How to invest in cryptocurrency amid a volatile market
Life-changing amounts of money is being won and lost as cryptocurrency becomes increasingly volatile and investors don’t know what to do.
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Over the last month, more than $A4.8 billion has been wiped off the value of all bitcoin and many other crypto currencies are following suit. Throughout that time we’ve also seen some big ups and downs, creating a lot of winners and losers in the process.
For example, if you’d invested $10,000 in bitcoin on November 8, that money would be worth $7434 as of the time of writing this. But compare this to if you’d invested the same amount on January 1, 2021, you would have seen this money grow to $17,152 today.
Or if you’d pulled the trigger one year sooner on January 1, 2020, your $10k would be worth over $53,282 today.
This shows the power of crypto investing to make you money. But it also shows how wild the ups and downs of the cryptocurrency market can be. So how should you be thinking about buying crypto when the market is moving?
Firstly, it’s probably worth understanding some of the factors that have been driving the fluctuations in the value of crypto around the world.
Short term factors impacting cryptocurrency prices
Regulation around cryptocurrency is kicking off in Australia, which is being viewed around the world as a benchmark for how other countries might follow suit – making many crypto players nervous in the process.
Another factor impacting the crypto market is the movements in share markets around the world, which has many investors spooked. And on top of this, bond prices are increasing around the globe, driving more investors back to stable returns offered by more traditional investments.
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Longer term factors that impact crypto
The limited supply of crypto like bitcoin places upward pressure on cryptocurrency prices.
Another factor driving crypto is recent increases in its adoption by major financial institutions like CBA, Tesla, and even the country of El Salvador.
These moves have further increased access to (and demand for) cryptocurrency and are likely to continue to grow into the future as cryptocurrency works its way into more mainstream investment portfolios.
Where to from here?
At this point it’s hard to deny the fact crypto needs to be taken seriously by investors looking to the future, but given the huge volatility it’s also easy to get crypto investing wrong – costing yourself a heap of money in the process.
So I wanted to cover the key things you need to know to invest smarter with cryptocurrency in a market that’s moving.
How much risk do you need?
It’s common when you invest that you want to make as much money as possible from your investment. But what many people don’t think about as much as they should is how much risk you need to take to get the results you want.
There’s no doubting crypto has the potential to deliver some serious returns, but it also comes with high downside risk.
When you look at more traditional (more stable) investments like shares, and how building a share portfolio can grow only tracking the market, you’ll realise that regularly investing a small amount of money consistently over time can build serious wealth through investing.
So the question then becomes, how much risk do you need?
If you have some clear asset and wealth targets you’re working towards, instead of pushing to get there as quickly as possible and running a heap of risk in the process, think through how you could get there with the highest degree of certainty possible – you’ll likely find your investment approach may change significantly.
Minimise your ‘sells’
You only ever really lose money on an investment when you sell.
If you have a good investment, and you’re able to leave that investment to bubble away for a good amount of time, you can let your good investment do what good investments do over the long term, which is make you a bunch of money.
When you’re buying and selling investments regularly, you increase your risk of losing money with every ‘sell’ you’re involved in. Think about minimising your selling and you’ll go a long way towards becoming a successful long term investor.
Only invest money you don’t need to touch
Because cryptocurrency can be volatile, if you invest money you need to access at a point in the near future it’s possible the market will be down at that point, and if you’re forced to sell you end up losing.
Take the time to lay out what money you need for your day-to-day spending, then think ahead about any bigger costs you might have coming up to get clear on how much money you have leftover that can be invested for the long term.
This way, when you pull the trigger on investing you’ll have peace of mind you won’t get caught short.
Have an emergency fund
Statistics show that over one-in-five Aussie households have less than $1000 in an emergency fund, which is scary when you’re looking to invest.
If you invest without a cash buffer behind you, if you need to take money out of your investments when the market is in a down period you’ll be forced to crystallise a loss and could cost yourself a packet in the process.
Before you invest, think about putting some money aside to cover unexpected costs, this way you’ll protect yourself from being a forced seller at the wrong time.
The wrap
Crypto investing can be a way to accelerate your asset and investment building, but only if you’re smart about how you go about it.
The cryptocurrency market is a volatile one, so before you jump in take the time to get your approach right. If you do, you’ll have more confidence and less stress, and go a long way toward ensuring your crypto investment is a successful one.
Ben Nash is a finance expert commentator, podcaster, financial advisor and founder of Pivot Wealth, author of the Amazon best-selling book Get Unstuck: Your Guide To Creating A Life Not Limited By Money.
Ben is putting on a free money education event in the new year on ‘How to build a Passive Income Investing’. Check out all the details and book your place here.
Disclaimer: The information contained in this article is general in nature and does not take into account your personal objectives, financial situation or needs. Therefore, you should consider whether the information is appropriate to your circumstances before acting on it, and where appropriate, seek professional advice from a finance professional.
Originally published as How to invest in cryptocurrency amid a volatile market
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