It has been almost impossible for investors to ignore the dizzying returns of cryptocurrencies, with Bitcoin skyrocketing more than 1,500 per cent from its March 2020 low to a high of nearly $65,000 in April this year.
But that upwards momentum is typically followed by considerable downside. Price collapses can be brutal and swift – Bitcoin dropped by about half in May, while some other cryptocurrencies plummeted more than 90 per cent.
This volatility is nothing new for experienced cryptocurrency investors who have witnessed successive boom-and-bust cycles, but for newcomers – especially those whose first purchases come at what later proves to be a market peak – the experience can be less sweet.
Jason, a Dubai-based investor who gave only his first name, says he brushed off suggestions years ago from friends to invest in Bitcoin and other cryptocurrencies, considering it a risky fad. But then, after hearing how well his friends had done, he decided to take the plunge a few months ago.
“My reason for getting into crypto, like most people, was purely financial, the classic ‘fear of missing out’ [Fomo] and the hope of quick returns,” he says.
He bought Bitcoin near its all-time high in May. “Within a week, it had lost a quarter of its value,” he says.
“The chief lesson [for me] is the sheer volatility of crypto means it’s best not to pile in all at once but gradually over a period of time. Think of it as a long-term investment and don’t put in money you’re going to miss any time soon.”
Nevertheless, he says that doing more research into individual cryptocurrency projects has given him confidence for the longer-term prospects, even if he expects some aspects, such as meme coins, will prove a passing fad.
“While it’s true that some tokens have come and gone in a short space of time, I have no doubt that crypto as a whole is here to stay and in time will become as ubiquitous as other recent innovations have.”
The rise in trading activity can also be linked to the pandemic. Gaurav Thakkar, a Dubai resident, says he began trading in cryptocurrencies in March last year. While he had previously followed trends in the sector, movement restrictions gave him enough time to begin actively trading.
While he eased into it slowly, Mr Thakkar says he has done well over the longer run by using a relatively simple strategy: buying the dip and then exiting positions when they have a profit of about 20-30 per cent, rather than trying to hold for longer in the hope of even greater returns.
Apart from his trading positions, Mr Thakkar also has a long-term, buy-and-hold portfolio that comprises cryptocurrencies he expects will have a major impact on the global economy – even if it takes years.
And while he is bullish on the outlook for cryptocurrencies generally, he says investors should be prepared to fully lose everything they invest.
“All the money I invest in crypto I think is gone,” he says. “So that’s my process. Every money I put…