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Crypto Volatility Isn’t a Bad Thing, but Watch Out for Musk’s Bitcoin Whims

EconoMonitor
EconoMonitor
 2021-05-25
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Cryptocurrency volatility may not be such a bad thing, but it could well be if investment decisions are determined by the impulses of Tesla boss Elon Musk.

On Thursday Bitcoin regained some ground, having dropped to a four-month low.

The price of the world’s largest cryptocurrency by market cap fell close to 30% on Wednesday, before regaining losses of 8%.

The radical price swings come as China cautioned about cryptocurrencies’ usefulness, which led to a tweet by Musk suggesting his electric vehicle firm was still holding Bitcoin for the long-term and would not be selling.

Earlier in the year Tesla purchased $1.5 billion worth of Bitcoin.

The so-called ‘cryptocrash’ is certainly generating a great deal of noise, but volatility in this market should be considered in the same way as turbulence in any other market.

As with any type of investing, the best way for investors to avoid potential risks and make the most of the opportunities that emerge in times of market volatility is diversification.

Crypto investors should ensure they are sufficiently diversified across the main digital tokens, such as Ethereum and Ripple, and within a wider investment portfolio of assets, sectors and regions.

Some of the savviest investors have constantly used market volatility as key buying opportunities in traditional financial markets - and the cryptocurrency market is no exception.

That said, when the volatility is fuelled by one celebrity enthusiast, investors should remain prudent.

Volatility can be an incredibly powerful investment strategy when utilised effectively and efficiently.

However, I would urge investors not to be swayed by just one influential crypto backer like Elon Musk, whose whims can spark dramatic swings in both directions.

Shrewd investment decisions are not made on hysteria and frenzy, but on age-old fundamentals such as diversification, sensible valuations and profitability.

Whether its Bitcoin, or any of the other digital currencies around at the moment, cryptocurrencies are here to stay.

Meanwhile, financial traditionalists see 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, performs transactions, does business, and manages assets.

Nigel Green is CEO and founder of deVere Group, one of the world’s largest independent financial advisory and fintech organisations.

Photo: Microsiervos

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