The price of Bitcoin has fluctuated wildly in the last few months, rising from $1,000 per coin to over $19,000 before falling back down again. Some have attributed this volatility to increased investor interest in the cryptocurrency, but others have argued that it’s an indicator of Bitcoin’s imminent crash and demise. Whatever your opinion on the matter, you should certainly never invest your life savings in Bitcoin at this point in time. Here’s why.
Don’t invest all your life savings
There’s no denying that bitcoin is on fire. In 2017, bitcoin has seen a staggering 20-fold increase in value, reaching a high of $19,783 on December 16th. So there are lots of people who have been swept up into buying bitcoin as an investment opportunity. This can be extremely risky, especially if you’re investing your life savings.
There have been several instances where people have lost everything after investing their life savings into cryptocurrency ventures with little or no safeguards to protect investors against major losses. The volatile nature of cryptocurrencies means it’s very easy to lose money and those investing large sums should carefully consider whether it’s right for them before diving in headfirst.
Only invest what you can afford to lose
While investing your life savings in Bitcoin may seem like a fantastic idea, it’s important to remember that you shouldn’t risk anything you can’t afford to lose. There is always a chance that something could go wrong and your investment will turn out to be worthless.
You don’t want to end up penniless if that happens! Although investing is risky, it doesn’t have to be a complete gamble. By investing just a little bit at first and keeping some of your life savings in other assets, you can ensure you won’t go broke even if things don’t work out exactly as planned.
Don’t forget about bonds and ETFs
This isn’t to say you should never invest because you’re feeling a little paranoid. If you have any emotional ties to your investments, it can be helpful to talk them through with a friend or family member who has some perspective on what’s happening—especially someone who may not be invested in the same things as you.
But if your response is knee-jerk panic, then maybe step away from your computer for a little while and come back when you’ve had time to consider how worried or upset about it all you really are. And remember: While investing is never without risk, there are strategies that can help take emotion out of investing and make sure we trade strategically rather than emotionally.
Use stop-loss orders
To protect against a drop, it’s best to set stop-loss orders if you’re not sure you want to invest your life savings in bitcoin. Simply put, a stop-loss order is when you tell your broker to sell a security once it hits a certain price point. Many traders set their stop-losses at levels just below recent lows because these are prices that historically have proven to be strong support for stocks (even if they’ve sold off for a while).
If bitcoin’s price continues to fall and hits your designated level, all of your bitcoins will be sold at that point—even if there’s still value in them. A stop-loss can help limit losses from what would otherwise be an even greater loss by preventing liquidation.
Trade strategically, not emotionally
Whether you choose to invest or trade bitcoins, you’ll be dealing with a highly speculative and volatile market. In fact, daily price swings have been as high as 40 percent.
Don’t risk your life savings on bitcoin—or anything else for that matter. If you want to get involved, invest small amounts of money into various holdings and monitor their progress over time. Diversification is key when it comes to investing; spread out your assets so they are not overly reliant on any one outcome.
It is also important to note that cryptocurrency exchanges do not offer consumer protections or fall under regulatory oversight like traditional stock markets, so there will likely be a lot of misinformation and potentially unethical behavior before things straighten out.
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