Part 2: What To Do With Cryptocurrencies Now
/In the past few months, Bitcoin and other cryptocurrencies have fallen extensively from previous highs. For instance, Bitcoin has lost -50% in value since eclipsing all-time highs in April. Back in May, I highlighted just how volatile Bitcoin and other cryptocurrencies can behave and discussed four things to consider before investing. You can read that article here.
Given the massive price-swings cryptocurrencies are experiencing, you may be wondering what to do…
Should you “buy the dip”?
Should you stay away?
Depending on if you have money at stake, here are my thoughts on how to navigate this volatility.
You are invested in cryptocurrencies
Now is an opportune time to assess if cryptocurrencies remain suitable for you moving forward. Experiencing this type of volatility can serve as a huge eye-opener, which can re-calibrate your risk versus return balance. Whether you have lost money or made money, it is essential to listen to your appetite for risk. If you have felt uncomfortable at any point during this recent price decline, it may indicate you should shift toward more conservative investments. On the other hand, if you remained unfazed throughout these dips, that can be a healthy signal that you are taking an adequate amount of risk. The point being, ensure the gains you seek fit the level of aggressiveness you desire. Solely focusing on achieving higher returns can subject your portfolio to an unaccounted, significant amount of risk.
You are not invested in cryptocurrencies, but want to invest
I encourage you to consider this scenario before investing… let’s say you bought Bitcoin in April when the price was hitting all-time highs. How would you feel after seeing the price drop -20% in the weeks that followed? Are you still comfortable after it falls -50% (i.e. where it currently sits)? If those price swings would not give you discomfort, then proceed accordingly. Conversely, if you think you would be stressed or uneasy, I recommend looking elsewhere. The price fluctuations of most cryptocurrencies are erratic and choppy. As I highlighted in my previous post, cryptocurrencies resemble slot machines. You can win big but also lose just as much. If you invest, start with a lesser amount, just in case this current price decline is the start of a larger sell-off. Dip your toes in the water rather than diving head-first.
If you have any questions about cryptocurrencies or investing in general, feel free to contact me directly. I hope you enjoyed reading!
Joshua J. Baird
Investment Adviser Representative