Crypto caught international attention this week as the United States Federal Reserve Chair made statements on possible regulation and the Italian government banned a popular cryptocurrency exchange.
Here’s a rundown of this week’s big crypto news:
- The Federal Reserve Chairman says U.S. might need more crypto regulation, but long-term HODLers of big coins like Ethereum and Bitcoin probably don’t need to worry about changing their strategy, experts say.
- Major cryptocurrency exchange Binance is no longer authorized to operate in Italy, according to a statement from Italian regulators. The move shows how easily new national regulations can impact current cryptocurrency infrastructure.
- Square Inc. announced it’s building a new decentralized finance unit using Bitcoin, according to CEO Jack Dorsey’s tweets. This is the latest example of a big player investing in the potential of blockchain and cryptocurrency.
At the same time, the price of Bitcoin experienced its usual swings this week, falling from a high of about $34,463 to around $31,108, according to Coindesk.
Bitcoin is the largest cryptocurrency by market cap, and a good indicator of the crypto market in general, since other coins like Ethereum (and smaller altcoins) tend to follow its trends. While an almost 10% decrease in value would be notable for normal investments, it’s a normal swing for Bitcoin, which saw more than a 50% decrease in value in past months. That’s not to say a 10% fall is anything to take lightly, and this is also why investing experts recommend only investing in crypto whatever you’re OK with losing.
The cryptocurrency space is still very new, and everything from innovation to regulation can have outsize impact for investors. Here’s how you can invest smartly, regardless of what’s making news or Bitcoin’s price swings.
How Investors Should Deal With Volatility
Cryptocurrency volatility is nothing new, and you should be comfortable with this if you decide to invest.
Volatility can be attributed to an “immature market,” says Ollie Leech, learn editor at Coindesk, a cryptocurrency news outlet. Anything from a celebrity tweet to new federal regulation can send prices spiraling.
“If Elon Musk puts hashtag Bitcoin in his Twitter bio, it sends Bitcoin up 10%,” says Leech.
This unpredictability is part of the reason why investing experts warn against investing huge amounts of your portfolio into a risky asset like crypto. Many recommend keeping your crypto holdings to less than 5% of your total portfolio.
For new investors, day-to-day swings can seem frightening. But if you’ve invested with a buy-and-hold strategy, dips are nothing to panic about, says Huymphrey Yang the personal finance expert behind Humphrey Talks. Yang recommends a simple solution: don’t look at your investment.
“Don’t check on it. That’s the best thing you can do. If you let your emotions get too much into it then you might sell at the wrong time, make the wrong decision,” says Yang.
This is the traditional “set it and forget it” advice that many traditional long-term investors follow. If you can’t get on board, and the extreme dips continue to cause you worry, then you might have too much riding on your cryptocurrency investments.