Why investors must 'take the emotion out of' current crypto crash and let it run its course
The crypto market took a tumble last week, but experts are urging patience to ride out the volatility storm
Crypto assets have climbed slightly from the massive drop witnessed last week, and Middle East-based experts urge investors to practice patience while the highly-volatile crypto market fluxes.
Assets have climbed slightly since the big fall, but the calculus, however, is different for long- and short-term investors. For those looking far down the road, Lewis Delaney, a former senior associate at Finsbury Associates, suggests sitting tight as he expects crypto to climb back as it did after similar tumbles in 2013 and 2017.
“If you need that money in the short term, it’s a different attitude to have, and you have to look at it as part of your whole portfolio, and if it’s a big part of your portfolio, you’ll have to make some tough decisions,” said Delaney, who is in the process of creating a high-net-worth estate planning and investment solution company.
Last week, Bitcoin saw a 30 percent price drop weighed on sentiment, according to Coin Metrics. Around $794 billion worth of cryptocurrency was lost within less than 24 hours on May 19, according to CoinMarketCap.
Investor panic set in as Tesla CEO Elon Musk tweeted on May 13 that the electric car company would no longer accept Bitcoin as payment due to environmental concerns about its heavy energy use.
Across the world, the Chinese government on May 18 banned financial institutions and payment companies from providing services related to cryptocurrency transactions, also fuelling the latest drop.
But this isn’t the first time the market has dropped after China moved to clamp down on crypto. In 2013, its central bank, the People’s Bank of China, barred financial institutions from managing Bitcoin transactions, and in 2017, China shut down its local cryptocurrency exchanges.
“In both circumstances the market recovered relatively quickly, and reached a new high point within a year or so of the statement from the Chinese government,” Delaney said.
Teething pains
Following the initial drop, some cryptos have turned green again, with Dogecoin, ETC, and Bitcoin all trading positive, according to Yahoo Finance data on Sunday.
The current decline – assuming the fall stops here – is still less severe than previous tumbles since cryptos started trading in 2010, Arjun Mittal, former deputy CEO of Bank J Safra Sarasin’s Dubai office, told Arabian Business. He pointed to Amazon and Apple’s once-volatile stocks that experienced similar drops in their early trading days.
“Volatility is to be expected when it comes to any new investment like cryptos,” Mittal said.
For Warren Sample, chief strategy officer, Vorto Gaming, the latest volatility shock is the equivalent of “teething pains” for the relatively nascent asset.
“I think what we are seeing now are the teething pains of a digital equivalent [to the physical currencies],” Sample told Arabian Business. “We have a monetary system that has been built over the last thousands of years in the physical world, the birth of a digital economy with its own currency will go through its own teething pains as well until we get to more stability.”
Long-term hit
Experts are divided on whether this will result in a fundamental change in the value of cryptocurrency.
“The outcome of any investment rests on there being investors who want to participate in that investment. So if this drop leads to ‘part timers’ exiting the crypto market, then yes maybe overall we may see some of the lesser known or followed cryptos struggle,” Mittal said.
Delaney, however, said he believed crypto will have value in the long-term. He pointed to recent high-profile investments from the likes of Ark Investment Management CEO Cathie Wood and MicroStrategy’s Michael Saylor that have helped prop up the market.
“These people are kind of saving the market from going down even further, and that’s where we’ve seen the balance from these big buyers who believe in crypto and believe in the longer term of it,” he said.
Despite the volatility that can be worrying for investors, Delaney cautioned that those who hold crypto stocks should take the emotion out of their investment and ride the wave remembering the age-old saying “buy low, sell high”.
“It’s about trying to take the emotion out of it and trying to ignore the fear and the doubt that’s put out there by media and try and let it run its course,” he said.
* Whether crypto is too risky or a fast-track to riches is one of the questions that will be debated at the upcoming AB Money Forum: Build Your Financial Future.
The live AB Forum event on May 31 will dive into the secrets of saving and how to make your earnings worker harder and smarter with leading experts and thought leaders.
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