Bitcoin Falls to Its Lowest Point in 6 Months. Should You Be Worried?

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KEY POINTS

  • Bitcoin's price fell by more than half of its November high due to economic and regulatory uncertainty.
  • It's understandable for crypto investors to be worried, but one way to cope is to focus on the long term.

As talk of a crypto winter becomes more common, it's not surprising some investors are feeling uncertain.

Bitcoin's (BTC) price hit an all-time high of over $68,000 in November. Since then, it has dropped over 50%, most recently briefly dipping below $33,000 -- the lowest it has been in six months. There are a number of reasons for the crash. These include:

  • The Federal Reserve's pull back on its pandemic related stimulus measures and planned interest rate hikes. This means there won't be as much easy money flying around, which in turn pushes people out of riskier investments like crypto.
  • Jitters over increased regulation around the world. According to Bloomberg, the Biden administration is preparing a government-wide strategy for digital assets. Authorities in other countries are also stepping up their efforts to control the sprawling crypto industry.
  • Concern about escalating tensions between Russia and Ukraine. Tensions between the two countries -- and speculation about a possible ban on Bitcoin mining in Russia -- have only added to uncertainty.

Dramatic price drops are part and parcel of crypto investing, but that doesn't stop them from being worrying -- especially if you're relatively new to this asset class. Many current cryptocurrency investors bought for the first time in 2021, so if you're feeling anxious, take heart from the fact you're not alone.

Should you be worried?

There is a lot of fear and uncertainty in the market right now, and some experts warn this could be the start of a crypto winter. Bitcoin prices may stay low for some time to come, or even fall further.

The economic climate we face now is very different from what it was a year ago, and it's unlikely we'll see the crazy price gains of 2021 in the near future. This can be nerve-wracking as an investor, especially if you bought at market highs and are finding the current lows particularly daunting.

Here are some ways to cope.

Remember why you originally bought Bitcoin

What was your original reason for buying Bitcoin, and does that hypothesis still hold true? The recent boom in the cryptocurrency industry may have been partly fueled by economic conditions. But that's not the only reason crypto has grown, and now's a good time to remind yourself of Bitcoin's long-term prospects.

Perhaps you believe Bitcoin is a good store of value, a form of digital gold that will prove a valuable hedge against inflation in the long term. Perhaps you see it as the future of money. Perhaps you're hoping one Bitcoin will one day be worth $1 million. One big factor in Bitcoin's favor is adoption made huge strides last year, and it's likely it will continue to grow in 2022.

As long as you still trust the reasons you bought Bitcoin, it's time to grit your teeth and wait for the price to rise again.

Keep your eyes on the horizon

This is not the first time Bitcoin has dropped dramatically, and it probably won't be the last. If you zoom out and look at Bitcoin's price across the past decade, two things are clear:

  1. Drops of 50% or more are not so unusual
  2. For the most part, Bitcoin has trended upward each year

There is a lot of hyperbole around crypto in the news, which can make it hard to keep your head. But keep in mind crypto has always generated extreme views. While it's important to listen to them, don't give too much weight to any one opinion.

You might be tempted to cut your losses. Panic selling is one of the most understandable decisions people can make when confronted with dramatic drops. But it can also be one of the most damaging if you want to achieve your long-term goals. If you sell today and prices start to recover tomorrow, you won't benefit. Indeed, if your Bitcoin is now worth significantly less than you paid for it, selling now only cements those losses.

Use this time to learn more

The more you know about the cryptocurrency industry, the better an investor you'll be. So instead of worrying about Bitcoin's price, now's a good time to put that energy into research. Try to understand more about the Fed and what might happen to the economy in the coming year -- think about what impact that might have on your Bitcoin investments. Look at altcoins that might have strong long-term potential. Look into the ways Bitcoin is being used in the real world.

Another potential area of research is ways to earn interest on your Bitcoin. There are several different sites where you can do this, though it is important to understand the risks before you start. Personally, I find it reassuring during dips to know my Bitcoin is still earning interest. But I wouldn't get that same reassurance if my Bitcoin was earning interest on a platform I thought might collapse.

Cryptocurrency should be part of a balanced portfolio

There are a few different ways long-term investors can handle the rollercoaster ride that is crypto investing. One is to only invest money you can afford to lose, which makes it much easier to hold through any dips. Another is to practice dollar cost averaging and buy a set amount of Bitcoin at the same time each month. It's also crucial to ensure risky investments like cryptocurrency represent only a small part of your overall investment portfolio.

It's easy to see why you might have already gone all in on Bitcoin and crypto. Those headlines of coins that made over 5,000% gains in 2021 were hard to ignore. At this stage, the important thing is not to panic, and to try to wait for crypto prices to improve. Once they do, it might be time to diversify your portfolio; look at putting a chunk of your money into safer investments, and look at ways you can manage risk differently in the future.

Our Research Expert

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