SoFi Blog

Clipping physical coupons saved Americans real cash. Although there are digital options, coupon use has tumbled.

Chicken and beef are going to cost roughly 30% more this July 4th thanks to, you guessed it, inflation and the supply chain.

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.

Recommended: Crypto Mining Software: How to Choose the Right One

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.

Prioritize security.

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 Takeaway

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

Crypto: Bitcoin and other cryptocurrencies aren't endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don't regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA, the SEC, the CFPB, have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.

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Raindrops on Rallies and Wobbly Conviction

Since the S&P’s most recent low on June 16, the market has made an attempt at a rally. Despite being up about 4% in two weeks, the tape was still muddied with down days and some investors remain unconvinced of durable upside.

As much as I’d like to believe in the start of something positive, market positioning still decidedly reflects risk-off sentiment and, when considering whether we’re out of the woods, some of the classic signals continue to flash “not yet.” Since markets tend to lead macro indicators, we have to pay attention to what they’re telling us.

There are complicated ways to look at risk appetite, and there are simpler ways. I’m choosing to keep it simple this week because this data is quite clear. Looking at the comparison between Consumer Discretionary and Consumer Staples sectors can be a solid indicator of not only how consumer sentiment is trending, but also how investors are feeling about the prospect of consumer spending — turns out, still pretty weary.

Along with the clear outperformance of Staples, is the clear outperformance of Utilities and Health Care — two classically defensive sectors. Additionally, a couple industry groups we can look to for signals of risk appetite and durable goods spending are semiconductors and autos, respectively. Both have taken it on the chin in Q2, with semis down sharply over the last month.

Survey says: don’t believe the rallies yet.

How Do You Solve a Problem Like the Yield Spread

Aside from the equity market, the bond market continues to send similar signals that shan’t be ignored. The 2s/10s yield spread can’t seem to widen, and consequently, can’t seem to stop inverting.

One could make the argument that the rise in the 10-year yield is an indication of less fear, since long-term yields tend to fall when investors are worried. But the fact that the 2-year yield remains so elevated, due to inflation and fear of Fed hikes, creates more of a headache for investors. While neither of the two inversions so far have been deep or long-lasting, repeated dips below zero and a spread of less than 10 basis points for the last three weeks isn’t a sign of exuberance.

The Hills are Alive With the Fear of Recession

We’re not done with this bear market yet, in my opinion, and the market signals currently agree. The hard truth is that we may not be done with it even if we find out we were in a recession in Q2. There hasn’t been enough damage done to inflation yet, and the Fed has shown no intentions of slowing its roll. The bigger question that is now emerging is whether we run the risk of a double-dip recession; with the first one being a “technical,” but not painful, recession and the second being of the more classic recession variety — one that resets inflation.

Although the market will start to turn around before the economy does, I don’t expect a lasting reprieve from the current tone until later in summer or early fall.

Please understand that this information provided is general in nature and shouldn’t be construed as a recommendation or solicitation of any products offered by SoFi’s affiliates and subsidiaries. In addition, this information is by no means meant to provide investment or financial advice, nor is it intended to serve as the basis for any investment decision or recommendation to buy or sell any asset. Keep in mind that investing involves risk, and past performance of an asset never guarantees future results or returns. It’s important for investors to consider their specific financial needs, goals, and risk profile before making an investment decision.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. These links are provided for informational purposes and should not be viewed as an endorsement. No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this content.
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Communication of SoFi Wealth LLC an SEC Registered Investment Adviser. Information about SoFi Wealth’s advisory operations, services, and fees is set forth in SoFi Wealth’s current Form ADV Part 2 (Brochure), a copy of which is available upon request and at www.adviserinfo.sec.gov. Liz Young Thomas is a Registered Representative of SoFi Securities and Investment Advisor Representative of SoFi Wealth. Her ADV 2B is available at www.sofi.com/legal/adv.
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