Nolan Bauerle, director of research at CoinDesk, says that 90% of current cryptocurrencies will not survive a drop in markets. Those who survive will dominate the game and increase profits for early investors. Bitcoin supporters see it as a diversifier in balanced portfolios, but it did no better than stocks at the start of the coronavirus pandemic. This is because investors sold everything out of panic.
So why is crypto blocked? It's important to remember that in this latest cycle, crypto assets aren't alone. The stock market has also been suffering a decline, as US policymakers seek to control inflation by tightening the money supply and raising interest rates. Crypto markets are volatile, so buying cryptocurrencies at any price, let alone a drop that could turn into a long-term trend, is risky. While prices could return to previous levels, they could also fall further, leaving your investment underwater.
If your equity investments suffer and you need money, liquidating some cryptocurrency positions could give you access to cash without having to resort to your stock portfolio when it falls. On the other hand, if you only buy cryptocurrency with money you can afford to lose, a fall will be disappointing but not devastating. In the absence of any other explanation for the cryptocurrency market crash, most people were surprised that Bitcoin had behaved in a way that seemed to reflect stocks. Shah says weakness in the crypto and digital asset sector is part of a broader correction of risky assets.
If you avoid overexposing yourself to any individual asset class, you can manage it if a sector, such as crypto, collapses. The sudden fall in wealth has fueled fears that the fall in cryptocurrencies could help trigger a wider recession. A strong emergency fund can take some of the stress out of a cryptocurrency market crash, giving you peace of mind knowing that you can still meet your financial goals. As a cryptocurrency investor, the best way to be prepared is to think long term, diversify, and make sure you have money in other assets as well.
There are several ways in which you can calculate how much you want to allocate, based on your risk tolerance, your knowledge of cryptocurrencies, and the degree to which you think cryptocurrencies could outperform stocks. The golden rule for investing in a risky asset class such as cryptocurrency is to invest only money that you can afford to lose. Mati Greenspan, the CEO of crypto research and investment firm Quantum Economics, also blames the tightening of the Fed. Another factor that can drive investor pessimism and can lead to cryptocurrencies falling is government actions by regulators around the world.
Hordes of individual investors rushed to trade, entering meme stocks like GameStop and AMC and enjoying the advantages of a fairly broad bull market. So even if the turmoil in the stock markets caused chaos in cryptocurrencies, there is data that predicts that BTC market cycles could ultimately resume its seemingly tight control of prices. As interest in cryptocurrencies has grown, public officials are considering what the technology could mean for monetary policy, security and the environment.