In this photo illustration, a visual representation of the digital cryptocurrency, Bitcoin is on display in front of the Bitcoin price chart on February 09, 2021 in Paris, France.
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The Bitcoin roller coaster continued, flashing a warning sign for curious investors who might be interested in investing money in the highly speculative cryptocurrency.
Digital assets hit a new all-time high, hitting nearly $ 58,000 per coin on Sunday, according to data from Coin Metrics. But on Monday, the rally reversed after a series of criticism from top players.
First, Tesla CEO Elon Musk tweeted over the weekend that the price of bitcoin seemed high as the currency surpassed a $ 1 trillion market value. Then on Monday, Treasury Secretary Janet Yellen said bitcoin was an “extremely inefficient way to conduct transactions.”
This caused a crisis, causing bitcoin to fall more than 10% on Monday. The drop continued on Tuesday, with the currency slipping another 10% to around $ 48,000.
Financial experts generally advise people looking to invest in bitcoin to allocate a small portion of their portfolio. The UK’s Financial Conduct Authority just issued a similar warning.
“People should really only invest what they’re willing to lose,” said Daniel Polotsky, CEO of CoinFlip, one of the largest Bitcoin ATM companies in the United States.
He added that people nearing retirement, those who will need the cash in the short term, or those looking to trade frequently for a profit might want to reconsider bitcoin as an asset for those purposes.
“Maybe there are more opportunities to make money because it’s so volatile, but it can get very addicting very quickly to start trading,” he said. “And, most of the people who do that lose money.”
If you’re going to allocate a portion of your portfolio to a speculative asset like bitcoin, take a disciplined approach and impose buy and sell rules, said David Sacco, professor of economics at New Haven University.
“You can gain experience and not blow yourself up in the process,” he said.
Buy for the long term
To be sure, there are a lot of bulls who see bitcoin explode in value in the future as adoption continues.
For those who are determined to hold bitcoin for the long term, a sell off after hitting a record high is not a big concern. And, assets are still up about 80% this year alone.
Those who wish to invest in bitcoin should assess their position against other personal financial and investment goals to determine if they have additional money to invest in a risky asset.
If you do, then it’s okay to put some money in Bitcoin and buy on a day when it’s down, said Anjali Jariwala, a certified financial planner and CPA and founder of Fit Advisors in Torrance, Calif. .
“Throw some money in there and let it stay in there and season for a while,” she said. “Just so you don’t have to make decisions every time there is a price fluctuation, which at this point happens every few days.”
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