The market has been rough for cryptocurrencies over the past few months. The crypto market in general has shed nearly half of its value since mid-November, and even the biggest names like Bitcoin and Ethereum have watched their prices plummet.
If you invest in cryptocurrency in any capacity, you may be concerned about this recent fall. And with no end in sight, it can be tempting to sell your crypto investments before prices drop even further. But is this the right move?
Will cryptocurrency prices continue to fall?
If you are concerned that cryptocurrency prices will continue to fall, it may seem prudent to sell your investments now and save what you can. However, sometimes this can be a risky move.
No one can say for sure what will happen to the crypto market. Prices could drop further or bounce back soon. The sector is known for its volatility and crypto has a long history of sharp ups and downs. And from a long-term perspective, the market so far has a generally upward trend. If you sell now, there is a chance prices could reverse soon after – and you’ll lose those gains.
Furthermore, if you have invested at any point in the past few months, pulling out now will mean you are selling at a loss. Major cryptocurrencies such as Bitcoin and Ethereum have lost almost half of their value since November. By withdrawing your money now, you sell your investments for about half of what you paid for them, locking in significant losses.
What should you do with your investments?
Whether you invest in stocks or cryptocurrencies, one of the most important rules to remember is that you have nothing to lose by keeping your money in the market. Your investments could lose 99% of their value, but if their prices eventually bounce back, you won’t lose a dime unless you sell during the dip.
While no one knows for sure if cryptocurrencies will bounce back, this type of volatility is relatively normal for the sector. The price of Bitcoin has fallen by more than 80% on several occasions, and Ethereum once lost nearly 95% of its value over the course of a year. By comparison, this recent nearly 50% drop is relatively mild.
So the best thing you can do is simply hold on to your investments. The crypto market could get uglier in the future and there is a chance that your portfolio could sink even further. However, if you do your best to stay focused on the long term and avoid getting caught up in the daily market movements, you can benefit from further recovery.
How to protect your money
Holding on to your investments is the best way to survive periods of volatility, but there are other steps you can take to further protect your money.
First, make sure the rest of your portfolio is properly diversified. Cryptocurrencies should only be a small part of your overall portfolio. I prefer holding 5% or less in cryptocurrencies for example. Your ideal crypto deposit may vary depending on factors such as your age, your risk tolerance, and your understanding of blockchain technology. If you find yourself overinvested in cryptocurrencies, now might be a good time to start adding your positions in other stocks to your portfolio.
Also, double check that each stock in your portfolio is a solid long-term investment. Crypto is already a risky investment, and if many of your stocks also carry higher risk, your portfolio may not be as risky as it could be. By investing in quality companies, you have a better chance of surviving market downturns.
The cryptocurrency market is intimidating right now, but that doesn’t necessarily mean you have to sell your investments. If you hold them for the long term and focus on the far future, your portfolio is more likely to weather the worst bouts of volatility.
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Disclaimer: Crypto products are unregulated as of this date in India. They could be highly volatile. At Unocoin, we understand that there is a need to protect consumer interests as this form of trading and investment has risks that consumers may not be aware of. To ensure that consumers who deal in crypto products are not misled, they are advised to DYOR (Do Your Own Research)