A marketing executive at Summit in New Jersey says his holdings, including several different cryptocurrencies like Ethereum, are about 60% less than where he bought it. What was 2% of his portfolio is now about 0.8% – making him whether to hold his hands, head for an exit, or buy a dip.
“Cryptocurrency has gone through many ups and downs over time, and it is difficult to know if this time is any different,” Milnes says. “I don’t know if my feelings are clouding my judgment. It’s hard to feel confident about what to do next.”
It’s certainly been a harrowing year for crypto, and Milnes isn’t the only one trying to make sense of the falling charts. According to tracker CoinMarketCap, the total market capitalization of crypto assets has increased from around $3 trillion in November 2021 to nearly $900 billion as of June 29.
Meanwhile, Bitcoin – the leading cryptocurrency – has fallen from highs of over $67,000 to just slightly below its current levels of $20,000.
“Some people set up their portfolios in the excitement of the past few years, without even thinking about any major plans,” said Christine Benz, director of personal finance for investment research firm Morningstar. Recent losses, he says, are a good incentive to ask yourself some questions, including how much risk can you afford and what types of losses can you handle?
“If you haven’t gone through that process on the front end, it’s worth thinking about now,” Benz said.
Of course, crypto is hardly alone in flying through the massive turbulence of 2022. The stock market officially plunged into bear territory earlier in June — the S&P 500 is down more than 19% as of Wednesday, and the Nasdaq is down more than 28% in that time frame.
In the unique nature of crypto any move now has been likened to “shutting the barn door after the bolt of the horse,” said Peter Palian, president of Master Plan Advisory in East Norwich, New York. “Except for further consideration, a horse is a real thing with real value, and crypto – as John Paulson famously said – is a finite supply of nothing.”
No matter what your personal stance on crypto is, the key to handling extreme market moves is having a plan, so you don’t exit out of pure panic. Some tips from experts:
Re-evaluate your risk tolerance
If this year’s Cryptocurrency has made you realize that you are not prepared to handle such swings, then don’t take too much risk.
After all, just because there has been a huge loss, it cannot be ruled out that there will be more losses in the times to come. “If you find yourself unnecessarily nervous, you probably aren’t a good candidate to hold that asset class,” Benz said. There’s no shame in that.
write off losses
This may sound like cold comfort, but if you have lost value in a crypto transaction, you can write off a certain amount by April 15th.
“For clients who have a large position in crypto, we recommend using this time to harvest losses,” said Kevin Lum, founder and CEO of Foundry Financial in Los Angeles.
Loom said losses work the same way they do for equities. If your losses exceed your total capital gains for the year, you can deduct up to $3,000 against your ordinary income. “Losses in excess of $3,000 can be carried forward until death to cover future benefits.”
limit portfolio allocation
As with any more speculative investment, it’s wise to keep it to a certain percentage of your holdings — a special “bucket” that won’t affect the rest of your portfolio.
“A good framework is to set an upper limit,” Benz said. “Think about all of your speculative assets as a whole, and position them at 5% or 10% in your portfolio – whether crypto, or precious metals, or microcap companies, or whatever else.”
For example, even though Doug Milnes’ crypto portfolio may have gone haywire, it’s not like he’s betting his entire future on it.
“There’s 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 crypto investors would be, do not put all your eggs in one basket.”