Cryptocurrencies: Why It’s Not Time To Panic Even Though It Appears Time To Panic

Investing, Opinion | November 30, 2018 By:

The bitcoin world is in a bit of frenzy over the currency’s recent price decline, dropping to a yearly low of $3,456 on Sunday, November 25. While it might seem like it’s time to panic, it’s important to remember that the popular investment adage “buy low, sell high” applies to both the “traditional” finance world and the cryptocurrency sector alike. I believe that crypto’s recent hit could be a big opportunity for a patient investor looking to buy the dip and diversify their portfolio. Here’s why.

This Pattern Has Happened Many Times Before

For anyone who has followed the development of cryptocurrency, the extreme ups and downs of bitcoin are par for the course, and may not necessarily affect the long-term view of the coin and its technology. In mid-June 2011, bitcoin’s currency was priced at $30.99. By November of that year, it crashed roughly 93 percent from where it was in June, to a value of just $2.31. By January 2012, bitcoin was up again to $7.20, and quickly fell roughly 36 percent to a value of $4.60. That was all nothing compared to when bitcoin crashed on April 10, 2013. The price rapidly dropped 81 percent from a peak price at $266 to a low around $50. However, these ‘extreme’ price movements appear negligible when looking at bitcoin’s total growth.

Investors who are in for the long-haul should remember that investing in alternative assets is not a sprint, but a marathon. While cryptocurrency remains one of the most volatile asset classes, it also might be one of the most resilient: studies show that bitcoin has crashed — and rebounded — many times before. As Jon Quinn states in his recent blog post for Bitbull Capital Research: “Whenever the current ebb starts to make you nervous, just remember there is another flow coming.”

Low Correlation With Every Other Asset

While no one can be sure if we are headed for a financial crisis, recent events suggest that it’s time to start being wary. The Congressional Budget Office reported that America’s deficit is rising sharply and will surpass $1 trillion per year by 2020. This news, combined with the rising tensions between the United States and China as well as the reemergence of scary “nonprime loans” suggests that we could be headed for economic unrest.

Therefore, it could be considered prudent to diversity your portfolio with a variety of assets, some of which are not tied to the stock market. According to research from Ark Invest and Coinbase, “bitcoin is the only asset that maintains consistently low correlations with every other asset,” making it a strong candidate for portfolio diversification.

Major Announcements

2018 has been a year of major announcements for the crypto space. Between Fidelity launching a bitcoin trading platform, as well as pending approval of the CBOE VanEck SolidX Bitcoin ETF and cryptocurrency startup Bakkt, it is likely the fate of bitcoin will dramatically shift again, and hopefully this time for the positive.

While the crypto world may continue to remain unstable in the immediate future, it could be smart to take advantage of this dip now. As the data has showed us time and time again, no one can predict when, precisely, prices will change again.