7 Things You Must Do If Bitcoin Plummets
Written by
Angela Mae
Edited by
Levi Leidy
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Bitcoin has been around since 2009. Since then, the cryptocurrency market has exploded in popularity amongst investors looking for alternative asset classes. But it’s also seen its share of ups and downs.
While Bitcoin has generally climbed back up after a significant dip, such a volatile investment can be stressful for those who’ve added it to their portfolios. As for those who are still on the fence about jumping on the crypto bandwagon, those sharp fluctuations can be mighty off-putting.
So, what should you do if Bitcoin plummets? The strategies will depend on whether or not you currently “own” this cryptocurrency. That said, here’s what some experts suggest.
Sell and Invest In Something Else
If you have Bitcoin, you might want to get rid of it.
“My belief is that if someone has speculated in Bitcoin (note, I didn’t say invest) that they should immediately sell their position and invest in assets that have intrinsic value,” said Robert R. Johnson, PhD, CFA, CAIA, professor of finance at Heider College of Business, Creighton University. “The crypto market has never been a good place to invest. At times it has been a profitable place for some to speculate.”
Of course, your decision will be based on a variety of factors, including how much you’ve already invested and whether or not you believe it will rise in value again. Still, Johnson’s belief is to “just say no” in respect to crypto — including Bitcoin.
“I can think of few worse strategies than committing investment to cryptocurrencies,” he said. “One cannot invest in the wide array of cryptocurrencies, one can only speculate.”
Don’t Panic
Naturally, the idea of selling what you have and investing in something else won’t work for everyone — especially those who are already in deep. If Bitcoin plummets, don’t panic.
“For current holders, avoid panic-selling,” said Lauryn Grayes, an investor in crypto and founder of Wealth Gems Financial. “Bitcoin is a long game and has rebounded after every crash. If anything, buy more at a discount.”
And if you don’t currently have Bitcoin but are interested in adding it to your portfolio, Grayes gave the following advice: “For newcomers, start with a small investment to get familiar with the dynamics. Do your research to fully understand what you’re buying before going all in. Bitcoin isn’t for everyone.”
Stay Informed
No matter how you spend your money, it’s important to stay informed.
“The crypto landscape changes fast, so keep learning about new technologies, use cases and partnerships in the pipeline,” said Grayes. “The future of Bitcoin is bright if you take a long view. Short-term price swings won’t matter in the grand scheme of things.”
As for those who are more hesitant to invest in crypto, Grayes suggested taking things slow.
“Only risk what you can afford to lose in this nascent market,” she said. “There are many ways to participate without speculation, like accepting crypto as payment. The more people use Bitcoin, the more stable and valuable it will become.”
Assess the Risks and Diversify
For those who currently have Bitcoin, Ryan Jacobs of Jacobs Investment Management suggested assessing your risk tolerance.
“Determine how much risk you are willing to take,” he said. “If Bitcoin constitutes a small portion of your overall portfolio, you may choose to hold on and weather the storm. However, if your investment in Bitcoin is substantial, reassessing your allocation might be wise.”
While you’re at it, you may also want to further diversify your portfolio — especially if you have a great percentage in Bitcoin. Jacobs suggested adding more stable assets like stocks or bonds to mitigate the risks.
Keep Your Expectations Realistic
Jacobs also advised keeping your expectations realistic as cryptocurrency is inherently quite volatile.
“If you choose to remain invested in Bitcoin, be prepared for continued fluctuations in its value,” he said. You can also establish stop-loss orders to protect yourself against severe downturns.
And if your investment is stressing you out or causing major financial strain, Jacobs said you might want to consider selling some or all of your holdings. “While selling at a loss is never ideal, it can free up capital for more stable investments,” he said.
Remember, too, that Bitcoin is a speculative vehicle with no intrinsic value. Its price is primarily driven by market sentiment and hype rather than fundamental economic factors. Given this, Bitcoin is — and should be considered — a high-risk venture.
Consult a Professional
If you’re new to Bitcoin, or cryptocurrencies in general, you may want to seek professional advice to help you make a decision about whether it’s right for your portfolio or not.
“Consult with a qualified financial advisor to understand the potential risks and rewards associated with investing in Bitcoin,” said Jacobs. “They can help tailor an investment strategy that aligns with your financial goals and risk tolerance.”
Consider Its Long-Term Viability
Whether you’re a current or prospective Bitcoin investor, think about the long-term viability of investing in crypto.
“While blockchain technology — the underlying framework of cryptocurrencies — has promising use cases, Bitcoin itself may not be the best way to engage in thoughtful investing,” said Jacobs.
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