The crypto market is melting down, and bitcoin’s price shows it.
Crypto prices were highly volatile in November following the collapse of FTX, one of the largest and fastest-growing crypto exchanges. The exchange filed for bankruptcy on Nov. 11, and those shockwaves are still being felt today as the FTX fallout continues. Most recently, major crypto lender and exchange BlockFi filed for bankruptcy earlier this week.
Bitcoin’s price hasn’t recovered from this meltdown yet. The token’s price remains low and sits at just under $17,000 as of Friday afternoon. That’s a nearly 80% decrease in value since the token’s all time high in November 2021.
Many are wondering if the current string of bankruptcies shaking up the crypto world is going to worsen the current bear market (what investors have dubbed “crypto winter”). The short answer: No one knows. But experts think FTX’s implosion and subsequent fallout are probably deepening the price lows we’re seeing this year.
Putting aside the current crash, bitcoin’s price hasn’t been above $50,000 since Dec. 25, 2021. That setback is likely due to continued 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 (November 28)||One Month Ago (November 5)||3 Months Ago (September 6)|
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, likely due to poor macroeconomic headwinds and the recent bankruptcies in the crypto world. 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.