The cryptocurrency market, as well as other high-risk investments, has taken a beating.
According to sources, Bitcoin has dropped 11% in the last five days. On Friday, the largest cryptocurrency by market capitalization fell below $40,000 for the first time since August, and is now trading at roughly $38,378. According to other analysts, it could fall even farther.
In the same timeframe, ether, the second-largest cryptocurrency, is down 14%. It is currently valued at $2,779.
The Nasdaq and the S&P 500 were also down. This month, both cryptocurrency and technology stocks have been sliding at the same time, indicating a growing link between the two.
There’s also anxiety about the possibility of greater cryptocurrency regulation in the United States, as well as how the Federal Reserve’s monetary policy could affect the broader market if it were to change. Other regulators throughout the world are also paying attention to the bitcoin business. Russia’s central bank, for example, recommended a ban on cryptocurrency mining and use on Thursday.
This isn’t out of the ordinary for bitcoin; cryptocurrencies are notorious for their volatility. Prices might suddenly increase and then quickly fall. As a result, experts advise that before investing in bitcoin or any other cryptocurrency, you think about whether you can withstand the ups and downs.
Anjali Jariwala, a certified financial advisor, certified public accountant, and the founder of Fit Advisors, recently told the sources, “It’s a very volatile asset class.” She emphasised that one must be comfortable with the ups and downs of the market, as well as losing money.
The risk appetite of each investor is unique. It’s crucial to know how much you can stand on your own two feet.
According to sources, Douglas Boneparth, a licenced financial planner and president of Bone Fide Wealth, “For some people, the volatility may be OK, because it corresponds to their appetite for risk, risk tolerance, and investment time horizon,” but they still have to deal with it. Others might want a more secure investment.
Regardless of your risk tolerance, financial experts warn that bitcoin and other cryptocurrencies are riskier investments than a low-cost index fund, which allows investors to buy a group of equities at once rather than wager on a single asset.
If one chooses to invest, Jariwala advises, be sure it’s money that he or she can truly afford to lose.
Boneparth agrees, stating that one should be cautious about how much he allocates and what he can accept, because if 80 percent of one’s net worth is tied to bitcoin, and it drops 30%, that’s a big deal.
A lesser bitcoin exposure, depending on your financial situation, can help you hedge against market downturns.
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