Will Bitcoin Crash Again In 2021

The crypto crash of 2022 saw major digital assets requite dorsum the gains following a string of loftier-profile implosions.

Then, what practice y'all exercise when digital assets like Bitcoin crash? Though the factors driving each crypto crash are dissimilar, information technology can be helpful to call up a few established investing principles, like choosing how much of your overall portfolio should be invested in crypto.

What tin cause a crypto crash?

Crypto prices can be dramatically affected by major crypto events, such as exchanges or coins crashing. They tin can also sink with higher interest rates, rising inflation and other macroeconomic factors that can bear upon how confident people feel investing their coin in risky alternative assets.

And when prices autumn apace, as they did in 2022, that can compound the pressure on the market by forcing some investors to gratuitous up cash so they can see other obligations.

In the case of the FTX crash, the impact to the market place was enormous. The crash didn't just affect FTX, but also cryptocurrencies FTX heavily invested in (such as

Solana
) and firms FTX did business organization with. The crypto exchange BlockFi, which received a line of credit from FTX.US and was set to be acquired by the company later in the year, froze withdrawals earlier filing for bankruptcy itself a few weeks after FTX did.

Has crypto crashed before?

Yes, multiple times. For example, Bitcoin recorded a previous tape high of nigh $xx,000 in December 2017, merely by December 2018 was trading below $3,500. It reached an all-time high of about $69,000 in Nov 2021 and in the year since dropped past more than than 75%.

I’m worried almost keeping my crypto with an exchange. What should I do?

Consider moving your digital avails to a separate

crypto wallet
. Most exchanges let you to transfer assets to these wallets, which tin exist online (on a divide platform) or offline (on a thumb drive with added security features).

What are the risks of buying crypto?

When crypto is crashing, someone who'south been intrigued from the sideline might think this is the fourth dimension to get in and "buy depression." But while prices can recover — and have done so in the past — the recovery could take months or years.

Conditions might also become worse earlier they get better. Following a major crash, prices could besides continue to go down for some time, especially if the event causes financial troubles for other exchanges or currencies.

Unlike traditional fiscal exchanges, crypto markets don't accept circuit breakers, which automatically break trading when prices dive also quickly. This means prices could plunge much faster than traditional investments.

In that location'due south also a chance any given cryptocurrency could go to zero, or shut to zero, following a massive sell-off. Such was the case with Terra and Luna.

How does crypto fit into your portfolio?

Every bit a rule of thumb, don't invest more than you lot can afford to lose in risky assets like crypto. It's recommended non to invest more than 10% of your portfolio in such assets.

Disclosure: The author Andy Rosen owned BTC at the time of publication. NerdWallet is non recommending or advising readers to buy or sell BTC or any other cryptocurrency.