You bought Bitcoin, the price is so volatile, now what?
CAPE TOWN – If you’ve bought Bitcoin and have seen lows of around R49 000 and highs of R176 000 in 2019, you might be wondering what to do next. Should you sell? Should you buy?
Every day, South Africans buy cryptocurrency for the first time. It is a quick and simple process on leading cryptocurrency exchange, Luno where you can buy a fraction of Bitcoin from as little as R10. Marius Reitz, Luno’s GM for Africa, shares some insights into what you should consider when joining this new financial system.
Decide whether to sell, buy or hold
It’s very difficult to tell someone whether to buy, sell or hang on to a cryptocurrency. People invest for different reasons. Are you buying and holding because you believe Bitcoin is going to be part of a new financial system? Or are you buying and selling (like trading shares) to make a quick profit? Do you want to buy more now because the price is lower than it was a month ago?
Whatever your reason, Bitcoin’s price progression over time has steadily increased and is characterised by booms (when the price goes up a lot) and busts (where the price falls a lot). Over time, the price has increased but, ultimately, it’s your choice whether and when to buy, sell or hold.
One of the ways around Bitcoin price swings is to commit to investing a set amount of money each month on a certain day, just like a debit order. By doing so, you will benefit from Bitcoin price averaging and reduce the effects of market movements. This means that some months, you’ll pay more and some months you’ll pay less, but over time it will average out and you won’t be worrying as much about the perfect time to buy or sell.
Cryptocurrency adoption may be growing, but it’s important to bear in mind that we are at the very beginning of moving to a new financial system. The price volatility of Bitcoin is proof that it is still very early days. It’s important to take a long term view of the market and we believe this means a major transition in the way the world thinks about and uses money in the next 5-10 years.
Understand reasons for price fluctuations
Often when the price of Bitcoin increases, people fear they are missing out on a chance to get rich and they expect the price to continue increasing. So, they start buying Bitcoin, which increases demand - and higher demand increases the price.
Fear, uncertainty and doubt (FUD) and price dips may prompt us to sell because we think the price may drop even further and we don’t want to lose our money. Bitcoin’s price, like other traditional investments, is also sensitive to global news.
Cryptocurrencies are not yet regulated, which means trending news that affects the price includes:
- The state of the world’s economy
- New regulation or actions from banks and governments
- Statements from well-known figures in tech and finance
- News of hacks or security breaches
- Rumours, fake news and misleading information.
When investing in cryptocurrency, only ever invest as much as you are prepared to lose and don’t believe anyone who tells you they can guarantee returns. The key question is: what is your risk appetite? Whatever the price, you need to practise responsible investing. This means understanding the risks involved in your investment and your personal preferences.
Marius Reitz is Luno general manager for Africa.