The stock market has been rough lately, and while all investors are feeling the pinch, the crypto market has been hit especially hard. Most crypto investors have watched their portfolios sink over the last few months, with major cryptocurrencies falling by 60%, 70%, 80%, or more. Even big names like Bitcoin (BTC -2.80%) and Ethereum (ETH -1.91%) have fallen drastically, reaching 18-month lows.
Should you be concerned about the crypto market right now? Or is it safe to continue investing? Here's what you need to know.
Volatility: How much is normal?
Cryptocurrency is a notoriously volatile investment. Even severe downturns aren't unusual, and this isn't the first time that this sector has experienced extreme volatility -- and it likely won't be the last, either.
Bitcoin, for example, has fallen by more than 80% on three separate occasions since 2013, and it's had numerous other drops of 50% or more. By comparison, this recent 67% drop from its peak is not out of the ordinary for the cryptocurrency.
It's not just Bitcoin that has seen extreme downturns, either. Back in 2018, Ethereum lost close to 95% of its value over the course of the year. Then, in the summer of 2021, it fell by more than 50% in roughly two months.
Of course, past performance is not necessarily indicative of future returns. Just because these cryptocurrencies have rebounded from periods of volatility in the past doesn't necessarily mean they'll continue recovering.
That said, this type of turbulence is normal for the crypto market. While it's unsettling to watch prices plunge, taking a long-term outlook is key. Despite all of their volatility, Bitcoin and Ethereum are still up around 813% and 250%, respectively, over the past five years. If you had sold these investments during any of their previous downturns, you would have missed out on substantial returns.
Is it still safe to invest in crypto?
Cryptocurrency can be a potentially lucrative investment, but the downturns can be tough to stomach. For that reason, it's not the best fit for everyone.
Nobody -- even the experts -- can say for certain how crypto will fare over time. Because it's still speculative, that means there's always a chance that you could lose your investment if crypto fails. At the same time, though, if it succeeds, you could stand to make a lot of money.
The best way to keep your money safe is to invest carefully. Only invest money you're willing to lose, and do your research when deciding what to buy. Not all investments are created equal, and the cryptocurrencies with the best chance of recovering from downturns are the ones with the most real-world utility and strongest competitive advantages.
If you're willing to take on higher levels of risk, right now can actually be a smart time to invest in crypto because prices are so low. But if you're losing sleep at night worrying about your investments, it may be best to avoid crypto for the time being.
It's unclear how long this downturn might last or how severe it could get, but try your best to maintain a long-term outlook. Crypto has seen worse in the past, and while there are no guarantees that it will recover, the right strategy can keep your money as safe as possible.
