Riding the crypto ups and downs
When you decide to invest in crypto, you’re signing up to ride the roller coaster—there could be high highs and low lows.
June 22, 2023
What is volatility anyways?
When you hear that cryptocurrency is “volatile” that means its price can go up and down quickly in a short amount of time. So if you buy some crypto, the same goes for the value of that investment—it’s quite unpredictable.
Some coins or tokens have more dramatic swings in price than others, but overall crypto has proven to be more volatile than traditional investments like stocks or funds.
Example of recent Bitcoin volatility
As the very first crypto ever created, Bitcoin has had its fair share of ups and downs over the past decade, but even more so over the last few years.
For example, in 2021 Bitcoin’s price surged from about $30,000 to more than $63,000. It then plummeted to $32,000 within two months, then soared to an all-time high over $68,000. And as of June 2022, it was trading around $20,000.*
Other major cryptocurrencies including Litecoin (LTC), Ethereum (ETH) and Bitcoin Cash (BCH) have also experienced similar volatility in recent years.
What makes crypto so volatile?
There are a variety of reasons for why crypto prices go up and down so quickly.
- Supply and demand: Like any investment, if enough people want to buy it, its price will rise. If enough people want to sell it, its price will fall.
- Company news and media hype: Announcements that companies plan to accept crypto as a form of payment have given prices a boost (and vice versa). Crypto prices are also notoriously impacted by conversations on social media—in particular, tweets from billionaires favoring a particular crypto.
- Investor sentiment: Trust and faith in a currency play a role in its stability. Since crypto has only been around since 2009 and use of it is still growing, there’s a wide range of feelings about it—from confident early adopters with high expectations to skeptical avoiders who prefer to stick to more traditional investments.
- 24/7 trading: Unlike stocks or funds, crypto can be traded around the clock. This means that crypto prices can change immediately in response to breaking news late at night or over the weekend.
- Government regulations: When governments ban the creation and/or use of crypto, prices tend to take a hit. On the flip side, when regulations are passed that benefit crypto users, prices tend to get a boost.
How does the volatility impact my decision to invest in crypto?
When you decide to invest in crypto, you’re signing up to ride the roller coaster. There could be high highs and low lows within short periods of time. And despite many people on the internet claiming they know when the next big surge or crash will be, the truth is no one can predict what’s going to happen.
If you do decide to dive in after doing your research, think about how much money you’re willing to put into crypto.
Here are 3 key factors that can guide your decision on how much to invest:
- Your risk tolerance: Are you someone who would lose sleep over a dip in your account balance? How does the constant price fluctuation affect your decision making? You'll want to consider your emotions before making any big moves.
- Your overall financial wellness: Do you have enough cash to cover your bills each month? Do you already have some emergency savings? Are you contributing to your retirement fund? It could be a risky decision to use money you need for important financial goals to buy crypto instead.
If you’re working on building a strong financial footing but you still want to buy crypto too, you could consider thinking of crypto as the “cherry on top” of your whole portfolio by buying some with extra cash you have.
- Your willingness to lose it: It is possible to lose the entire value of your crypto investment. So if you do decide to buy some, consider how much you’re comfortable buying. Is it an amount of money you can afford to lose?