Bitcoin has lost more than 50% of its value this year. What you should know

Cryptocurrencies have had a tough year.

Bitcoin has plunged more than 52% so far this year and is now hovering around $21,000 per coin, according to data from Coindesk. The most popular cryptocurrency has lost about 70% of its value since hitting an all-time high of about $69,000 in November.

The entire crypto market is feeling similar pain. The total market capitalization of crypto assets has fallen to less than $1 trillion from its November 2021 peak of $3 trillion. It is the first time since 2021 that the asset class has been worth less than $1 trillion.

Many other assets also experience volatility that unnerves investors. The The S&P 500 index this week fell into bear market territory, defined as a drop of at least 20% from its most recent high. Bonds are also sliding, leaving investors with few places to hide in the markets.

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However, this unrest is nothing new.

“The first thing I tell people is that crypto is probably eight times as volatile as the market,” said certified financial planner Ivory Johnson, founder of Delancey Wealth Management in Washington, DC

Given the current macroeconomic environment, with the Federal Reserve tightening interest rates to stave off high inflation, some crypto investors believe prices could fall further. Companies are also preparing for a recession and possible “crypto winter,” or when prices fall and stay low for an extended period.

“This would not be a good entry point now,” Johnson said, adding that the only exception would be investors with a very long time horizon who are dollar-cost-averaging their assets, similar to how people invest with a 401(k). ) plan.

Now is a good time to check your asset allocation, he said. In general, advisors recommend that bitcoin be only a small part – between 1% and 5% – of your total portfolio.

Investors who have held cryptocurrencies and seen a big run-up in price should have cut their bets to make sure the asset wasn’t too big a part of their portfolio, Johnson added.

“You have to be more vigilant because it’s more volatile,” he said.

Some of the price action in cryptocurrencies is due to recent failures of companies like Terra and Celsius.

In May, Terra’s stablecoin, UST, plunged below $1 in value, prompting investors to flee the asset. Its sister coin, the luna, was also dipped.

On Monday, cryptocurrency lending firm Celsius paused all account withdrawals, sparking fears that it will soon close.

“What you’re seeing now with this sale, this drawdown, is just a lot of excess in the space that had to be cut,” said Tyrone Ross, CEO and co-founder of Turnqey Labs, Inc.

The shakeout also shows what is “complete nonsense versus what actually has the potential to continue to be either a store of value or an asset worth something,” said Douglas Boneparth, CFP and president of Bone Fide Wealth in New York.

He added that while the drawdown has been brutal, it is not the first time bitcoin investors have been in such a storm.

To be sure, the drop in price doesn’t mean long-term investors should wait to buy bitcoin, especially if they see a deal in the asset.

“I don’t think the rules really change here; if you’re a believer in bitcoin, then you can see this as a big opportunity,” Boneparth, adding that it’s the same as investing in other assets.

If you’re still buying now, “it’s better to combine it with long-term conviction,” Ross said. He also noted that investors buying into crypto should now think of it the same way as venture-backed investing in terms of risk and potential reward.

“Young venture capital has fantastic upside, but it comes with a lot of volatility,” Ross said. “They can die from environmental change.”

In addition, some investors may be able to harvest tax losses with bitcoin, to offset profits with losses, since there is no wash rule. Basically, this means you can sell your bitcoin and immediately buy it back at a lower price, which can set you up for bigger future gains.

“These are wise things that advisors should be doing with their clients, and we should be expressing to the average investor to take advantage of some of this ridiculous volatility,” Ross said.

Ross also said now is a good time to educate yourself on cryptocurrency if you’re interested in investing in it one day.

He advises people to look for books, videos and articles to get back to the basics of investing. Understand risk versus reward, only put in what you can afford to lose and use strategies like dollar cost averaging to combat choppy price action, he said.

It’s also a great time to make sure you have a plan and stick to it, Boneparth added. “Do your best to reduce noise,” he added.

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Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.