How investors can cope with the cryptocurrency turmoil

Right now, what makes him feel is extremely disturbing.

This marketing executive from Summit, New Jersey explains that his holdings, including a number of different cryptocurrencies such as Ethereum, are down about 60% from when he bought. What used to be 2% of his portfolio now stands at around 0.8%, which makes him wonder if he should hold out, head for the exit, or buy the decline.

“Crypto has had a series of booms and bumps over time, and it’s hard to know if it’s any different this time around,” says Milnes. “I don’t know if my feelings are clouding my judgment. It’s hard to feel sure what to do next.”

It’s certainly been a harrowing year for cryptocurrencies, and Milnes isn’t the only one trying to make sense of the falling rankings. According to the tracker CoinMarketCap, the total market capitalization of cryptocurrencies grew from nearly $ 3 trillion in November 2021 to around $ 900 billion on June 29.

Meanwhile, bitcoin, the dominant cryptocurrency, has dropped from a high of over $ 67,000 to its current level just below $ 20,000.

“Some people have built their portfolios in the euphoria of recent years without thinking too much about a larger plan,” said Christine Benz, director of personal finance for investment research firm Morningstar. Are recent losses, she adds, a good incentive to ask a few questions, including how much risk you can take and what kind of losses can you bear?

“If you haven’t gone through this process ahead of time, it’s worth thinking about now,” Benz said.

Of course, the cryptocurrency isn’t the only one going through severe turbulence in 2022. Equity markets officially plunged into bearish territory in early June – the S&P 500 fell more than 19% year to date. Wednesday, and the Nasdaq is down more than 28% over that period.

Due to the unique nature of cryptocurrency, skeptics liken any current move to “closing the barn door after the horse is unleashed,” said Peter Palion, president of Master Plan Advisory East Norwich, New York. “Except come to think of it, a horse is a real thing with real value and cryptocurrencies – as John Paulson said – are a supply limit of nothing.”

Regardless of your personal stance on cryptocurrencies, the key to dealing with extreme market movements is to have a plan in place, so you don’t panic. Here are some tips from the experts:

ASSESS YOUR RISK TOLERANCE

If this year’s decline in cryptocurrencies has made you realize that you are not equipped to deal with such fluctuations, take no more chances.

After all, just because heavy losses have been recorded doesn’t mean more will come. “If you find yourself unduly teased, you may not be a good candidate to hold this asset class,” Benz said. “There is no shame in this.”

AMORTAL LOSSES

It may seem like a cold comfort, but if you’ve lost value in cryptocurrency exchanges, you can clear a certain amount on April 15th.

“For clients who have an important position in the cryptocurrency industry, we recommend using this period to collect tax losses,” said Kevin Lum, Foundry Financial Los Angeles founder and CEO.

Losses work the same way as stocks, Lum said. If your losses exceed your total capital gains for the year, you can deduct up to $ 3,000 from your ordinary income. “Losses in excess of $ 3,000 can be carried forward to death to offset future earnings.”

PORTFOLIO ALLOCATION LIMIT

As with any other speculative investment, it’s wise to limit it to a certain percentage of your holdings, a particular “bucket” that won’t overwhelm the rest of your portfolio.

“A good picture is to set a higher threshold,” Benz said. “Think of all your speculative assets in their entirety and assign them a 5% or 10% position in your portfolio, be it cryptocurrencies, precious metals, microcap companies or whatever.”

For example, even though Doug Milnes’ crypto wallet was bailed out, it’s not like he staked his entire future on it.

“There is a lot of uncertainty about what to do next, but at least I’m not worried about my retirement,” he said. “My advice to other cryptocurrency investors would be not to put all your eggs in one basket.”

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