More Than Finances

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What About The Bitcoin Bubble?

Is Bitcoin experiencing a bubble? That is a stupid question in the minds of some, but consider the newcomer to the cryptocurrency market who may or may not even have basic trading experience; what are these people supposed to make of an investment opportunity that started 2020 in the $6k range according to a CoinDesk Bitcoin price tracker, and ends 2020 pushing into the $20K price range?

New To Investing?

Newcomers, if you aren’t familiar with the basics of investing, know that the combination of this massive increase in value combined with a lack of the sort of stability legal tender has by comparison and it’s clear that while some investors are likely going to make a killing, there is a definite risk of a market correction. And where “altcoins” are concerned? Their futures may look rosier with a Bitcoin price adjustment.

Some market watchers, including writers at Forbes.com, don’t expect Bitcoin to quadruple. The cryptocurrency has, according to CoinTelegraph.com, experienced a “massive rally in previous months, accelerating from $10,000 to a recent all-time high of around $23,700” which is tantamount to a rally of 135%. The same report mentions that in order for the upward trend to continue, “certain levels must be held”. And that is where smart investors rely on their diversification strategy to protect against volatility.

Don’t Put All Your Crypto In One Basket

In the same way that smart investors don’t put all their liquid capital into risky stocks, you should not gamble with your entire investment by keeping significant amounts of your investment money in high-risk areas.

Bitcoin may be on an incredible run in 2020, but as CoinTelegraph reported on December 23, 2020, “Bitcoin (BTC) fell by almost $1,000 in under an hour on Dec. 23 as spot markets refused to buy fresh good news from institutional investors.” A stock that can lose so much value in a small amount of time is one worthy of respect–at a minimum, you need to respect how quickly your financial position can change when investing in Bitcoin.

And yes, other cryptocurrencies are riding the coattails, so to speak, of the rise of Bitcoin. That’s another recipe for potential disaster for those who risk more than they should in markets subject to such volatility.

Some are looking toward the Coinbase IPO was a way to diversify. Cashing in Bitcoin to buy into the IPO might be a good move for an investor or speculator who understands the inherent risks associated with being an early adopter of any company doing their initial IPO, but those who can afford to be less risk-averse may do well to consider such a move if they are committed to buying and selling cryptocurrency.

 

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