Bitcoin and other cryptocurrencies saw extreme volatility on Wednesday. Bitcoin, for instance, started trading at $42,945. It reached a high of $43,546 during the day, dropped to a low of $30,681, and finally closed the day at $37,002.
Personal finance and investing mean different things to different people, but a few broad principles make sense for all of us to follow. And some investors learnt these old lessons of investing for the first time on Wednesday. Let’s take a look at this pointwise.
1) Bitcoin and cryptocurrencies are known to be highly volatile. They go up too fast, and they fall quickly as well. On 14 April, bitcoin touched an all-time high of $64,863. From that high, it fell by 52% to the recent low of $30,681.
A 50% fall wipes out a 100% gain. Hence, investors, and there must have been many who bought bitcoin at all-time high levels, need to wait for the cryptocurrency to rally by 100% or more to recoup their losses.
2) One reason that gets offered for investing in bitcoin is that every time the price has fallen, it has gone on to newer highs in the time to come. The trouble with this argument is that just because something has happened in the past doesn’t mean it will continue to occur in the future as well.