Bitcoin’s price fell below $30,000 Tuesday for the first time since January, continuing its downward trend after reaching an all-time high over $60,000 in April.
The drop coincides with continued pushback on cryptocurrency from China, including recent crackdowns on mining activity and crypto trading with China-based financial institutions. But these are just the latest in a series of factors that have contributed to Bitcoin’s falling prices over the past few months, ranging from an influx of short-term investors, growing popularity of memecoins like Dogecoin, and even Elon Musk’s Twitter account.
This volatility and all the factors driving it highlight the risk involved with cryptocurrency investing. Here’s what crypto investors can learn from Bitcoin’s ongoing fluctuations:
Only Invest What You’re Prepared to Lose
Crypto — no matter whether you choose Bitcoin, Ethereum, or a mix of other altcoins — is a highly speculative asset. Some experts we’ve spoken to compare it more to gambling than traditional investments, so a good rule of thumb is to only invest what you would be OK losing.
Generally, experts recommend investing no more than 5% of your portfolio in cryptocurrencies — and only if it won’t get in the way of other financial priorities. Just as it would be inadvisably risky to put all your money in one stock, dedicating a large portion of your portfolio to an asset class with wild fluctuations like crypto can be dangerous.
The smartest approach you can take to crypto investing is to make sure your overall financial health is secured before you do anything. That includes priorities like securing your emergency fund, investing in a traditional retirement fund, and paying off any high-interest debts. Because of the swinging price volatility, you don’t want any sum you invest in cryptocurrency — and could potentially lose — to hinder your other financial goals.
If there’s anything you should expect when it comes to crypto investing, it’s volatility. Just one year ago, Bitcoin’s price hadn’t yet topped $10,000, and it’s since swung as high as $63,000, back down under $30,000, and everywhere in between.
“Volatility is as old as the hills, and it’s not going anywhere,” Bill Noble, Chief Technical Analyst at Token Metrics, a cryptocurrency analytics platform, recently told NextAdvisor. “It’s something you have to deal with.”
These ongoing fluctuations are a good reminder that not everyone has the risk tolerance for crypto. It may seem like everyone is crypto-curious these days, but you can have a well-rounded, diverse investment portfolio without cryptocurrency, especially if buying crypto would come at the cost of your other financial priorities.
But if you approach your crypto assets with a long-term mindset, you can better weather the volatility. Don’t let big price dips dictate when you buy or sell; instead, continue to invest only what you’re comfortable losing, even through the fluctuations. Then, like your stock market investments, you can take a hands-off approach, and monitor over time rather than keeping an eye on any daily or weekly changes.
Investing in crypto is risky, and there’s no guarantee that you’ll gain money — or even get back any money you put into it. Bitcoin’s recent price dip is just the latest example of the extreme volatility crypto investors face. If you’re interested in investing in crypto, or you’ve already put some cash in Bitcoin, remember to only invest what you can afford (after your other financial priorities are in order) and keep your eye on long-term growth over short term fluctuations.