Most financial assets are volatile in different degrees. Bitcoin price volatility is known to be highly significant. It suffers from dramatic short-term price fluctuations conveying downside risk. However, from a long-term perspective, Bitcoin’s price is substantially up since early 2017.
BITCOIN’S LONG-TERM SKYROCKETING TRAJECTORY
Bitcoin is down considerably since early January 2018. However, if we calm the jitters caused by short-term Bitcoin price fluctuations and focus on the long-term trend, we can see that the cryptocurrency continues to perform spectacularly. As Ran NeuNer recently tweeted, “Bitcoin down 50% this year but still up 700% since 1 Jan. 2017.”
Granted, if you entered the market after December 2017, this information might not be relevant. Indeed, if you are a short-term cryptocurrency investor, you might be losing money.
Short-term and long-term investments carry different degrees of risk. Short-term investing carries more downside risk because it more closely resembles gambling.
On the other hand, long-term investment involves holding a vehicle for more than a year, or several years. Therefore, early Bitcoin adopters are doing well, even if they have had to suffer long bear market periods, as shown in the chart below.
Financial investors advise diversifying. For instance, Edward Jones, Financial Advisor, writes:
As an investor, you’ll probably need a mix of long-term and short-term vehicles. By knowing the differences between these two categories, you should have a good idea of what to expect from your investments — and this knowledge can help you make those choices that are right for you.
THE TREND IS YOUR FRIEND
Certainly, whether Bitcoin’s price will continue its ascending trajectory is unknown. Nevertheless, predictions on both sides abound.
For example, The Motley Fool predicts that the entrance of institutional investors will be detrimental “as it introduces their crypto skepticism and deep pockets into the equation.”
Conversely, others predict that Bitcoin’s price will increase precisely because of the entrance of institutional investors. Explaining why “Bitcoin is a buy despite its continued losses,” Spencer Bogart, blockchain venture capitalist, declared to CNBC:
Every major bank is trying to do something in the space. Either they’re going to be offering bitcoin to their clients, they’re working on a custody platform or they’re opening up a trading desk. A deeper institutionalization of bitcoin is overall positive.
Indeed, there are as many predictions as predictors. But the truth is that financial markets are unpredictable. Long-term investing is less risky than short-term. And, do not forget that “the trend is your friend.”