After a year in which its price marched (mostly) upward, Bitcoin, the world’s largest cryptocurrency, lost nearly half its value. At the end of June, the digital asset was selling at the $34,000 per coin level at the end of June – that’s down from an April high of $65,000.
Other high-profile coins, including Ethereum and Dogecoin have also experienced a crypto crash in the last month. While the lost value may concern some investors, others might consider this simply part of the market cycle and an opportunity to purchase assets at a potential discount.
Experienced crypto investors know that volatility is par for the course, and would warn newcomers to prepare to ‘Hold on for Dear Life (HODL)’ when they make an investment. If you’re still among those wondering, ‘Should I buy Bitcoin now?’ here are 10 things to keep in mind:
Keep risk in mind.
There’s no guarantee that cryptocurrency prices will rebound anytime soon. Just as it’s impossible to know when we’ve hit the bottom of a stock market correction, there’s no way to recognize the bottom of a crypto dip until it has passed.
So, investors must assess their own comfort levels with risk. In general, investors should only put money into risky assets like cryptocurrency after making sure that they’re meeting basic goals around financial security. That might include having an emergency fund, paying down debt, and having a diversified retirement portfolio.
Know that cryptocurrency markets can swing wildly.
Cryptocurrencies are still in their relative infancy. (Bitcoin, the king of the crypto market, has only been trading since 2009.) The market’s immaturity contributes to its ongoing volatility, as investors are still sorting out the value of and uses for various cryptocurrencies.
Not all cryptocurrencies are created equal.
Though all cryptocoins have some level of volatility, some fluctuate even more wildly than others. More mature cryptos like Bitcoin and Ethereum, for example, have a longer return record and may represent more stability than newcomers like Safemoon, Litecoin, and the meme-inspired Dogecoin.
For investors who value stability, the older, more mature cryptos may be a better option.
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Take the long view.
So, how long will the crypto dip last? It’s impossible to know. But long-term investors don’t have to worry too much about short-term market volatility, since they buy and hold investments for their longer-term performance. Thinking long-term about investments is one way to reduce investment risk.
Some investors believe that Bitcoin could be a smart long-term investment, especially as the digital asset has moved into the mainstream. It’s used by many U.S. consumers and is accepted, through third-party apps, at major retailers like Home Depot, Amazon and Starbucks. Additionally, Wall Street has shown an interest in cryptocurrency, with institutional investors like Goldman Sachs, Morgan Stanley, and Fidelity launching cryptocurrency funds. Many investors consider Bitcoin, in particular, a potential hedge against the dollar, which is vulnerable to rising inflation.
That said, other investors have a much dimmer view about the future of cryptocurrencies, and their sustainability as an investment.
Be selective about cryptocurrency exchanges.
You can’t get Bitcoin, Ethereum, or other crypto from a bank or from a government office – you have to buy it from a cryptocurrency exchange.
If you’re new to trading cryptocurrencies, opt for exchanges with a track record of security and reliability and that offer learning tools for cryptocurrency newcomers.
Consider making small purchases.
Since it’s hard to know when the market has reached the bottom, making small purchases of crypto to build up a position over time may minimize the risk that you’ll miss out on a future price drop.
Look for liquidity.
If you’re looking to buy the crypto dip as a short-term play, make sure your chosen exchange has enough liquidity (i.e., high trade volume levels) so you can sell your cryptos quickly, on your terms.
A high trading volume scenario to provide more stability to values. Smaller crypto exchanges with low trading volumes may lead to your getting a lower price relative to a larger exchange when looking to sell your cryptos.
Know the rules.
Accessibility is another factor to consider when choosing an exchange, depending on where you live. Most states have some regarding digital currencies that exchanges must follow, so it’s important that you understand the regulations in your jurisdiction.
Industry currencies aren’t backed by the government or other centralized institution, and that crypto account balances aren’t backed by the Federal Deposit Insurance Corporation (FDIC), like traditional bank accounts.
Investors buying into the crypto dip should consider purchasing digital currency insurance (the leading crypto currency exchanges usually offer them), and choose exchanges that have a good track record when it comes to security.
Consider a cold wallet.
Given the security risks involved with holding crypto, investors might consider using a so-called “cold storage” wallet, to hold their crypto. A cold wallet is a digital wallet that allows users to store their crypto offline, making it much harder for hackers to get to the funds.
The recent dip in cryptocurrency prices could provide an opportunity to investors who expect the digital assets to recover. There’s no guarantee that buying the cryptocurrency dip will generate profits, but using the tips above could help you minimize some of the risk involved with the strategy.
One great way to get started buying cryptocurrency is by using a SoFi Invest® Brokerage Platform. You can start with as little as $5 and trade through the app, knowing that your holdings remain on a secure platform, protected against fraud and theft.
Photo credit: iStock/v_alex
Bitcoin and other cryptocurrencies aren't endorsed or guaranteed by any government,
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investment products. Research and knowledge are essential prerequisites before engaging
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FINRA, the SEC, the CFPB, have issued public advisories concerning digital asset risk.
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