London, England, 4 July 2021, ZEX PR – Cryptocurrencies (and their lingo) have made quite a stir in the media, online forums, and possibly even in your dinnertime chats, as you may have observed. Despite the hype, many individuals still don’t understand what these phrases represent.
Cryptocurrencies have gone a long way in terms of technological progress and appeal from their early days as havens for criminals and money launderers. In 2018, the market capitalization of cryptocurrencies was expected to exceed $1-2 trillion.
The technology that underpins cryptocurrencies is thought to have a wide range of uses, spanning from healthcare to media.
Cryptocurrency investors have had a few rough weeks and a number of prominent digital coins, such as Bitcoin and Ethereum, are now down significantly from where they were only a month ago.
Volatility is, of course, something that all experienced investors are familiar with. For example, the stock market has seen its fair share of collapses throughout the years, and the cryptocurrency market has seen even more.
Should you reconsider your approach in light of the recent crypto crash? Should you, as a bitcoin investor, maintain the course? Asks The Investment Centre Broker, Joe Lewis.
Cryptocurrencies are very volatile.
Bitcoin’s daily price volatility has been 75 percent during the last three years. In comparison, the S&P 500 has seen a daily volatility of 22% over the last three years. As a result, Bitcoin’s volatility has been about four times that of the stock market.
However, given that crypto trades 24 hours a day, seven days a week, these figures are likely to underestimate Bitcoin’s true volatility. As an investor, it’s far more difficult to get a good night’s sleep when markets are always open and potentially crashing.
This sort of volatility, for the uninitiated, might encourage you to trade more than you’re comfortable with because prices rise and fall considerably faster than they do on the stock market. The more market volatility there is, the more behavioural volatility there is.
What does the recent crash mean?
Just like stocks may fall if there’s bad news, cryptocurrency prices can drop if there’s even a tiny bit of bad news. Last week, China’s central bank tightened its grip on cryptocurrency mining, sending the value of digital coins falling to the point where Bitcoin has lost all of its gains from 2021.
While a bitcoin fall might be frightening in the same way that a stock market crash can be, this isn’t a new phenomenon. Cryptocurrency collapses happen frequently, and digital coins have recovered from them several times, just as equities have.
As a result, unless you come to the understanding that digital currencies are too volatile for your personal risk tolerance (and, to be clear, there’s nothing wrong with admitting that you don’t have the stomach for them), you don’t need to modify your investment approach. However, you should take precautions to ensure that a short-term bitcoin meltdown does not harm you.
For the most part, this entails keeping sufficient financial reserves on hand in case of an emergency. You’ll be in a lot better position to weather future bitcoin falls if you make it a point to save three to six months’ worth of living costs in the bank. That way, if you ever need money, you won’t have to sell any of your cryptocurrencies — perhaps at a loss – to acquire it.
However, if you’re new to cryptocurrencies, you should be aware that digital coins are considerably more volatile than equities, and you should only invest a tiny percentage of your assets in that market because of this. In fact, it’s a smart rule of thumb to enter the cryptocurrency market expecting to lose all of your money.
Obviously, that’s not what you want, and it’s unlikely to happen. However, if you adopt that attitude, you’ll find that you’ll be less stressed if there’s a huge crypto drop.
Always keep in mind that there is no such thing as a risk-free investment. Even so-called secure assets like bonds can lose money if the odds are stacked against you. However, because bitcoin is so hazardous, it’s critical to ensure that you’re safeguarded during moments of high volatility.
It pays to pay attention when our award-winning analysis team has a stock suggestion. After all, the The Investment Centre Stock Advisor newsletter, which they’ve been publishing for almost a decade, has quadrupled the market.
Disclaimer: Our content is intended to be used for informational purposes only. It is very important to do your own research before making any investment based on your own personal circumstances. You should take independent financial advice from a professional in connection with, or independently research and verify, any information that you find on this article and wish to rely upon, whether for the purpose of making an investment decision or otherwise.