Why crypto trading isn’t for the faint-hearted

Recent steep drops in prices have investors on edge. The kings of cryptocurrency, Bitcoin and Ethereum, have fallen by nearly 20 percent over the last week. With Bitcoin trading at around $30,000 and Ethereum trading near $2,000, investors wonder whether this is the bottom or if the worst is yet to come.

The crypto market investors are jittery because the low prices haven't been seen for over a year. Bitcoin has lost more than half of its value since its all-time high last November, when it traded above $68,000. Ethereum follows a similar trendline.

These patterns follow the US and other major stock markets that have seen stocks nosedive. These slides are attributed to the uncertainty about the health of the US economy. Other factors include the lingering Covid pandemic, surging inflation, the Russian invasion of Ukraine, and China's recent crackdown on crypto services.

Industry experts say that big swings in price are not uncommon in an industry as new and untested as cryptocurrency. A new market is usually rife with short-term investors who may interpret a sharp drop in prices as a market crash and sell off their holdings, prompting a further decline in the asset's value.

But the panic is not just with novice investors. Hard-knuckled ones have a cause for concern too. A lesser-known digital currency Luna is now nearly valueless, and a related coin, TerraUSD, is standing on quicksand. A few others have been routed, and their future remains in question.

There are also signs of stability in the crypto-supported industry. According to LinkedIn data, there is a surging cryptocurrency-related job demand.

Experienced investors in the securities market follow the age-old market mantra of "buy-and-hold". These investors are not swayed by short-term price swings. Those who believe in the industry and its assets should view price dips as opportunities to buy, not a signal to panic.

Investment advisors advise investors only to invest what they are comfortable losing. Generally, cryptocurrency investments should be kept to under 5 percent of your overall portfolio to avoid severe losses should the market take a turn for the worse.

There is no doubt that cryptocurrency is going to be volatile in the future, but many experts predict Bitcoin's price will rise again to over $100,000 at some point, mainly due to its increasing acceptance in many countries and sectors, as well as the backing of financial institutions and blue-chip companies.

In sum, as a cryptocurrency investor, try to tolerate the market instability. If you don't have the stomach for market swings but want to invest, ignore short-term market movements. Instead, invest for the long haul and balance your risk in different securities.

Don’t be an emotional investor: When you let your emotions steer your investment decisions, you may sell at the wrong time and be disappointed.

Mr Wambugu is an informatician. Email: [email protected] Twitter: @Samwambugu2