What to do when cryptocurrency is crashing

Cryptocurrencies were all the rage earlier this year, as the prices of several coins soared to record highs and crypto exchange Coinbase launched its public offering. Crypto enthusiast and Tesla CEO Elon Musk tweeted a rocket and moon emoji, reinforcing the crowd’s cry of “Moon!” Big and small investors jumped into the market.

But after the spot price of bitcoin, the most popular currency, approached $65,000 in April, the boom turned into a bust: by early June, its value had fallen by nearly 50 percent. Many of these new cryptocurrency investors were probably shocked.

“It’s interesting that every time Bitcoin goes up, it gets all the hype, and people get excited,” says Kiana Daniel, author of Cryptocurrency Investing For Dummies. But Daniel adds that the last person to buy when the price is up “is the one who will panic when the price inevitably goes down.”

So, what do you do when your digital assets like bitcoin go down? We asked several cryptocurrency experts for their thoughts.

Remember that Bitcoin and other cryptocurrencies are volatile

For those who have invested in cryptocurrencies for years, massive gains and losses are nothing new. For example, Bitcoin hit a previous record high of nearly $20,000 in December 2017, but by December 2018 it was trading below $3,500.

With bitcoin gaining, “the moves up and down can be impressive.” Greg King, founder and CEO of Osprey Funds, an investment firm specializing in digital assets, says taking a long-term view puts these moves in perspective.

“For example, even though bitcoin fell 50% in April through May of this year, it was up 25 percent from those lows and still 100 percent higher than last year’s Thanksgiving.” (Note: These comments were made on June 17, 2021. Who knows where the price of bitcoin will be at the time you read this.)

For seasoned bitcoin investors, the price drop was welcome. “Then you will actually see the bitcoin depreciation as a buying opportunity,” Daniel says.

» Learn More: But What is Cryptocurrency?

Understand your willingness to risk before investing

When the cryptocurrency crashes, someone who sparked their interest from the sidelines might think that it is a good time to go in and “buy low.” But King recommends asking yourself a couple of questions before you decide to invest in Bitcoin or other cryptocurrencies.

“Consider whether an 80 percent to 90 percent drop in your crypto holdings will result in you losing sleep at night or selling,” he says. “If the answer to either of those questions is yes, then don’t invest.”

“Any asset has its ups and downs – cryptocurrencies have more ups and downs because of the amount of hype and deception involved,” adds Daniel, referring to the fear of missing out, referring to the fear of missing out,” they buy because they heard someone talk about it. … They are taking uncalculated risks.

“Ask yourself how much money you can actually lose, because any investment has inherent risk,” she says. “If you choose your assets wisely and have specific reasons to invest in, you should not be affected when the markets go down, and you will continue the path.”

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Individual investments should flavor your portfolio, not dominate it

Crypto experts suggest refraining from “all-in” moves when deciding to invest. “Avoid buying large amounts of cryptocurrency in one take,” says Jake Yocom-Piatt, co-founder of Decred, a cryptocurrency with a market share of $1.5 billion. “If you buy a whole set at once and the price goes down, it will be psychologically difficult for people.”

Instead, he suggests considering a common strategy of investing in the stock markets: calculating the average cost in dollars. “Buy a small amount each month and then keep doing it, as the price goes up or the price goes down, rather than buying it all at this single crystal cost that you will have to deal with psychologically for the foreseeable future.”

Personal finance experts often say that any single asset, whether it’s a specific coin, company stock or something else, should be just sprinkled on top of a group of stocks, bonds, and mutual funds meant to help you achieve a long haul. Long term financial goals.

“If crypto is the only asset you invest in, you are probably risking a lot,” says Daniel.

Written by Kevin Voigt

About the author: Kevin Voigt is a personal financial writer at NerdWallet. He has covered financial issues for 20 years, including The Wall Street Journal and CNN.com. Read more