The stock market has been rough lately, and while all investors are feeling the effects, the cryptocurrency market has been hit especially hard. Most crypto investors have seen their portfolios sink in recent months, with major cryptocurrencies down 60%, 70%, 80% or more. Even big names like Bitcoin (BTC 3.59%) Y Ethereal (ETH 6.06%) have fallen sharply, hitting 18-month lows.
Should I be worried about the cryptocurrency market right now? Or is it safe to continue investing? This is what you need to know.
Volatility: How much is normal?
Cryptocurrency is a notoriously volatile investment. Even severe recessions are not unusual, and this is not the first time this sector has experienced extreme volatility, and it likely won’t be the last either.
Bitcoin, for example, has dropped more than 80% on three separate occasions since 2013, and has had many other drops of 50% or more. By comparison, this recent 67% drop from its peak is not out of the ordinary for the cryptocurrency.
It is not just Bitcoin that has experienced extreme downturns. In 2018, Ethereum lost close to 95% of its value over the course of the year. Then, in the summer of 2021, it fell more than 50% in about two months.
Of course, past performance is not necessarily indicative of future returns. The fact that these cryptocurrencies have recovered from periods of volatility in the past does not necessarily mean that they will continue to recover.
That said, this kind of turbulence is normal for the crypto market. While it is unsettling to see prices drop, it is key to take a long-term perspective. For all their volatility, Bitcoin and Ethereum are still up 813% and 250%, respectively, over the last five years. Had he sold these investments during any of his previous downturns, he would have missed out on substantial profits.
Is it still safe to invest in cryptocurrencies?
Cryptocurrency can be a potentially lucrative investment, but downturns can be hard to stomach. For that reason, it is not the best option for everyone.
No one, not even the experts, can say for sure how cryptocurrencies will fare over time. Because it’s still speculative, that means there’s always a chance you could lose your investment if the crypto fails. However, at the same time, if you are successful, you could earn a lot of money.
The best way to keep your money safe is to invest carefully. Only invest the money you are willing to lose and do your research before deciding what to buy. Not all investments are created equal, and the cryptocurrencies with the best chance to bounce back from downturns are the ones with the greatest real-world utility and competitive advantages.
If you are willing to take on higher levels of risk, right now may be a smart time to invest in cryptocurrencies because prices are so low. But if you lose sleep at night worrying about your investments, it may be best to avoid cryptocurrencies for now.
It’s unclear how long this recession could last or how severe it could become, but do your best to keep a long-term perspective. Crypto has seen worse in the past, and while there are no guarantees that it will bounce back, the right strategy can keep your money as safe as possible.