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Investing in cryptocurrency after Its fall

Buying into cryptocurrency

Cryptocurrency, once hailed as the future of finance, has witnessed a rollercoaster ride in recent years, with staggering peaks and alarming troughs.

The year 2021 saw cryptocurrencies like Bitcoin and Ethereum reach all-time highs, followed by a significant downturn.

Let’s delve into the rise and fall of cryptocurrency and explore strategies for safe(r) investing in this dynamic space now that it's considerably down from its peaks.

Cryptocurrency, born with the launch of Bitcoin in 2009, steadily gained momentum over the years. It promised decentralized, borderless, and transparent financial transactions, attracting both enthusiasts and institutional investors. The real watershed moment came in 2021 when Bitcoin's price skyrocketed from a few thousand dollars to over $60,000, and other cryptocurrencies followed suit. Ethereum, with its smart contract capabilities, also experienced exponential growth.

However, this meteoric rise was unsustainable. Cryptocurrencies are notorious for their volatility, driven by factors like market sentiment, regulatory changes and macroeconomic events. In 2021, concerns over excessive speculation, regulatory crackdowns, and energy consumption in mining triggered a significant correction. Bitcoin and other cryptocurrencies experienced substantial losses, leaving many investors with heavy losses.

So where does that leave us today and is there a way to invest in this space today without taking on too much risk? Here are some steps to consider if you’re interested in investing in cryptocurrency:

1. Diversify your portfolio—The first rule of safe investing in any asset class, including cryptocurrencies, is diversification. Avoid putting all your funds into a single cryptocurrency. Instead, spread your investments across a range of digital assets. Diversification helps mitigate risk by reducing the impact of a poor-performing asset on your overall portfolio.

2. Do your research—Before investing in any cryptocurrency, conduct thorough research. Understand the technology behind it, its use case, and the team behind the project. Read whitepapers, follow news and updates, and be aware of the latest developments. Make informed decisions based on solid information rather than FOMO (fear of missing out).

3. Invest only what you can afford to lose—Cryptocurrency investments should come from discretionary funds that you can afford to lose without affecting your daily life or financial goals. Given the volatility of the market, it's crucial to avoid investing money you cannot afford to lose.

4. Dollar-cost averaging (DCA)—To mitigate the impact of price volatility, consider a dollar-cost averaging strategy. With DCA, you invest a fixed amount of money at regular intervals, regardless of the cryptocurrency's price. This strategy reduces the risk associated with trying to time the market and can work well for long-term investors.

5. Use reliable exchanges and wallets—Select reputable cryptocurrency exchanges for buying, selling and trading digital assets. Research their security features, customer support and track record. Additionally, use secure wallets to store your cryptocurrencies offline (hardware wallets) or in trusted digital wallets with strong security measures.

6. Beware of scams and frauds—The cryptocurrency space is rife with scams and fraudulent schemes. Exercise caution and be skeptical of too-good-to-be-true investment opportunities, especially those promising quick and guaranteed returns. Always double-check the legitimacy of the projects you invest in.

7. Stay informed about regulatory changes—Regulations surrounding cryptocurrencies are evolving rapidly in various jurisdictions. Stay informed about the regulatory landscape in your country and internationally. Compliance with local laws is essential to ensure the legality of your investments.

8. Prepare for long-term holding—Consider adopting a long-term investment mindset. While day trading and short-term gains can be enticing, they come with higher risks. Holding onto cryptocurrencies for an extended period may offer better prospects for a return on your investment.

9. Seek professional advice—If you're uncertain about your cryptocurrency investment strategy, consider seeking advice from financial professionals who specialize in digital assets. They can help tailor an approach that aligns with your financial goals and risk tolerance.

The cryptocurrency market's rise and fall have been nothing short of dramatic. While the 2021 peaks are now distant memories, the space still may hold some potential for long-term investors.

Safely navigating cryptocurrency investments requires discipline, research, and a cautious approach. By following these principles, you can participate in the cryptocurrency market with greater confidence and resilience in the face of its inherent volatility.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

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About the Author

Brett Millard is vice-president and a member of the executive leadership team at FP Canada, the national professional body for the financial planning industry. A not-for-profit organization, FP Canada works in the public interest to foster better financial health for all Canadians by leading the advancement of professional financial planning in Canada. 

He has worked in the financial advice industry for more than 15 years and is designated as a chartered investment manager (CIM) and is a certified financial planner (CFP).

He has written a weekly financial planning column since 2012 and provides his readers with easy to understand explanations of the complex financial challenges they face in every stage of life. Enhancing the financial literacy of Canadian consumers is a top priority for Brett and his ongoing efforts as a finance writer focus on that initiative. 

Please let Brett know if you have any topics you’d like him to cover in future columns ,or if you’d like a referral to a qualified CFP professional in your area, by emailing him at [email protected].


The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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