Bitcoin’s meteoric rise was followed by a significant collapse on Monday. Though Bitcoin is still up roughly 89% over the past month, Bitcoin took a dive of 21% over Sunday and Monday, Markets Insider reports. Other cryptocurrencies such as XRP and Litecoin took a hit as well. For cryptocurrencies as a whole, the fall on Monday wiped out nearly $140 billion in total market cap in a single day.
What can we learn from Bitcoin?
This is not a surprise, speculative investments like Bitcoin are bound to have enormous volatility. Of course, with that comes both tremendous upside and downside. Wether it’s Bitcoin or Tesla, you might feel like you are missing out on the next big investment opportunity. When it comes to your long term financial heath, this is a dangerous way to think. Keep in mind that the news and your friends who bought into the hype will tell you when it goes up, but won’t get loud about the losses they incur on the same investment. Put plainly, the downside is rarely a story people want to tell.
“…the downside is rarely a story people want to tell.”
While there may be a place for Bitcoin in your portfolio, it would not be wise to bet everything on Bitcoin or other cryptocurrencies. For the average investor, a 25% drop in value is a lot to swallow. With that in mind, it’s crucial that you’re building diversification into your portfolio if you are interested in some of the trendier, speculative areas of the investment world.
All in all, the best approach is usually to invest for the long term and think slow and steady with your investments. Take a lesson from Bitcoin, and the next time you start hear about a trendy new investment with huge upside, consider whether you can handle the effects of the downside.
Want to learn more about investing in 2021 for your long term goals? Reach out to us here.