The Federal Reserve's plans to aggressively hike interest rates this year in an effort to curb soaring inflation has slammed stocks, with the S&P 500 falling 18% this year. High-growth tech stocks have gotten crushed as investors flock to more conservative investments and away from riskier ones.
Unsurprisingly, the cryptocurrency market, the riskiest asset class there is, has been getting hammered. Since hitting a peak market cap of nearly $3 trillion in November last year, the entire sector is now worth less than $900 billion. And many crypto-focused businesses are struggling and even failing.
It's definitely a scary time for investors, seeing their portfolios plummet. However, remaining calm and keeping a long-term mindset is the best course of action.
Zoom out and focus on the big picture
While it's easier said than done, when it seems like everyone is panicking and selling around you, it should be a top priority to keep your cool and not abandon your investing strategy. And in order to increase the chances that this happens, one must have control over their financial situation. This means paying off any high-interest debt and having a sizable emergency fund on hand. Being in this position ensures you'll be able to stay the course and won't sell portfolio holdings at the worst possible time.
When it comes to what particular crypto assets investors should focus on, I believe keeping things as simple as possible is the right approach. Even the two most valuable and oldest cryptocurrencies haven't been spared during the recent market rout. Bitcoin, down 54% this year, has still produced a trailing five-year return of roughly 670%. And Ethereum, which has fallen 68% in 2022, has generated a monster return of 37,700% since its launch in 2015. Both of these cryptocurrencies have the potential to continue being big winners with time, despite the gut-wrenching volatility.
Another way to invest in the crypto sector is by buying traditional companies. Coinbase, the leading U.S. brokerage and exchange operator, comes to mind as an effective way to bet on the entire industry's growth. While it has thus far made nearly all of its money from trading fees, Coinbase has plans to bring crypto into the next phase of adoption -- real-world utility.
Major fintech players, like Block and PayPal, provide exposure to cryptocurrencies as well, albeit it in a more indirect way. Investors who don't want to go all in might consider these payments businesses for their portfolios.
Obviously, anything can happen in the next month, quarter, or even year. Markets are unpredictable, especially in the short run. That's why it is so important to have a long-term mindset, looking forward a decade or longer. Not only does this perspective apply to the stock market, but it's also even more important when it comes to the world of cryptocurrencies.
Digital assets, and the blockchain technology that underpins them, have the potential to revolutionize how humans interact with and transfer things of value. Additionally, crypto can fundamentally change how we view the concept of money. This type of stuff is game changing, but if things work out, then cryptocurrencies could rise significantly in value well into the future.
The current market downturn should be viewed as par for the course. And in fact, for those who are able to, now might be an opportune time to invest more as everyone else panics.