Bitcoin Is Back Above $19,000 After Steep Price Drop. How Investors Should React to Falling Crypto Prices

A photo to accompany a story about Bitcoin's big crash Getty Images
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Bitcoin’s price is back above $19,000 as of Thursday afternoon, but whether it’ll continue to climb from here remains to be seen. Seesawing prices highlight the heightened volatility that crypto has been experiencing over recent weeks.

Bitcoin stayed resilient after the Federal Reserve announced another rate hike on Wednesday, seeing a brief and relatively small price drop after the announcement. But the token’s price took a nosedive late Wednesday afternoon, declining in value until it reclaimed $19,000 again Thursday afternoon. The token is down almost 4% over the last week.

While macroeconomic events — including recent inflation data and Fed rate hikes — have tended to crank up volatility for crypto in recent months, it appears the market is starting to stabilize vis-à-vis economic news. That’s because the economic situation is no longer a surprise to the market. That’s especially true when it comes to the Fed, which has been consistent in communicating its policy stance this year. Thus, when the Fed announced another hike by 75 basis points, as expected, the market didn’t react as violently. As such, these macroeconomic events aren’t causing crypto prices to gyrate as wildly as it they were earlier this year.

That said, bitcoin has still struggled over the last couple of weeks, finding difficulty in reaching $20,000 this week.

Ethereum is also struggling, but it’s seeing a more pronounced decline, falling below $1,300 for the first time since July on Monday. Prices climbed back up mid-week, but fell below that threshold again late Wednesday afternoon. Ethereum is now down more than 13% over the last week. The decline comes after the long-awaited ethereum merge was completed last week.

“Risky assets are struggling as Powell’s fight against inflation will remain aggressive even as it will trigger an economic slowdown,” says Edward Moya, a senior market analyst at brokerage firm Oanda.​

Experts point to a potential recession, rising interest rates, the war in Ukraine, and stubbornly high inflation as reasons for why we’re seeing slumping prices in the stock and crypto markets. Crypto has been increasingly tracking the stock market lately, which makes it even more intertwined with macroeconomic factors, experts say.

Bitcoin hasn’t been above $50,000 since Dec. 25, 2021. Despite the ups and downs, Bitcoin’s price has seen a nearly 70% drop in value since its all-time high above $68,000 on Nov. 10, set back by surging inflation, lagging recovery in the job market, and the Fed’s ongoing signals that it would begin winding down pandemic measures to support the economy.

Here’s how Bitcoin’s current price compares to its daily high point over the past few months:

One Week Ago (September 19)One Month Ago (August 27)3 Months Ago (June 28)
$19,437.16$20,271.32$20,751.48
Prices updated: September 26, 2022

Though it has had a slow start to the year, Bitcoin still entered 2022 on a relatively high note, with a strong November and early December that gave way to the recent downward trend. After starting 2021 in the $30,000 range, Bitcoin increased throughout the year and hit its current all-time high when it went over $68,000 on Nov. 10.

Despite falling back significantly from its latest all-time high price, many experts still expect Bitcoin’s price to rise above $100,000 at some point — describing it as a matter of when, not if. Shortly after Bitcoin’s latest all-time high in November, Ethereum marked its own new all-time high when its price went over $4,850. Ethereum has seen similar volatility following the latest high.

Bitcoin hit its first high of the year in 2021 when it went above $60,000 in April, and the price movement since then highlights the cryptocurrency’s volatility in a time when more and more people are interested in getting in on the action. In the weeks between a July low point that took it below $30,000 and its most recent high point in November, Bitcoin swung wildly up and down. The future of cryptocurrency is sure to include plenty more volatility, and experts say this is all par for the course.

We’ve talked to investing experts and financial advisors who advise against sinking much of your portfolio into the asset class for this very reason. They work with clients to make sure volatile crypto investments aren’t getting in the way of other financial priorities, like saving an emergency fund and paying off high-interest debt. 

“You have a high chance of losing it all, but a small chance of winning it big,” says Nate Nieri, a CFP with Modern Money Management in San Diego, California. “Don’t gamble an amount that would burden your family or prevent you from achieving your goals” if you lost it all, he says.

How does this latest crash compare to previous ones, or even to regular stock market drops — and what does it mean for investors? 

What Does This Price Drop Mean for Crypto Investors?

For those who invest in crypto for the long-term using a buy-and-hold strategy, price swings are to be expected. Big dips are nothing to be overly worried about, according to Humphrey Yang, the personal finance expert behind Humphrey Talks, who says he avoids checking his own investments during volatile market dips.

“I’ve been through the 2017 cycle, too,” Yang says, referencing the “crypto crash” of 2017 that saw many major cryptocurrencies, including Bitcoin, lose major value. “I know that these things are super volatile, like some days they can go down 80%.”

Experts recommend keeping your cryptocurrency investments to under 5% of your portfolio. If you’ve done that, then don’t stress about the swings, because they’re going to keep happening, according to Bill Noble, chief technical analyst at Token Metrics, a cryptocurrency analytics platform.

“Volatility is as old as the hills, and it’s not going anywhere,” Noble says. “It’s something you have to deal with.”

As long as your crypto investments don’t stand in the way of your other financial goals and you’ve only put in what you’re ultimately OK with losing, Yang recommends using the same strategy that works for all long-term investments: set it and forget it. 

If this type of extreme drop bothers you, you may have too much riding on your crypto investments. You should only invest what you’re OK losing. But even if the drop is making you rethink your crypto allocations, the same advice still stands — don’t act rashly or upend your strategy too quickly. Reconsider what you might be more comfortable with going forward, such as allocating less to crypto in the future or diversifying through crypto-related stocks and blockchain funds rather than directly buying crypto (though you should still expect volatility when cryptocurrency markets fluctuate).

“Don’t check on it. That’s the best thing you can do. If you let your emotions get too much into it then you might sell at the wrong time, make the wrong decision,” says Yang.

What If You’re Interested in Crypto, But Haven’t Yet Invested?

Yang’s set it and forget it approach to crypto reflects his philosophy for investing in the traditional stock market, but some experts feel cryptocurrency is too different from traditional investments to draw any historical comparisons. That’s why A’Shira Nelson of Savvy Girl Money is staying well away.

Nelson primarily invests in low-cost index funds because “I can see history on that,” she says. The newness of cryptocurrency and lack of trackable data make her wary of these crazy swings. 

Potential investors looking to buy the dip should understand that fluctuations are par for the course, and be prepared for this kind of volatility going forward.  Even if you invest now, with prices relatively low, be prepared for them to fall even more. Again, only put in what you’re comfortable with losing — after you’ve covered other financial priorities, like emergency savings and more traditional retirement funds.

What’s Behind the Latest Bitcoin Drop? 

Many investors see Bitcoin’s price swings as part of the game, but “volatility is tough for individual investors to deal with,” Noble says. Like Yang, he warns against selling too fast.

Recent price fluctuations highlight the heightened volatility that crypto has been recently experiencing, though major macroeconomic events seem to be having less of an impact on that volatility lately. That noted, in an industry as new and unproven as cryptocurrency, it doesn’t take much to drive big swings in price.

While fluctuations are expected, Noble says he’s been surprised by some of the recent big drops. “I thought the market was maturing and these things would be less frequent and severe. Boy was I wrong,” he says. 

He likens the drop to the stock market crash of 1987, from which the markets took months to recover. But because crypto moves a lot faster today than equities did in the 1980s, Noble says we may see a quicker recovery. 

“Don’t panic and puke,” Noble says. “If you keep your positions small, you can try to tolerate the volatility.”

Former NextAdvisor reporter Ryan Haar contributed.