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Bitcoin’s price slipped below $40,000 Friday, falling nearly 6% in the last 24 hours.
Several factors — such as rising inflation, geopolitical crises, and change in monetary policy — continue to drive extra short-term volatility to the crypto and stock markets. The crypto market has increasingly tracked the stock market in recent months, which makes it even more intertwined with global economic factors.
Minutes from the Fed’s March meeting last week showed its plan to shrink its balance sheet by $95 billion each month to combat inflation. The March consumer price index, which measures changes in the cost of food, housing, gasoline, utilities, and other goods, rose by 8.5% from a year ago — the largest inflation surge since 1981. The war in Ukraine also continues to contribute to increased market volatility.
“Like all risk assets, crypto prices this year have been disproportionately driven by the war in Ukraine, inflation, and the outlook on Fed Policy (particularly the taper schedule),” says Ben McMillan, CIO at IDX Digital Assets. “So while we’re seeing crypto prices at relatively attractive prices on a longer-term outlook, there could still be considerable downside in the near-term.”
The last time Bitcoin had been stuck below $40,000 was in early March until it jumped in price by 10% to above $42,000 following President Joe Biden’s signing of a sweeping executive order on cryptocurrency. Biden’s executive order called for government agencies to create a plan to regulate cryptocurrency, and to consider a government-issued central bank digital currency. It marked the first concrete steps by the White House to regulate cryptocurrency. By the end of March, Bitcoin was hovering above $45,000 and surpassed the $48,000 mark several times.
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. So far, it has stayed above its late January low point below $34,000, which was the lowest it had been in the previous 6 months. Bitcoin has lost 40% of its value since it’s 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 $39,000 and $45,000 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
Investors should continue to hold and not worry about the fluctuations, like Danial, who says she’s not “jumping on the hype.”
No matter if crypto is going up or down, the best thing you can do is to not look at it. Set it and forget it like you would any traditional long-term investment account. “If you let your emotions get too much into it then you could sell at the wrong time, or you might make the wrong decision,” says Yang. “You stress out about it, and I don’t think that’s a healthy way to approach it.”
RELATED: Top Crypto News This Week
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