’t be clobbered
Cryptocurrency’s volatile nature makes it a really risky asset, so ideally, it’s not a huge part of your investment portfolio. Financial advisors tend to recommend keeping Bitcoin and other cryptocurrencies to no more than 5% of your overall portfolio.
If you’re looking to invest a small amount of money in Bitcoin, plan to hold onto it for a longer period of time, rather than selling it when the price drops and you get worried, Anjali Jariwala, certified financial advisor and founder of FIT Advisors, previously told Money.
“You have to be comfortable with having that money potentially go away,” she added.
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