The cryptocurrency market fell like a rock over the weekend. By the time the world went back to work on Monday, a total of $130 billion was erased. It was the worst showing that Bitcoin and Ethereum have had since July 2021 – with each falling more than 50% from their highest peaks.
The cryptocurrency market has had a rough start to 2022, and part of the reason may be tied to the sell-off of riskier assets like technology stocks. That sell-off is happening because investors are trying to second-guess what the Federal Reserve is going to do to rein in inflation.
“It’s possible that macro economic concerns, such as the Fed’s response to inflation rates, have facilitated more de-risking activity in general,” Juthica Chou, head of OTC options trading at Kraken, told CNBC. “The recent price drop, coupled with high volatility, could be leading to further selling as participants look to reduce risk.”
Consumers aren't the only ones feeling the sting of the cryptocurrency downturn. A cryptocurrency backed by both Google and IBM -- Hedera -- fell just like Bitcoin and Etherium, tumbling 27.04% in the past seven days. It's now 65.39% below its all-time high.
Stay in or get out?
As they say, timing is everything -- and many cryptocurrency investors are finding themselves at the crossroads of buy, sell, or hold tight. Unfortunately, finding the right answer isn't easy. Take Bitcoin for example.
If you invested $10,000 in Bitcoin two years ago, that $10k would’ve grown 305% to $40,555. However, if you invested $10,000 only a year ago, it would have only grown 6% to $10,626. If you invested that $10,000 a month ago, you would have lost nearly $3,000, as Bitcoin’s value tumbled 27.91%.
One expert says if you decide to sell your cryptocurrency or you see the latest dive as a golden opportunity to get in deeper, you need to understand that prices are volatile in the world of cryptocurrency investing.
“They are about (on average) 4x more volatile than the US equities market. So big price swings (and drops) might be hard to explain, they should not be viewed as a surprise,” Bryan Routledge, associate professor of finance at Carnegie Mellon University's Tepper School of Business, told ConsumerAffairs. Bankrate’s James Royal adds that cooler heads will usually prevail.
“Making emotional decisions, especially when trading, rarely results in anything good happening. So before you rush into the market in a panic, you’ll want to reflect on why you’re trading crypto in the first place,” he said.
If you don’t think you have the stomach for volatility, then there are plenty of other good investment options that offer attractive long-term returns. Royal gives the following types as examples:
Dividend stocks. Royal says these tend to be less volatile than stocks overall.
Index funds. “If you don’t want to do the work of finding individual stocks but still want high returns, then a good alternative is an index fund,” he suggests.
Royal’s recommendation for people who are looking for a healthy cash payout is REITs – real estate investment trusts. He says they have a good long-term track record of returns, and casual investors can buy REIT “funds” and not have to sweat the ups and downs of individual REIT stock values.