After historic gains of 2021, cryptocurrencies have landed with a thud to start the first part of the year. Bitcoin is considered the most valuable cryptocurrency and has dropped more than 40 percent from its all-time high. Other cryptocurrencies have experienced a similar downward slope, leading some to wonder if there will be a continued downturn in the market. As a result, many cryptocurrency owners have begun to look at their portfolios. Let’s look at whether there will be a crypto crash and how you can navigate the downturn in the market.
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Cryptocurrencies Are a Volatile Investment
Over the past years, cryptocurrencies have always been considered a volatile investment. Many different factors drive these mini crashes, but you need to stick to the same investing principles. When the value of Bitcoin goes up, there is the hype surrounding these investments. However, when the prices drop, then there is always panic.
What do you do when these digital assets crash?
For those who have been in the crypto market, these dramatic losses and gains are not new. In December 2017, Bitcoin hit a record high of $20,000 but traded below $3,500 a year later. These fluctuations can put investors in a tailspin, but individuals should take a long-term view of these moves. Some experienced investors even welcome the price drops since it is an opportunity to make those investment purchases.
When that crypto begins to crash, it could be tempting to get in and buy at a low price. However, you need to ask yourself a few questions before making a purchase. Always consider if an 80% or 90% price drop would cause you to sell. Since cryptocurrency is very volatile, there is always a risk that could happen. Don’t invest in digital money if those fluctuations keep you up at night.
Remember that any asset will have its share of ups and downs in the market. Unfortunately, cryptocurrency does experience more ups and down because it has more hype surrounding these investments. Plus, many people see those big gains and experience a fear of missing out. People don’t understand the gamble with cryptocurrencies, leading them to take unmeasured risks.
Now that you know about the fluctuation of cryptocurrency, why is it happening? The price of digital money can be affected by several aspects, including inflation, interest rates, and other macroeconomic factors. All of these components can affect the confidence levels of those investors, especially when it comes to risky alternative assets.
There is another factor that is leading the crypt crash: investor pessimism. This is due to certain governments heavily regulating cryptocurrency. As more people have become interested in cryptocurrency, public officials have looked at All investments are an inherent risk. You should never invest more than you are willing to lose. If you select those assets wisely and have the right reasons for investing, market volatility should not affect you. When you stay the course, you can weather any ups and downs in the market.
how this technology can affect their country’s security, environment, and monetary policies.
China has levied a few aggressive policies. On Sept. 24, 2021, when China declared all crypto transactions illegal, cryptocurrency prices dropped. All overseas exchanges will be forbidden to do business with those individuals in China. Investors are even looking to the United States on how it will handle digital assets. As U.S. leaders search for a way to slow inflation, the Biden administration is rumored to have a cryptocurrency strategy.
It is important to remember that digital currency is still a new technology. Investors are always looking to see how it can affect the worldwide economy. Since these crypto prices are volatile, any unanticipated events can push them into a downward spiral.
Fitting Crypto Into Your Portfolio
Many inexperienced investors want to go with the “all-in” mindset for their portfolios. You should try to resist that urge, especially with cryptocurrency. Never buy large amounts of crypto at once. If you do and the price drops, it can be a psychological blow.
Instead, think about using a common investing strategy called dollar-cost averaging. With that, you buy something small every month. The price will go up and down, but you can continue to add those investments to your portfolio. You will not experience any panic when the prices and your investment have a sudden drop.
Remember never to allow any single asset to make up most of your investments, including stocks or coins. You want to build solid mutual funds, bonds, stocks, and cryptocurrency portfolios. Putting all of your money on one type of investment is not the best financial move. By diversifying your portfolio, you can achieve those long-term financial goals. With the volatility of cryptocurrency, a portfolio filled with digital coins is taking on too much risk.
When the crypto market begins to crash, you could be tempted to sell all of your assets. However, remember that digital currency is a volatile investment. Be prepared for the long haul if you want to protect your investments. Over the years, the prices will go up and down, but you can safely navigate through these downturns if you stick with your digital coins (and not panic).
Are you ready to enter the world of cryptocurrency investment? Despite the ups and downs, investing in digital currency can be an added benefit to your portfolio. At Unbanked, our professionals can help you find the right options for your investments.