The market has been rough for cryptocurrencies over the last couple of months. The crypto market, in general, has shed nearly half its value since mid-November, and even the biggest names like Bitcoin (BTC -0.85%) and Ethereum (ETH -1.76%) have watched their prices plummet.
If you're invested in cryptocurrency in any capacity, this recent crash may be concerning. And with no end in sight, it can be tempting to sell your crypto investments before prices fall even further. But is that the right move?
Will crypto prices keep falling?
If you're worried that cryptocurrency prices will continue sinking, it may seem wise to sell your investments now and salvage whatever you can. However, that can sometimes be a risky move.
Nobody can say for sure what will happen with the crypto market. Prices could plummet even further or rebound soon. This sector is famous for its volatility, and crypto has a long history of sharp ups and downs. And in the long run, the market has generally trended upward so far. If you sell now, there's a chance prices could bounce back soon after -- and you'll miss out on those gains.
In addition, if you've invested at any point in the last several months, pulling your money out now will mean you're most likely selling at a loss. Major cryptocurrencies like Bitcoin and Ethereum have lost nearly half their value since November. By withdrawing your money now, you'll be selling your investments for roughly half of what you paid for them, locking in substantial losses.
What should you do with your investments?
Whether you're investing in stocks or crypto, one of the most important rules to remember is that you don't lose anything as long as you keep your money in the market. Your investments could lose 99% of their value, but if their prices eventually rebound, you won't lose a dime as long as you don't sell during the plunge.
While nobody knows for certain whether crypto will bounce back, this type of volatility is relatively normal for the sector. Bitcoin's price has dropped by more than 80% on several occasions, and Ethereum once lost close to 95% of its value over the course of a year. By comparison, this recent near-50% drop is relatively mild.
The best thing you can do, then, might be to simply hold your investments. The crypto market could get uglier in the future, and there's a chance your portfolio could sink even further. But if you try your best to stay focused on the long term and avoid getting caught up in the market's day-to-day movements, you could benefit from the recovery further down the line.
How to protect your money
Holding your investments is the best way to survive periods of volatility, but there are other steps you can take to further protect your money.
For one, make sure the rest of your portfolio is properly diversified. Crypto should only make up a small portion of your overall portfolio. I prefer holding 5% or less in cryptocurrencies, for example. Your ideal crypto stake may differ based on factors such as your age, your risk tolerance, and your understanding of blockchain technologies. If you find that you've been investing too heavily in cryptocurrency, now could be a good time to start adding to your positions in other stocks in your portfolio.
Also, double-check that every stock in your portfolio is a solid long-term investment. Crypto is already a risky investment, and if many of your stocks also carry higher risk, your portfolio may not be as risk-tolerant as it could be. By investing in high-quality companies, you have a better chance of surviving market downturns.
The crypto market is intimidating right now, but that doesn't necessarily mean you need to sell your investments. By holding them for the long term and keeping your focus on the far future, your portfolio will be more likely to pull through even the worst bouts of volatility.