Bitcoin is in crater again. What investors should keep in mind
Bitcoin resting on United States dollar banknotes.
Nicolas Economou | NurPhoto | Getty Images
Bitcoin’s brand volatility is emerging again, showing investors how much risk they are registering for when investing money in cryptocurrency.
The digital coin cratered up to 10% on Monday, amid a declining global market. Bitcoin was down nearly 8% for the last time, hovering around a price of $ 43,800 per coin, according to data from Coin Metrics. The rest of the cryptocurrency market was also in crisis, with the ether down more than 9% to around $ 3,046 per coin.
Extreme high-to-low fluctuations are relatively common for cryptocurrencies, and investors can expect them to continue in the future.
“The only thing I can expect for sure is volatility,” said David Yermack, professor of finance at the Stern School of Business at New York University. “From day one it has been a risky investment for people.”
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Bitcoin has seen both astronomical growth over the past decade and massive sales at various points in between. Although many bulls indicate that its past performance is a sign that the cryptocurrency will continue to rise in the future, that may not happen, according to Yermack.
“It’s a purely speculative asset,” he said, adding that although bitcoin has gained in popularity, it is still not considered a traditional investment, meaning many have little information. on the asset.
“You should never invest in something you don’t understand,” Yermack said.
Only invest what you are willing to lose
Still, investing in cryptocurrencies has become increasingly popular, not least due to the ease of purchase. Even some financial advisers are starting to see digital assets as tools for building personal wealth.
However, since cryptocurrencies are risky assets, financial experts generally advise people looking to invest in bitcoin to allocate a small portion of their portfolio that they would be willing to lose entirely to the asset. .
“People should only really invest what they’re willing to lose,” said Daniel Polotsky, CEO of CoinFlip, one of the largest bitcoin ATM companies in the United States.
He added that people nearing retirement, those who will need the money they invest in the short term, or those looking to trade frequently for a profit may want to reconsider bitcoin as an asset for those purposes.
“Maybe there are more opportunities to make money because it’s so volatile, but it can get very addicting very quickly to start trading both ways,” he said. declared. “And, most of the people who do that lose money.”
Buy for the long term
If you’re going to allocate part of your portfolio to a speculative asset like bitcoin, take a disciplined approach and impose buy and sell rules, said David Sacco, professor of economics at New Haven University.
“You can gain experience and not blow yourself up in the process,” he said.
One way to protect yourself against selling at a loss is to commit to holding assets for the long term, like other stocks and bonds in your investment portfolio.
“Squirt some money in and let it stay there and season for a while,” said Anjali Jariwala, certified financial planner and CPA and founder of Fit Advisors in Torrance, Calif. “Just so you don’t have to make decisions every time there is a price fluctuation, which happens at this point every few days.”
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