China ordered its major FIs to stop facilitating digital currency transactions and it triggered a crash in the crypto markets. My response has been to dollar cost average down my crypto positions in Ethereum, Bitcoin, Binance Coin, Matic and Cardano. I’m still making losses on my crypto portfolio as a whole but I will continue to invest in it if prices keep sliding. Its value is still less than 5% of my total investment portfolio and I view it as a separate asset class. Just like any other asset class, a good time to invest is when its market is crashing.
This is what I did with the equities portion of my investment portfolio last year during the Mar 2020 Covid market crash and it has paid off so far. However, I have to admit I was taking bigger positions with the stocks and ETFs then. Just because equities is a more mature asset class that I’m familiar with and they are not as volatile. Plus I had more time to plan, think and react when navigating the equities market. As I’m still learning about cryptos, it’s difficult for me to take big positions in them given the volatility. Especially when there’s not as much time to plan, think and react when navigating the cryptos market.
Market crashes are an unforgiving test of my nerves and preparedness. Whether I have set aside a sufficient amount of warchest and how well I use it to average down on my current positions or start new positions. Questioning my instincts and the security of my main income source (i.e. salary from my job) in a recession in relation to the spending buffer or emergency funds I have set aside for my family. Looking back at what went right and what went wrong after the market crash in itself can be a painful self-evaluation experience.
At this time, it feels like a learning journey for me in navigating the cryptos market crash. Unlike the equities market recovery that usually correlates with improvements in business and economic conditions (or loose monetary policy and quantitative easing for that matter), I’m still trying to make sense of the factors that can generate a cryptos market recovery. Or should I take a more holistic and long term view on this and build this asset class position up every time there’s a market crash. Just because it helps to diversify my investment portfolio.
JC says
I supposed as long as you are OK to loosing the 5% investment then it is a calculated risk.
My view of crypto is that its like the black market for a digital currency that is not recognised by all governments becos it cannot be contained by any govt.
As long as there is no support even though the concept is noble it is an uphill task. Crypto is a universal currency. Tell me which govt is willing to let go of the control of their currency? Euro is a fine learning example…
Just my thoughts….
JC
Finance Smiths says
It’s true that cryptos will be increasingly regulated going forward. But I still think it’s different from the fiat currencies (even if they become digital currencies) that are issued by central banks. Well, I would prefer not to lose the 5% investment but my strategy here is that there is a bigger upside compared to the downside in the long term. Will be interesting to see where this goes from here!
Aaron says
Just note that Tether investigations have been gathering more attention and back in the spotlight again. Whether it will dissipate like past few years is up to anyone’s guess but its implications on the crypto scene would be huge. It’s wise to keep crypto at 5% of total investment portfolio.
Finance Smiths says
Yup, I’m comfortable with the 5% allocation for now and I expect cryptos to be increasingly regulated going forward. Not a bad thing if they are to be treated as a mature asset class in the long run.