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The volatility of cryptocurrencies may not be such a bad thing, but it could be if investment decisions are driven by the impulses of Tesla boss Elon Musk.
Bitcoin regained ground on Thursday, after falling to its lowest level in four months.
The price of the world’s largest cryptocurrency by market cap fell nearly 30% on Wednesday, before regaining losses of 8%.
The drastic price swings come as China warned of the usefulness of cryptocurrencies, leading to a tweet from Musk suggesting his EV company still holds Bitcoin for the long term and won’t sell.
Earlier this year, Tesla bought $ 1.5 billion worth of Bitcoin.
The so-called ‘cryptocrash’ certainly generates a lot of noise, but volatility in this market should be viewed in the same way as turbulence in any other market.
As with any type of investment, the best way for investors to avoid potential risks and make the most of the opportunities that arise in times of market volatility is through diversification.
Crypto investors should ensure that they are sufficiently diversified between major digital tokens, such as Ethereum and Ripple, and within a broader investment portfolio of assets, sectors and regions.
Some of the more savvy investors have consistently used market volatility as key buying opportunities in traditional financial markets – and the cryptocurrency market is no exception.
That said, when volatility is fueled by a celebrity enthusiast, investors should remain cautious.
Volatility can be an incredibly powerful investment strategy when used effectively and efficiently.
However, I urge investors not to be swayed by a single influential funder like Elon Musk, whose whims can trigger dramatic swings in either direction.
Sound investment decisions are not made on hysteria and frenzy, but on age-old fundamentals such as diversification, reasonable valuations and profitability.
Whether it’s Bitcoin or any of the other digital currencies around, cryptocurrencies are here to stay.
Meanwhile, financial traditionalists view digital currencies the same way traditional stores previously viewed online retailers like Amazon.
Yet cryptocurrencies have already permanently changed the way the world handles money, trades, does business, and manages assets.
Nigel Green is CEO and Founder of the deVere Group, one of the world’s largest independent financial advisory and financial technology organizations.
Photo: Microsiervos
