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The price of Bitcoin fell below $ 30,000 on Tuesday for the first time since January, continuing its downtrend after hitting an all-time high of over $ 60,000 in April.
The drop coincides with the continued decline in cryptocurrency from China, including recent crackdowns on mining activity and crypto trading with financial institutions based in China. But these are just the latest in a series of factors that have contributed to the fall in Bitcoin prices in recent months, ranging from an influx of short-term investors, to the growing popularity of memecoins like Dogecoin and even to Elon Musks’ Twitter account.
This volatility and all the factors that drive it highlight the risk associated with investing in cryptocurrency. Here is what crypto investors can learn from the continuous fluctuations of Bitcoin:
Only invest what you are willing to lose
Crypto, whether you choose Bitcoin, Ethereum, or a mix of other altcoins, is a highly speculative asset. Some experts have spoken to us to compare it more to gambling than to traditional investments, so a good rule of thumb is to only invest what you would be willing to lose.
As a general rule, experts recommend that you invest no more than 5% of your portfolio in cryptocurrencies and only if it does not interfere with other financial priorities. Just as it would be unwise to put all of your money in a single stock, devoting a large chunk of your portfolio to an asset class with wild swings like crypto can be dangerous.
The smartest approach you can take to investing in crypto is to make sure your overall financial health is secure before you do anything. This includes priorities such as securing your emergency fund, investing in a traditional retirement fund, and paying off high interest debt. Due to price volatility, you don’t want to invest in cryptocurrency and you could potentially lose to hamper your other financial goals.
Do not panic
If there is something you should expect when it comes to crypto investing, its volatility. Just over a year ago, the price of Bitcoin had not yet exceeded $ 10,000, and it has since hit $ 63,000, has fallen back below $ 30,000, and everywhere in between.
Volatility is as old as the hills and isn’t going anywhere, recently told NextAdvisor Bill Noble, chief technical analyst at Token Metrics, a cryptocurrency analysis platform. It is something that you have to deal with.
These continuous fluctuations are a good reminder that not everyone has the risk tolerance for crypto. It may seem like everyone is crypto-curious these days, but you can have a well-rounded and diverse portfolio of investments without cryptocurrency, especially if buying crypto would come at the expense of your other financial priorities.
But if you approach your crypto assets with a long-term mindset, you can resist volatility better. Don’t let steep price drops dictate when you buy or sell; instead, keep investing only what you can lose, even through fluctuations. Then, as with your stock investments, you can take a hands-off approach and monitor over time rather than keeping tabs on daily or weekly changes.
Final result
Investing in crypto is risky, and there is no guarantee that you will make any money or even get back the money you invest in it. The recent drop in Bitcoin prices is just the latest example of the extreme volatility that crypto investors face. If you are interested in investing in crypto, or if you have already put money into Bitcoin, remember to invest only what you can afford (once your other financial priorities are in order) and keep an eye out for long term growth over short term fluctuations.
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