- Cryptocurrencies are a dangerous investment for people
- Financial advisors seeing digital assets as means for accumulating personal wealth
- Financial experts advise anyone interested in investing in bitcoin to set aside a modest portion of their portfolio which they are willing to lose
Bitcoin’s notorious volatility is raising its head once more, reminding investors of the danger they’re taking when they buy in the cryptocurrency.
On Monday, the digital currency plummeted by as much as 10% due to a global market downturn. According to Coin Metrics statistics, Bitcoin was down about 8% last night, hovering around $43,800 per coin. The rest of the cryptocurrency market was also in decline, with ether down about 9% to over $3,046 per coin.
Moving up and down
Extreme up-and-down movements in cryptocurrency prices are rather normal, and investors may expect them to continue in the future. The only thing it can predict for sure is volatility, said David Yermack, a finance professor at the NYU Stern School of Business. It was a risky investment for people from the start.
Over the last decade, Bitcoin has experienced spectacular growth as well as dramatic sell-offs at various occasions. Although many bulls point to the cryptocurrency’s past performance as proof that it will continue to rise in the future, Yermack believes that this is unlikely.
It’s totally speculative, he said, adding that while bitcoin has gained in popularity, it is still not considered a mainstream investment, so many people are unfamiliar with it. You should never invest in something you don’t understand, Yermack remarked.
Increasing popularity of cryptocurrencies
Investing in cryptocurrencies, however, has grown in popularity, owing to the ease with which they may be purchased. Even some financial counsellors are seeing digital assets as means for accumulating personal wealth.
However, because cryptocurrencies are risky assets, financial experts often advise anyone interested in investing in bitcoin to set aside a modest portion of their portfolio that they would be willing to lose totally to the asset.
People should only invest what they are ready to lose, Daniel Polotsky, CEO of CoinFlip, one of the leading bitcoin ATM companies in the United States, said. People nearing retirement, those who will need the money they’re investing in the near future, and those who want to trade regularly for a profit may want to reconsider bitcoin as an asset for those aims, according to him.
Perhaps there are more opportunities to make money because it is so volatile, but trading back and forth may become highly addictive very quickly, he said. And the vast majority of those who do so lose money.
Invest for long term
Take a systematic approach and impose criteria for purchasing and selling if you’re going to allocate a portion of your portfolio to a speculative asset like bitcoin, according to David Sacco, an economics professor at the University of New Haven.
You can gain experience without blowing yourself up, he remarked.
One strategy to avoid selling at a loss is to commit to owning the asset for the long term, just like the other stocks and bonds in your portfolio. Anjali Jariwala, a certified financial planner and CPA and the founder of Fit Advisors in Torrance, California, advised, Throw some money into it and kind of let it stay in there and season for a while. Just so you don’t make any decisions, whenever there is a price fluctuation, which happens every few days at this point.