Bitcoin craters again, showing why people should be careful before investing in cryptocurrency

In this photo illustration, a visual representation of the digital cryptocurrency, Bitcoin can be seen in Paris, France on February 9, 2021, ahead of the Bitcoin rate graph.

Chesnot | Getty Images

Bitcoin’s roller coaster ride has continued, warning curious investors who may be interested in putting money into the highly speculative cryptocurrency.

According to Coin Metrics, the digital asset hit a new all-time high of nearly $ 58,000 per coin on Sunday. But on Monday the rally turned around after a string of criticism from high profile players.

First up, Elon Musk, CEO of Tesla, tweeted over the weekend that the price of Bitcoin appeared high as the currency surpassed a market value of $ 1 trillion. Then, on Monday, Treasury Secretary Janet Yellen said Bitcoin was “an extremely inefficient way to conduct transactions”.

This caused a slump, causing Bitcoin to drop more than 10% on Monday. On Tuesday, the decline continued, with the currency falling another 10% to around $ 48,000.

Financial experts generally advise that people who want to invest in Bitcoin only allocate a small part of their portfolio. The UK Financial Conduct Authority has just issued a similar warning.

“People should only really invest what they are willing to lose,” said Daniel Polotsky, CEO of CoinFlip, one of the largest Bitcoin ATM companies in the US

He added that people near retirement, those in need of the money in the short term, or people who want to trade frequently for a profit might want to rethink bitcoin as an asset for those goals.

“Maybe there are more ways to make money because it’s so volatile, but it can be addicting very quickly to start trading back and forth,” he said. “And most of the people who do that lose money.”

People should only really invest what they are willing to lose.

Daniel Polotsky

CEO, CoinFlip

If you want to allocate part of your portfolio to a speculative asset like Bitcoin, be disciplined and set rules for buying and selling, said David Sacco, an economics professor at the University of New Haven.

“You can gain experience and not blow yourself up,” he said.

Buy long term

Of course, there are plenty of cops out there who see Bitcoin growing in value in the future if adoption continues.

For those determined to hold onto Bitcoin for the long term, selling off after hitting a record high isn’t a huge problem. And the asset is still up around 80% this year alone.

Those looking to invest in Bitcoin should assess where they stand with other personal financial and investment goals to determine if they have extra money to invest in a risky asset.

If you do, it’s okay to put some money in bitcoin and buy it on a day it doesn’t work, said Anjali Jariwala, certified financial planner and CPA and founder of Fit Advisors in Torrance, California.

“Throw in some money and somehow let it stay in and flavor for a while,” she said. “Just so you don’t have to make decisions every time there are price fluctuations that happen every few days at that point.”

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