How Crypto Investors Are Handling Plunging Prices

Amid a sharp plunge for Bitcoin and other top tokens like Ethereum and Solana, some cryptocurrency investors say they’re taking a long-term view of the market to weather the storm.

Following a rough week, Bitcoin’s price climbed back up to hover in the $38,000-39,000 at last check on Tuesday morning, according to CoinDesk. This latest gain comes in the wake of a downward slump that’s seen the world’s largest digital currency sink below $33,000 for the first time since July, more than halving in value since peaking at a record high of nearly $69,000 in November. Ethereum, the second-largest digital currency by market cap, has also experienced a big drop, hitting a six-month low when it fell to $2,176.41 on Jan. 24.

The crypto market as a whole has decreased in value by more than $1 trillion since Bitcoin’s all-time high, showcasing the sector’s tendency toward extreme price swings. Still, Wendy O, a popular crypto TikToker better known online as CryptoWendyO, says this level of volatility is simply par for the crypto course.

“Crypto is very volatile,” she tells TIME. “We’re going to have nasty downturns. And that’s okay. People get confused and think, ‘Oh, I’m going to have massive gains all the time’—but that’s not the way things work. Because we have volatile massive gains, we’re also going to have volatile massive downturns.”

Despite rumblings of a potential “crypto winter”—when a steep price decline is followed by a prolonged period of flat trading—Evan Rodgers, a tech journalist who started investing in crypto after the pandemic hit in 2020, says he tries to maintain a big picture outlook on his Bitcoin investments.

“When the price goes down, you can’t think of it in terms of dollars that you’re quote unquote ‘losing,'” he says. “You need to look at the actual number of Bitcoin that you have and realize that’s not changing. There’s just a short-term price effect happening.”

Price dips can also serve as an opportunity to buy more of a coin that you have faith will perform well in the future, says Lea Thompson, the founder of Girl Gone Crypto.

“I’m really invested in projects that I think will have a lot more value long-term than where they are currently,” she says. “For me, those are Bitcoin and Ethereum. If you’re flipping a NFT or trying to get a great return on some other alt coin, there’s a lot of potential money to be made. But if something is really valuable in the long run, then these market dips are more an opportunity to accumulate more than something that’s really scary.”

That’s not to say that risk management doesn’t play into how long-term investors handle these potentially stressful situations. After getting burned early in his investment journey by experimenting with leverage trading—i.e., borrowing against a coin to buy more of that coin—Rodgers says he learned to take a more secure approach to his Bitcoin strategy.

“I think any experienced trader will tell you that unless you really know what you’re doing, you’re setting yourself up for a challenging time,” he says. “Leverage is great when the market goes up, but if there’s a sudden downturn, you can get liquidated. That’s something I’ve experienced personally and while it wasn’t a devastating loss, things like that help you learn to minimize risk.”

O, who began teaching herself how to invest in and trade crypto in 2017, says that in addition to abiding by a go-with-what-you-know mentality, she’s a proponent of making a game plan for different scenarios before they happen.

“When the market is green and doing really well, you should have specific profit taking scenarios for when you’re entering, when you’re exiting, and all those types of things,” she says. “Vice versa, you should have the same for when the market is in a downturn to figure out how much you’re willing to lose. If you have these set criteria for yourself, when the market does turn, you can just go ahead and execute based off the assessments you made.”

Crypto’s current slide comes amid a wider sell-off of risky assets like technology stocks as investors prepare for the U.S. Federal Reserve to raise interest rates in order to tackle rising inflation and labor shortages. The Fed announced on Jan. 26 that it would be moving ahead with a tighter monetary policy and expected to raise rates “soon.”

Heading into January, anticipation of the Fed’s forthcoming announcement combined with reports of surging inflation, a disappointing December jobs report and potential new crypto regulation from the White House were all factors that signaled further decline could be imminent for the market.

“Even though historically there’s been a big pump in January, the macroeconomics just weren’t right to have a run like that this year,” Rodgers says. “It was relatively obvious that we were in for some chop—not necessarily a 50 percent drawdown, but when we have this chop, it’s also common to see a 50 percent drawdown. So that’s where my head was at.”

The downturn has also demonstrated a rising correlation between crypto and stocks, which, until this week, had been steadily falling since the beginning of the year—the S&P 500 dipped over 9 percent while the Nasdaq was down nearly 15 percent—and recently came off their worst week since March 2020. It’s a development that’s brought into question whether digital assets are as good a hedge against losses in other markets as some believed.

For her part, O says that while this increased correlation can be beneficial for less advanced investors, it’s important for the market as a whole to maintain a certain level of independence from traditional assets.

“It’s both a good and a bad thing,” she says. “Crypto correlating a little bit more with the stock market is good for average investors because they can utilize that information to make better trading or investing decisions. But at the same time, we want to keep crypto as decentralized as possible.”

With everything going on right now, understanding why you believe in the long-term value of any type of investment is especially crucial, says Thompson.

“People get nervous because they’re looking for some kind of assurance that everything is going to be OK,” she says. “The fact of the matter is, with any investing, there’s never assurance that’s always [going to be the case]. But when you understand the underlying principles of why you believe in something, it makes it a lot easier to ride out these waves.”