Top cryptocurrencies are sliding. Is it time to try the asset class?

Personal Finance

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Major cryptocurrencies such as bitcoin and ether have had a rough start to 2022.

For some investors, it may be an opportunity to buy into the risky digital assets.

Bitcoin slumped as much as 6% Monday, falling below $40,000 per coin for the first time since September, according to Coin Metrics. At the same time, ether shed 7% of its value and plunged below $3,000.

The dip in price is a chance for people interested in investing in cryptocurrencies to review their financial plan and buy into the asset class if it makes sense for them, said Tyrone Ross, CEO of Onramp Invest, a crypto-asset platform for financial advisors and firms.

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“When something goes on sale and you like it, you should buy it,” he said.

Predictions of bitcoin at $100,000

Bitcoin bulls think that the asset has room to run this year, even though it’s off to a rocky start.

“I think [bitcoin is] going to reach $100,000 this year, probably by … the middle of it,” Antoni Trenchev, co-founder and managing partner of cryptocurrency lending platform Nexo, told CNBC’s “Street Signs Asia” Monday.

Other experts have made similar predictions. Matt Hougan, chief investment officer of Bitwise Asset Management, in an October interview with Bloomberg TV said that bitcoin could reach the $100,000 mark in 2022.

Analysts at Goldman Sachs wrote in a recent note that the firm could see bitcoin taking market share from gold and climbing to the $100,000 level.

Bitcoin hit a record high near $69,000 in November but has trended down since. Still, it ended 2021 up about 40% on the year.

In addition to the potential price action, cryptocurrencies have become an increasingly integrated and accepted form of payment.

“I think we’re not at mass adoption yet, but we are at mass acceptance,” said Ross, adding that for those who’ve done their research and decided that crypto is right for them, it’s a good time to jump into the investment.

Expect volatility  

To be sure, you shouldn’t rush into any investment just because it is relatively cheap, experts say.

If buying crypto doesn’t fit into your long-term financial goals, you shouldn’t purchase it just because it’s trading at a relative discount unless you already have an investment plan in place and a longer time horizon, according to Ivory Johnson, a certified financial planner and founder of Delancey Wealth Management in Washington, D.C.

“If your time horizon is 10 years, I think now is a fine time to buy it,” he said. Otherwise, he recommends that investors take a more holistic approach to the asset class instead of trying to time a volatile market.

Investors should have a clear reason for buying crypto instead of being pulled in only because the price dropped, he said. Reasons include seeing the asset as a store of value, viewing it as uncorrelated or wanting to own it because of the increasing rate of adoption.

Before adding to an existing investment, people should be conscious of how much of their total portfolio is invested in cryptocurrencies and make sure that allocation matches their risk profile, said Johnson. New investors need to determine how much they’re willing to risk before they buy into crypto.

“If you put 20% in crypto and you can’t stomach volatility, you’ve got what’s known as a problem,” he said. “But if you’ve gone 1 or 2 or 3 percent, it’s not as big of a hit to your portfolio.”

What to expect while you’re investing

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Investors should expect that cryptocurrencies will continue to be volatile.

They’re historically a risky asset, and they haven’t been tested in an environment like the one we’re seeing today, where interest rates are set to rise, according to both Ross and Johnson.

“You should fully expect that it will go down further, so only put in what you can afford to lose,” said Ross. “If we wake up tomorrow and it goes to zero, you should be able to still pay your rent.”

Before putting money into crypto, both experts recommend having a secure personal financial situation and clear investment plan.  

“If you dollar cost average on the way down and also on the way up it will smooth out that volatility and also enhance returns,” said Ross.

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Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.

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