Bitcoin, the most widely circulated cryptocurrency, has dropped by 50% over the last six months. Ethereum, a popular altcoin, has fallen by 56% over the past six months. If you bought either of these in the previous six months, you probably wonder if you’ll get your hands burned.
The perspective of time.
But if you purchased it five years ago, you would have made 1000% — over and above the Dow Jones (the largest stock market in the world by market capitalization), which has only made 52% in total these past five years.
But that’s the nature of the beast — cryptocurrency is highly volatile. If you got into Bitcoin 5 years ago, the drop over the last six months is of little concern to you.
But if you purchased a coin such as Lunar, you would have lost almost 100% of your investment. As of today, Lunar is worth less than a cent.
So, what should you do?
The market fundamentals for all investments are the same:
1. How much stability does the asset have?
The value of various cryptocurrencies is highly volatile. A drop of over 20% per day is typical. If the stock market dropped by 20% in a day, it would be described as a crash.
Are you able to stomach that much volatility? Assets such as stocks of large companies with a history of financials are more stable than crypto.
2. How widely is crypto used?
Cryptocurrency is still a relatively new asset. Most retail stores don’t accept it as a currency. Most governments have yet to embrace it. So, why are you invested in crypto? To make a quick buck? To save for your retirement? As with any investment you make, you need to be clear about your reasons for investing.
There are many government agencies to protect investors in the stock market. There is not that same level of protection for the crypto market because federal agencies are still trying to understand how this digital currency works.