How to invest when crypto currency prices are at all-time highs

Our advice? Treat it like your 401k.

If you had any money in crypto this summer and autumn, you’re probably pleased with the results (and the people in your life have probably asked you to stop texting them with daily updates on your portfolio). It’s been a good couple of solstices, with our Bitcoin basket up 77%, the Ethereum basket up 110%, and the Universe basket up 108% from June 28, 2021 to November 28, 2021. But all that success might also have you wondering: What do I do now?

When you think the market is low, it can be easy to put more money in. When the market is high, however—especially at some of the all-time highs we’ve seen recently— doubt can creep in. If you invest a lot of money, you might worry the market will tank. Or maybe you’ll decide to put in only a little now and save your bigger investments for the dips. But what if those dips don’t come? You’re going to sweat through more than a few T-shirts worrying that you missed an opportunity.

A Crypto Investing Q&A with Makara

It can be hard to know what to do. At least if you don’t have experts like Matt Heater, Makara’s vice president of strategic initiatives, offering advice along the way. To help you deal with the current market and make the best investment decisions for you, we asked Matt a few questions.

Q: Okay, the most important question first: Am I too late?

A: Just because prices are high doesn’t mean that they’ve peaked. For example, Amazon topped $1,000 a share in 2017 and broke $2,000 at the start of the pandemic. That probably seemed high to people then, but considering Amazon stock is over $3,500 today, it was a great buying opportunity. Success doesn’t have to be an endpoint. It can build on itself. We don’t know how high Bitcoin can go.

Q: How is investing at the top of the market different from investing when the market is falling or flat?

A: Due to the immense volatility in crypto, it is very challenging to predict whether the market is in a bearish or bullish regime. And picking individual winners and losers can be even harder. In traditional markets, you can check a company’s published financial statements and earnings calls to assess future performance of a given stock. Short-term forecasting for crypto is much more difficult. Neither practitioners nor academics have managed to establish a generally agreed-upon model for valuation. Moreover, most digital assets have low utility and adoption which drives uncertainty among investors.

Q: So what am I supposed to do?

A: If you want to take a view on the price direction of a digital asset—evaluating it’s utility, community, and developer focus may be helpful. Many investors do so with varying degrees of success. But achieving your desired result can take a whole lot of work, and likely some luck. Alternatively, you may consider adopting a long-term outlook and implementing a strategy called dollar cost averaging (DCA).

Q: What’s that?

A: DCA is a time-tested principle that basically means investing the same amount of money at fixed intervals in order to reduce the impact of volatility. (If you have regular 401k contributions deducted from your paycheck, you’re already doing this.) Whether the near-term prices go up or down, you invest the same amount of money each period, averaging out the price you paid for an asset over time.

Q: Doesn’t that limit my chances of making a lot of money?

A: To an extent. If you somehow invested everything at the bottom of the market, your investments would grow at the highest possible rate. But timing the actual bottom of the market is practically impossible. What DCA does is help to protect you from accidentally buying at an asset’s peak—and losing the most on your investment. So while it may limit a bit of the upside, it can also limit the downside, and that feels like a worthwhile trade to us.

Q: How often should I invest?

A: The amount and frequency of your investments is up to you, but we recommend weekly or monthly contributions. The most important thing is consistency.

Q: If my investments are way up after a rise in the market, should I take out some of my profits before the market dips?

A: If you have unrealized profits and you need the funds, taking some out may be wise (keep in mind this may result in a taxable event and short-term capital gains). But short-term ups and downs are not an indicator of the long-term performance of an asset. Just look at almost any individual crypto asset’s price chart over the past five years. That’s why, if you’re using DCA, we recommend keeping a long-term outlook regardless of the market conditions.

Q: You think I should hodl, basically.

A: In most cases, yes. I’m a big believer in holding for the long-term (or as some say “hodling”).

Q: I know you said it’s hard to forecast crypto, but is there anything that makes you feel particularly bullish or bearish going forward?

A: At Makara, we are still bullish in the long-term for a few reasons:

The technology underpinning the market continues to get better: Along with the recent Taproot upgrade to Bitcoin and Ethereum’s progress toward proof of stake, we are seeing many layer 2 technologies improve the overall user experience.

Crypto is being used in more and more industries, including gaming, art, and finance, and it’s slowly accepted as a means to purchase goods and services. (OBJ is even taking his new salary as a Los Angeles Ram in Bitcoin.)

Crypto is becoming more widely accepted, with governments getting serious about regulating it, major corporations looking to hold it on their balance sheets, and almost every large bank making strategic investments in it.

Adoption among the public is increasing.

Matt Heater is the Vice President of Strategic Initiatives at Makara, the first automated investment crypto advisor registered with the SEC. A version of this article originally appeared on makara.com. Makara Digital Corporation (“Makara”) is an investment adviser registered with the US Securities and Exchange Commission. Registration as an investment adviser does not imply a particular level of skill or training. Makara exclusively provides investment advisory services related to investing in cryptocurrencies and other digital assets. Makara is not a broker-dealer, exchange, custodian, or wallet provider, and is not intended for frequent trading activity. Investing in digital assets is highly speculative and volatile and Makara is only suitable for investors who are willing to bear the risk of loss and experience sharp drawdowns.