If you were reluctant about investing in bitcoin before, you’ve probably completely given up on the idea now.
The cryptocurrency is trading at around $4,000, a steep drop from its all-time high of nearly $20,000 last December, according to data from CoinDesk.
Investors looking for clues on how to move forward are likely to find themselves puzzled.
The U.S. Justice Department is investigating whether last year’s rally was a product of market manipulation. Meanwhile, Nasdaq plans to launch bitcoin futures as early as next year.
The bottom line is that any bitcoin investor needs to be prepared to lose everything he or she puts in, said Ric Edelman, founder and executive chairman of Edelman Financial Services.
“You need to invest with two attitudes: that you’re going to hold it for years, even decades and that volatility is an inherent element of the asset,” Edelman said.
Bitcoin is up 428,022 percent from Jan. 1, 2011. For comparison, the cumulative return of $1,000 in the S&P 500 since 2011, including the reinvestment of dividends, is around 157 percent.
Yet bitcoin is down 68 percent since Jan. 1, 2018. Bitcoin’s worst day in 2018 is equivalent to a 4,000 point plunge in the Dow Jones Industrial Average, said Campbell R. Harvey, a professor at Duke’s business school.
Harvey also compared the ups and downs of bitcoin with more mainstream investments. (BTC is the symbol for bitcoin.)
You shouldn’t put money into cryptocurrencies hoping to replicate the returns enjoyed by those who got in early, said Aswath Damodaran, professor of finance at the Stern School of Business at New York University.
“You would have staggering returns on Beanie Babies and Pokemon cards as well, at their peak, but imagine what your portfolio would look like today, if you had put your pension fund into them,” he said.
As for those who’ve stayed on the sidelines of bitcoin, Edelman said, now might the best time to get in. The key to successful investing is to buy low, and sell high, he said, even if investors often do the opposite.
“People were thrilled to buy bitcoin at $19,000 last year,” he said. “Those same people don’t want to buy bitcoin at $4,000.”