Bitcoin prices have recently dropped below the $30,000 mark, the lowest it has been since January 28th of this year. This drew even more attention to the cryptocurrency’s infamous volatility in a time where more and more people are starting to show interest.
The turn of events is the exact reason why financial advisors and investment experts would always remind you not to siphon too much of your portfolio into digital currencies. Putting too much into crypto could get in the way of other financial priorities like saving for retirement and emergency funds and paying off debt. When investing in cryptocurrencies, you would have an equal chance of losing it all or winning big, so don’t gamble an amount that would prevent you from achieving your financial goals.
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What Does the Price Drop Mean for Investors?
Investors who go heavy on crypto are in there for the long term and are expected to have a buy-and-hold strategy. For them, the recent price dips aren’t anything to worry about. They know that things in the market are super volatile.
It is recommended to keep your crypto investments to less than 5% of your portfolio. And ultimately, put in money that you’re comfortable with losing. This piece of advice will keep you grounded throughout the market’s volatility when prices eventually swing all over the place. Trust the experts, this will be a regular occurrence. A nice indicator to determine if you have the right amount invested in crypto is to take note of how you feel during extreme drops. If the sudden drop bothers you, then you probably have too much riding on cryptocurrencies.
But if the drop is making you second guess your crypto investments, don’t act rashly and change strategies quickly. Think about what you’re going to be more comfortable with going forward, like allocating fewer funds to crypto in the future.
Are You Interested in Crypto But Haven’t Invested Yet?
Firstly, understand that cryptocurrency can behave in a vastly different way compared to the more traditional investments index funds or stocks and bonds. Unlike traditional investments that have been around for a significantly larger amount of time, cryptocurrency is still a new asset class, and it does not have enough trackable and historical data to make foolproof predictions.
Prospecting investors looking to take advantage of the dip to buy in should note that fluctuations are part of the standard experience when investing in crypto markets, and they should be prepared to experience more of this kind of volatility in the future. Even if you invest with relatively low prices now, prepare yourself and expect it to fall even more. Again, cover your financial priorities first and make sure you prioritize emergency savings and retirement funds.
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What Exactly Caused the Bitcoin Drop?
The recent price drop seems to be reminiscent of the 2017 Bitcoin sell-off, where Bitcoin lost about a quarter of its value within a single day of trading. Glassnode Insights, a blockchain analysis firm, states that what might be affecting the prices are the new short-term investors selling their holdings as a panic response to the drop. This is causing Bitcoin to continue dipping in value.
There are many other speculated reasons for the price dip. Some say it has something to do with negative remarks from Elon Musk, and it might also be because of China’s recent ban imposed on crypto services. All of this has piled up to make the sell-off even more violent.
This event has also been likened to the stock market crash back in 1987, from which the stock market took several months to recover. But because the cryptocurrency market moves way faster compared to the equities in the 1980s, it is also expected to recover at a much faster rate.
The biggest piece of advice? Do not panic. Keep your positions small to be able to tolerate the volatility.