Several factors — such as rising inflation, geopolitical crises, and shifting U.S. monetary policy — continue to drive extra short-term volatility in the crypto and stock markets. And now there are rumblings of a potential recession ahead. The crypto market has continued to move in tandem with the stock market in recent months, which makes it even more intertwined with global economic factors.
The Federal Reserve recently raised interest rates by 75 basis points, the largest move in three decades, in an effort to combat inflation. Despite this, inflation has continued to climb and the war in Ukraine continues to play a role in increased market volatility. Bitcoin’s high point of the year so far remains in the earliest days of January, when it nearly hit $48,000 on Jan. 2. Bitcoin has lost roughly 70% of its value since its Nov. 10 all-time high above $68,000. While Bitcoin’s price has seen multiple big drops since November, its new highs in 2021 and current price are still an impressive feat considering its humble beginnings and a price below $10,000 as recently as July 2020. Ethereum — the next most popular crypto — notched another new all-time high of its own when it went above $4,800 in November. Bitcoin’s price has been between $19,000 and $22,000 so far this week. Here’s how Bitcoin’s current price compares to its daily high point over the past few months: Though Bitcoin and Ethereum have both had ups and downs short of their all-time highs since then, many experts still expect Bitcoin’s price to exceed $100,000 at some point. The volatility highlights a durable truth for Bitcoin: it is still a highly volatile and speculative investment. In fact, the last time the original cryptocurrency set a record high in mid-April, it abruptly lost over half of its value and plunged to around $30,000 by mid-July. Similarly, Bitcoin dropped back below $35,000 this month not long after its most recent November high.
So what should crypto investors do in light of this volatility? Nothing, according to the experts we’ve talked to. Given the crypto’s history of volatility, this increase doesn’t guarantee a long-term reversal. Bitcoin’s price is just as likely to fall back down as it is to continue climbing. The future of cryptocurrency is sure to include plenty more volatility, and experts say that’s something long-term crypto investors will have to continue dealing with. If you’re investing in cryptocurrency, expect volatility to continue. That’s why experts recommend keeping your crypto investments to less than 5% of your total portfolio.
“I know these things are super volatile, like some days they can go down 80%,” Humphrey Yang, the personal finance expert behind Humphrey Talks, previously told NextAdvisor. “But if you believe in the long-term potential of [Bitcoin], just don’t check on it. That’s the best thing you can do.” Just like you shouldn’t let a price drop influence your decision to buy crypto, don’t let a sudden price increase alter your long-term investment strategy. Even more importantly, don’t start buying more crypto just because the price is rising. Always make sure your financial bases are covered — from your retirement accounts to emergency savings — before putting any extra cash into a speculative asset like Bitcoin. Bitcoin’s latest big jump also isn’t anything new. “While in the long-term Bitcoin’s price has generally gone up, we experience a lot of volatility along the way,” says Kiana Danial, founder of Invest Diva. READ MORE: How Much to Invest in Cryptocurrency, According to 5 Experts