How investors can deal with cryptocurrency turmoil?

Right now what that makes him feel is extremely disturbing.

This Summit, New Jersey marketing executive explains that his holdings, which include a number of different cryptocurrencies like Ethereum, have fallen by about 60% since he bought. What used to be 2% of his portfolio is now at around 0.8% – leaving him wondering if he should hold out, exit or buy the dip.

“Crypto has had some blows over time, and it’s hard to tell if it’s any different this time around,” Milnes says. “I don’t know if my feelings are clouding my judgment. It’s hard to be sure of what to do now.”

It’s certainly been a harrowing year for crypto, and Milnes isn’t alone in trying to understand the plummeting charts. The total market cap of crypto assets has grown from nearly $3 trillion in November 2021 to about $900 billion as of June 29, according to tracker CoinMarketCap.

Meanwhile, bitcoin – the dominant cryptocurrency – fell from a high of over $67,000 to its current level just below $20,000.

“Some people have built their portfolios in the euphoria of the past few years without thinking too much about a bigger plan,” said Christine Benz, director of personal finance at investment research firm Morningstar. Recent losses, she adds, are a good incentive to ask some questions, including how much risk can you take and what kinds of losses can you bear?

“If you haven’t gone through this process beforehand, it’s worth thinking about now,” Benz said.

Of course, crypto is not alone in going through severe turbulence in 2022. Nasdaq has fallen more than 28% in that time.

Because of the uniqueness of cryptocurrency, skeptics liken every current step to “closing the barn door after the horse has gone wild,” said Peter Palion, president of Master Plan Advisory East Norwich, New York. “Except when I think about it, a horse is a real thing with real value, and crypto – as John Paulson said – is a limit stock of nothing.”

Regardless of your personal stance on crypto, the key to dealing with extreme market movements is to have a plan in place so you don’t trade out of sheer panic. Here are some tips from the experts:

ASSESS YOUR RISK TOLERANCE

If the decline in cryptocurrencies this year has made you realize that you are not equipped to deal with such fluctuations, then don’t take any more risks.

After all, it is not because heavy losses have been made that there will be more losses. “If you find yourself overly shocked, you may not be a good candidate to hold this asset class,” Benz said. “There’s no shame in that.”

AMORT LOSS

It may seem like cold comfort, but if you have lost value in crypto transactions, you can write off a certain amount on April 15th.

“For clients who have a large exposure to crypto, we recommend using this period to reap tax losses,” said Kevin Lum, Foundry Financial Los Angeles founder and CEO.

Losses work the same way as stocks, Lum said. If your losses exceed your total capital gains for the year, you can deduct up to $3,000 from your regular income. “Losses in excess of $3,000 can be carried over to death to offset future gains.”

LIMIT PORTFOLIO DISTRIBUTION

As with any more speculative investment, it’s wise to limit it to a certain percentage of your holdings – a certain “bucket” that won’t overwhelm the rest of your portfolio.

“A good framework is to set an upper bound,” Benz said. “Think of all your speculative assets in their aggregate and give them a 5% or 10% position in your portfolio – be it crypto, or precious metals, or microcap companies, or whatever.”

For example, while Doug Milnes’ crypto wallet was rescued, it’s not like he’s staked his entire future on it.

“There’s a lot of uncertainty about what to do now, but at least I’m not worried about my retirement,” he said. “My advice to other crypto investors would be not to put all your eggs in one basket.”

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