Even for the biggest and best crypto assets, like Bitcoin (BTC +2.41%), Ethereum (ETH +1.91%), Solana (SOL +0.60%), and XRP (XRP 0.23%), the Oct. 10 flash crash created significant sour sentiment. And, with the crypto sector's weakness continuing rather than abating in the weeks after the crash, fears are now amplifying, with many investors using a bad month as a referendum on the whole asset class. Talk of dumping crypto and rotating the proceeds into equity index funds is loud and getting louder by the day.
So, without further ado, let's take a look at the chart that's making crypto investors dump their holdings, and then we can evaluate whether that might be the right path for you or not.
Image source: Getty Images.
This is the worst lens to use for a multiyear decision
Here's the 30-day performance of the crypto majors, compared to the performance of the stock market over the same period:
As you can see, the stock market has gained a bit, while the leading cryptocurrencies are somewhere between being dented and being in utter shambles (and it's mostly gotten worse since I made this chart). Notably, it doesn't matter whether we're talking about a store of value like Bitcoin, a smart contract platform like Ethereum or Solana, a utility coin like Chainlink, a coin targeted at institutional finance like XRP, or even a meme coin like Dogecoin -- everything is down a lot. The disconnect between cryptos and the market is why people are saying it's time to sell crypto.
The flash crash was the proximate cause of this decline, and it's not a surprise that a recovery didn't kick in right away. Still, the bigger culprit is that the crash put the crypto sector's riskiness and volatility into stark contrast with the stock market. Although the stock market does crash or go into bear markets from time to time, in the minds of crypto natives (and in reality), it's a much lower-risk and lower-volatility place to invest, and large sums of stable institutional capital are allocated to most of the largest stocks.
CRYPTO: BTC
Key Data Points
But a month is not an investing horizon. Zoom out, and the story gets more nuanced. Stocks rose during the past 12 months, but Bitcoin, Ethereum, XRP, and Chainlink, among many others, outperformed the stock market in the same period, even when including the recent turbulence.
Take a look:
The 30-day divergence tells you more about the crypto sector and an eventful month than about crypto's long-run return potential.
This means that even as ugly as the first chart is, there's no reason to sell all your crypto right now. Those who are saying it's time to run for the exits are panicked, and they won't be mentally positioned to take advantage of this period of lower prices as a result.
CRYPTO: ETH
Key Data Points
What a calm head would do now
The crypto market might continue to fall, or it might not. What the market is going to do next matters less than your playbook for how to handle it.
On that front, start by analyzing the investment theses for the assets you hold, especially for Bitcoin, as well as for other majors like Ethereum and Solana. If the thesis for owning it remains valid, it likely makes more sense to buy the dip than to sell or stay sidelined. For instance, if you think that Bitcoin's scarcity is still going to keep increasing because of its halving cycle -- and, spoiler alert, it definitely will -- a little short-term bearish price action is an opportunity rather than a threat to your portfolio in the long term.
Another thing to do right now is to favor the leaders. Accumulating Bitcoin and perhaps Ethereum on weakness remains sensible; Solana and Chainlink are appropriate for smaller positions. Most other altcoins remain structurally higher risk with less persistent demand, and their long-term prospects of survival are in question right now, so don't take any unnecessary risks until there's some clarity on that.
CRYPTO: SOL
Key Data Points
The next step is to consider your risk tolerance and examine how much you've allocated to crypto assets. If this plunge indicated that your allocation is too big for you to soundly sleep at night, take action now to trim your holdings to a level you can hold through storms without flinching.
Finally, remember to use time as your edge, not as an arbitrary constraint. Dollar-cost average (DCA) your purchases rather than swinging with a lot of capital at scary headlines in hopes of getting a cheaper entry point. If the October shock fades, steady buying will shine in due time. In parallel, don't let your portfolio diversification slip; it's a great idea to own stock index funds if you don't already.
A bull run in stocks is no reason to sell your crypto. Stay focused on the future, buy with diligence, and the rest will take care of itself.
