Things to Know Before Investing in Crypto to Avoid a Shock
The market for cryptocurrencies and other risky assets is taking a big hit.
The largest cryptocurrency by market value – Bitcoin, which hit its lowest level since August, fell below $40,000 on Friday and is now trading around 38,378. U.S. dollar. Some analysts are predicting it could fall even lower.
With that, Ethereum, the second largest coin, is down 14% over the same period. Ethereum is currently trading around 2,779 U.S. dollar.
This came as the Nasdaq and S&P 500 also lost ground. Both cryptocurrencies and tech stocks have fallen this month, indicating a growing correlation between the two “commodities.”
Additionally, there are concerns that there will be more crypto regulation in the US and how the Federal Reserve (Fed) is easing monetary policy will impact the market as a whole. Around the world, other regulators are also focusing on the crypto market. For example, on Thursday the Central Bank of Russia proposed to ban the use and mining of cryptocurrencies.
This decline is not unusual for Bitcoin. Cryptocurrencies are famous for their volatility. Immediately after a price increase, they can suddenly fall back down. As such, experts say it’s important to consider whether you can withstand the ups and downs before investing in Bitcoin or any other cryptocurrency.
“It’s a very volatile property class. You must be content with the volatility and the possibility of losing money‘ Anjali Jariwala, financial planner and founder of Fit Advisors, once told CNBC.
Every investor’s risk appetite is different. It is important to understand how much you can tolerate yourself.
“For some, this volatility may be okay, which may coincide with risk aversion and risk tolerance and individual investment horizons. Still, you have to live with itDouglas Boneparth, financial planner and president of Bone Fide Wealth, previously told CNBC.
Other investors might prefer something more stable.
Regardless of your tolerance, financial experts warn that volatility makes bitcoin and other cryptocurrencies a riskier investment than others like low-cost index funds, which allow investors to buy a collection of stocks at once rather than bet on a single asset.
“If you decide to invest anyway, make sure it’s money you can actually afford if you lose it.‘ said Jariwala.
Boneparth agrees: “Be very careful how much you allocate and understand what you can tolerate because when 80% of your net worth is tied to bitcoin and it falls 30% then that’s difficult. Depending on your skills, a smaller allocation to bitcoin could hedge a potential market decline.“.
Nha Thanh (according to CNBC)
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