Bitcoin Drops to 10-Month Low. 4 Ways to Avoid Panic Selling Your Crypto
- Bitcoin has fallen below $31,000 for the first time since last July.
- Dramatic price drops can be nerve-wracking, but panic selling will lock in any losses.
- Try to zoom out and take heart from Bitcoin's historic price action.
If your finger's hovering over the sell button, read this first.
Lead cryptocurrency Bitcoin (BTC) has just fallen below $31,000 -- the lowest it's been in ten months. According to CoinGecko data, Bitcoin's price has plummeted over 11% in the past 24 hours and is down over 20% in the past week. The total value of the crypto market currently sits at $1.49 trillion, down more than 50% on its high of over $3 trillion last November.
These dramatic drops can be stomach-turning even for seasoned investors. It's probably even more nerve-wracking if you're a new crypto investor who bought for the first time last year. This may be the first time you've encountered this kind of volatility. If the value of your portfolio has dropped by half or more, the temptation to cut your losses is understandable.
However, panic investment decisions rarely turn out well. Here are some ways to avoid panic selling your crypto.
1. Remind yourself you'll lock in any losses
The value of your crypto portfolio is just a figure on a screen right now. At some point, assuming the crypto market recovers, that number will go back up again. But if you sell now, that figure on your screen will stay the same. You won't benefit from any future gains -- you've essentially locked in your losses. It's human nature to move out of dangerous situations, but buying high and selling low flies in the face of most investment wisdom.
2. Zoom out and look at Bitcoin's price history
This too shall pass -- just look at Bitcoin's rollercoaster ride to date. Last year alone we saw Bitcoin's value halve in three months before rallying again to an all-time high. Even after the long crypto winter of 2018, prices eventually recovered. Moreover, people who bought Bitcoin five or 10 years ago and held through the difficult times are sitting on huge gains today.
3. Think long term
Here at The Ascent, we favor long-term investing rather than short-term trading. If you evaluate investments through a five-, 10-, or 20-year lens, there's time for prices to recover from this kind of turbulence.
Think about why you originally bought Bitcoin. Perhaps you thought it could be the digital currency of the future. Perhaps you think it's a form of digital gold, or that blockchain could transform whole industries. Look at long-term forecasts from industry figures you trust. Some predict Bitcoin will reach $100,000 in the next few years. Cathie Wood's Ark Invest goes further with a prediction that Bitcoin could reach $1 million by 2030.
That said, perhaps the recent crash has made you question your original investment thesis. If that's the case, it could be a different story. But even then, don't rush into action. Instead, make a plan on how to sell your crypto and work out how to minimize any losses.
4. Know how to manage risk
Cryptocurrencies are highly speculative investments, which means investors need to know how to manage risk. One important way is to only invest money you can afford to lose and make sure your crypto investments are part of a wider plan. That way, even dramatic price drops won't stop you achieving your financial goals. It also means you won't ever be in a position where you're forced to sell at a loss -- you can wait out even a prolonged dip.
Diversification is also key. Make sure crypto only represents a small percentage of your overall investments, and that you're comfortable with the levels of risk you're taking on. If you own some crypto alongside equities, cash, and perhaps also real estate, you'll minimize the impact of a crypto crash.
When you buy into any high-risk asset, you do so hoping it will generate huge returns but knowing it might also drop dramatically. If you can handle the risk effectively, you'll be able to profit if that asset does make it big without suffering unsustainable losses if the worst does happen.
One of the big challenges of crypto investing is that there are no guarantees. We can look at the history of the stock market and point to the way prices have recovered after each and every drop, but we don't have that luxury with crypto. Quite the contrary; we have various financial gurus warning that the crypto sky will fall in and these investments will eventually be worth nothing.
Ultimately, if you didn't believe those gurus when you first bought cryptocurrency, now's the time to have the courage of your convictions. It isn't easy to hold through dramatic drops, but it may help you to build long-term wealth.
Our Research Expert
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.
Emma Newbery owns Bitcoin.
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