Buckle Up: How investors can deal with crypto turbulence
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[June 30, 2022] By
Chris Taylor
NEW YORK (Reuters) - When Doug Milnes
started buying cryptocurrencies in January of this year, he felt like it
could become an entirely new asset class for investors.
Right now what it is making him feel is extremely unsettled.
The marketing executive from Summit, New Jersey, says his holdings,
including a number of different cryptocurrencies like ethereum, are down
around 60% from where he bought. What was 2% of his portfolio is now
around 0.8% – making him wring his hands about whether to hold on, head
for the exits, or buy the dip.
“Crypto has gone through a number of booms and busts over time, and it’s
hard to know if this time is different,” Milnes says. “I don’t know if
my feelings are clouding my judgment. It’s hard to feel confident about
what to do next.”
It has certainly been a harrowing year for crypto, and Milnes is not
alone in trying to make sense of the plummeting charts. Total market
capitalization of crypto assets has gone from almost $3 trillion in
November 2021 to roughly $900 billion as of June 29, according to the
tracker CoinMarketCap.
Meanwhile, bitcoin - the dominant cryptocurrency - fell from a high of
more than $67,000 to its current level just below $20,000.
![](http://archives.lincolndailynews.com/2022/Jun/30/images/ads/current/stuffedaria_sda_HEROS_2022.png)
“Some people set up their portfolios in the euphoria of the last few
years, without much thought about a bigger plan,” said Christine Benz,
director of personal finance for investment research firm Morningstar.
Recent losses, she adds, are a good impetus to ask yourself some
questions, including how much risk can you take and what kind of losses
can you withstand?
"If you didn’t go through that process on the front end, it’s worth
thinking through now,” Benz said.
Of course, crypto is hardly alone in flying through heavy 2022
turbulence. The stock markets officially dipped into bear territory
earlier in June – the S&P 500 is down more than 19% year-to-date as of
Wednesday, and the Nasdaq is down more than 28% over that time frame.
The unique nature of crypto has skeptics likening any moves now to
“closing the barn door after the horse has bolted,” said Peter Palion,
president of Master Plan Advisory in East Norwich, New York. “Except on
further thought, a horse is a real thing with a real value, and crypto -
as John Paulson famously said - is a limited supply of nothing.”
No matter what your personal stance on crypto, the key to handling
extreme market moves is having a plan in place, so you do not act out of
pure panic. A few tips from the experts:
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![](../images/063022pics/busine47.jpg)
Representations of cryptocurrencies Bitcoin, Ethereum, DogeCoin,
Ripple, Litecoin are placed on PC motherboard in this illustration
taken, June 29, 2021. REUTERS/Dado Ruvic/Illustration/File Photo
![](http://archives.lincolndailynews.com/2015/May/02/images/ads/current/guzzardo_lda022609.png)
REEVALUATE YOUR RISK TOLERANCE
If this year’s crypto swoon has made you realize you are not equipped to handle
such swings, then do not assume even more risk.
After all, just because there have been heavy losses, that does not rule out
more losses to come. “If you find yourself unduly rattled, maybe you’re not a
good candidate for holding that asset class,” said Benz. “There’s no shame in
that.”
WRITE OFF LOSSES
It may seem like cold comfort, but if you have lost value in crypto
transactions, you can write off a certain amount come April 15.
“For clients who have a large position in crypto we recommend using this time to
tax loss harvest,” said Kevin Lum, founder and CEO of Foundry Financial in Los
Angeles.
Losses function the same as they would for equities, Lum said. If your losses
exceed your total capital gains for the year, you can deduct up to $3,000
against your ordinary income. "Losses beyond $3,000 can be carried forward until
death to offset future gains."
LIMIT PORTFOLIO ALLOCATION
As with any more speculative investment, it is wise to keep it to a certain
percentage of your holdings – a particular “bucket” that will not swamp the rest
of your portfolio.
“A good framework is to set an upper threshold,” said Benz. “Think of all your
speculative assets in totality, and give them a 5% or 10% position in your
portfolio – whether crypto, or precious metals, or microcap companies, or
anything else.”
For example, even though Doug Milnes' crypto portfolio has been savaged, it is
not like he bet his entire future on it.
![](http://archives.lincolndailynews.com/2022/Jun/30/images/ads/current/napa_sda_HEROES_2022.png)
“There is a lot of uncertainty about what to do next, but at least I’m not
worried about my retirement,” he said. “My advice to other crypto investors
would be, don’t put all your eggs in one basket.”
(Reporting by Chris Taylor in New York; Editing by Lauren Young and Matthew
Lewis; Follow us @ReutersMoney)
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