“Crypto's Chaotic Week” with faded stock charts in the background and “Weekly Viewpoint” in the top left corner.

Crypto had quite the chaotic week.

Cryptocurrencies have fallen sharply across the board with Bitcoin sliding more than 40% since last Friday (including a 30% drop on Wednesday alone).

If you’re a crypto investor, you’ve probably had to deal with major drops in the past. But this time around felt especially painful. Maybe it was because of Bitcoin’s 100% rally this year or the fact that the crypto conversation was gaining momentum among the U.S.’s biggest companies and institutions. No matter the case, it was breathtaking (but not surprising) to see how quickly the market’s mood can turn.

Chart titled Big Swings Are Nothing New for Bitcoin tracks Bitcoin’s distance from a 52-week high. The largest drop was around 2012 to –93%. Since then, there have been drops to –70% (2013 and 2018) and –73% (2015). The most recent drop was to –40% (2021).

Is this the new center of gravity for crypto or is this just the post-pandemic speculation shakeout? It’s tough to say, given crypto trades more on future hopes for adoption than intrinsic value or cashflows.

But we still believe that blockchain, the technology and innovation that underlies digitals currencies, has boundless possibilities.

What happened with crypto?

Crypto has been a casualty of the changing tide in and out of speculation. High-flying stocks have increasingly fallen out of favor with inflation and Fed policy change worries, and they’re starting to weigh on the market. Groups like biotech and stay-at-home stocks are far off their peaks. If your portfolio was up big in 2020, chances are it’s been down big over the past month.

Sure, Elon Musk’s tweets on Bitcoin added fuel to the fire, but Bitcoin has looked like the classic case of a crowded trade that turned. Investors have jumped from Bitcoin to Ethereum to Dogecoin in search for the hottest trend in the crypto space. This week, crypto holders rushed to the exits, with all three coins down 30% or more from their peaks.

Staying Grounded

If you’re wondering if crypto reached a top, you may be asking the wrong question. The bigger question is if the technology that powers digital currencies – blockchain – is here to stay. The answer depends on adoption trends and the potential realization of digital assets’ many use cases.

The tricky part about crypto trading is that a bright future isn’t always reflected in coin values. Plus, steep selloffs and peaks are more a feature than a bug. In fact, Bitcoin has gone through 23 selloffs of 20% or more since 2010.

But a drop this steep and quick could test anybody’s patience, much less the wave of new crypto investors that have jumped in since the beginning of the year.

Here’s how to stay grounded if your crypto holdings are caught in the middle.

Know thyself. Above all, it’s important that we make balanced choices in the context of our individual financial situation, our long-term goals and our risk appetite.

Remember the risks. All investments carry risk. Some carry much more than others. Crypto is considered an especially risky space for a few reasons. Lately, Bitcoin has been at the center of environmental scrutiny for its energy usage (environmental risk), government oversight (regulatory risk) and lack of infrastructure (operational risk). Crypto doesn’t have circuit breakers or investor protections like stocks do, which could lead to knee-jerk reactions and bigger moves.

Fight the FOMO. Much of crypto’s rally this year has been powered by FOMO (the “fear of missing out”). That’s why we’ve seen massive interest in Dogecoin, which was originally created as a joke. Crypto has been a trendy investment, and trends can come and go (even if the underlying investment has potential). That’s why having perspective is so important. Don’t let FOMO drive your investing decisions.

Think outside the coin. Stocks connected to crypto could have more stable prospects if you’re looking to get into the space, and many of them offer more diversified stakes than just one coin. For example, Coinbase is the world’s largest cryptocurrency exchange, meaning that it’s a toll collector of sorts for all crypto trades. If one or a group of coins emerges as a leader over the next few years, stocks like Coinbase could be able to benefit from increased adoption.

The Bottom Line

We’ve said before that crypto’s next test is to act like a currency. That chapter of the story is still unwritten. Currencies whose values swing 30% in a single day can understandably give investors pause. As with any innovation, it’s essential for investors to stay curious but wise. Keep in mind that investing in proven stocks is not the same thing as trading in speculative investments. But we’re still optimistic about what digital currencies and blockchain could mean for the future of technology and finance.

If you’re having trouble deciding what do to next with your crypto (or any other investment), it might be worth asking yourself why you bought in the first place. That “why” could determine what you do next.

If you bought just to get a piece on the way up, set some explicit goals that determine what you’ll do when Bitcoin crosses a certain price. Stick to those goals instead of trying to catch the next pop.

If you’re treating Bitcoin as an inflation hedge, remember that those elements are hard to know with such a young, speculative vehicle.

If you bought because you believe in the transformative power of cryptocurrency and blockchain, the story may not be over yet.

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Callie Cox, senior investment strategist, contributed to this article.

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Headshot of Lule DemmissieAs president of Ally Invest, Lule leads Ally Invest Securities, Ally Invest Advisors and API business lines. She is responsible for the products and services delivered to Ally’s all-digital client base, the shaping of the end-to-end client experience, and the management of the P&L and growth strategy for the business. Lule has a passion for investor behavior and agile product development and an appreciation of design thinking in shaping user-centric experiences.

An advocate for financial and retirement solutions that rely on a mix of digital and human guidance, Lule believes in empowering individuals, especially women and minorities, to independently drive their own financial futures.

The opinions expressed here are not meant to be used as investing advice. For more information, visit our website.