The finance world is abuzz with the news of cryptocurrencies taking a huge drop. Bitcoin has dropped from a high of $69,000 in November to under $33,000 on Monday, before rising to $37,183.25 Monday afternoon. Ethereum and Dogecoin have plummeted as well. What are financial experts saying about this crypto crash? Does this spell the end for digital currencies, or is it a short-term setback?
Crypto Crash Mirrors Stock Market
Many investors point out that the stock market is having a rough time as well. The Federal Reserve has signaled its intent to raise interest rates this year, and that always makes investors nervous. Many have moved out of higher-risk stocks and into bonds. It’s possible that cryptocurrency is declining because investors are looking to reduce their risk at an uncertain time.
If that’s the issue, there’s no real reason to worry about cryptocurrency long-term. Though it is considered high-risk compared to other investments, it may well bounce back when other investments do.
Then Again, Crypto Is Still New
Others point out that cryptocurrency is still new, and thus it can’t be predicted as well as other investments. Any given crash could theoretically be the one that ends it all. Crypto is subject to many additional pressures, such as regulations across the world. China has banned cryptocurrency transactions, while the US recently passed (in Biden’s infrastructure bill) more stringent regulations. What effect will these changes have?
It may be that stiffer regulations and better record-keeping will lend crypto more legitimacy. It makes it easier for more retailers to consider accepting it as a currency. On the other hand, the lack of regulation is a draw for some investors. Will they bail from the market now that they have to report crypto gains on their taxes?
Anyone who claims they know what will happen to the crypto market in the future should be regarded with heavy skepticism. Are they making outlandish predictions in the hopes of driving investor interest? Are they simply too excited to moderate their predictions? Whatever the reason, too much confidence in the future of the market is a red flag someone doesn’t know what they’re talking about.
How Should You Weather the Crypto Crash?
Experts recommend categorizing cryptocurrency in the high-risk portion of your portfolio, which should always be a small portion of your investments. If you keep under 5% of your investments in cryptocurrency, it won’t be a huge loss to you if the market continues to decline. People urging you to put more in because it’s “the way of the future” or a “sure thing” are not responsible investment advisors.
Remember that crypto gains are taxable like all other capital gains. Always keep a careful written record of your purchases and sales. If you’re investing cryptocurrency in any large way, be sure to discuss with your advisor what percentage of your portfolio to invest, and what your strategy should be.
Get Trustworthy Advice
Of all investments, cryptocurrency may be the most rife with bad actors offering harmful advice. People who own cryptocurrency tend to want to promote it, in the hopes of attracting more investors and driving the price of their own investments upward. That means they are advising you, not for your benefit, but for theirs.
A real financial advisor has a legal duty to help you. They aren’t allowed to give advice harmful to you to profit themselves. That makes a good advisor an irreplaceable source of trustworthy information. We can connect you with the right advisor for you when you contact us.