Recently, Bitcoin has fallen from nearly $60,000 per coin to a low of $33,000 per coin in just a day. Nearly a 50% drop in price in one day is similar to a flash crash. This drop isn’t limited to just Bitcoin, a majority of other crypto coins have seen similar drops in price. If you’ve invested into cryptocurrency in the last month then you’re likely feeling the pain right now. Crypto markets have always been very volatile since their birth and now is no different. It has been awhile since the last big crash. So, I think it is a good time to go over some key foundational aspects of investing.
Dangers of Crypto
Cryptocurrency has always been the most volatile financial market in recent history. It is basically an open secret that crypto can swing 70% in either direction for no reason or maybe even due to a tweet. The point I am trying to make is that crypto is very dangerous. An investor should never invest money into an asset like crypto if they can’t afford to lose it. So, if you’re getting a little nervous because of this dip or losing sleep, then this is a sign that you’ve over leveraged yourself. Yes, people have become rich from crypto but these are only the success stories. It’s important to keep in mind that for every rags to riches crypto investor, there are at least 100 that went from rags to rags again. Nothing is guaranteed in crypto so you should always invest wisely!
How to Beat the Dip
Another open secret in finance today is how to beat market corrections/dips. This “secret” is called dollar cost averaging. Dollar cost averaging is investing a constant amount every month/year into a broad index fund regardless of whether things are going good or bad. Of course, this strategy has no guarantees but historically if you were to utilize this strategy with the S&P 500 then you would never have worried about a market dip! So applying this strategy to crypto, now is a great opportunity to start dollar cost averaging. Keep in mind you should keep your portfolio balanced and adhere to other investing principles. I would personally keep my crypto investments to 1%-3% of my entire portfolio. Something I wouldn’t want to lose but if it happens then I would be okay with it.
Overall, when dramatic events like this happen in finance, don’t panic. Events like this are the times where you should remain calm and remember the investing principles. Anyways, happy investing!