What 2022 may have in store for the cryptocurrency investor
The first week of 2022 hasn't been kind to bitcoin, as the cryptocurrency lost 11% of its value in mere days and finished this week at about $42,000 — down almost 40% from its all-time high last fall.
Analysts closely watching crypto said the Federal Reserve's hint at raising interest rates sooner than expected caused many investors to sell off their bitcoin holdings and turn toward safer investments. Other digital coins including ethereum and ripple also plunged this week, down 13.5% and 9%, respectively.
That's par for the course in the ultra-volatile crypto market, with investors expecting the big swings to continue in 2022.
"It's part of the game," Ryan Firth, a financial planner with Mercer Street Financial, told CBS MoneyWatch. "You've got to hold on tight and go in with eyes wide open. You could see 80% declines in a matter of a few months."
For investors, 2021 marked an action-packed year for of cryptocurrency. Bitcoin saw its price top out at $69,000 in November, while ethereum notched a record high of $4,404 in October.
In a sign of crypto's growing importance, a number of major retailers began accepting the currency as payments. Some athletes and politicians began receiving parts of their salary in crypto, while Wall Street created exchanged-traded funds around crypto futures.
As the price of bitcoin, ethereum and others skyrocketed, crypto companies made splashy moves. Coinbase went public on the Nasdaq last April and Crypto.com aired a commercial featuring Hollywood star Matt Damon.
In perhaps the biggest move to date, the crypto world capped 2021 with Crypto.com buying the naming rights to the Staples Center in Los Angeles and renaming the sports stadium Crypto.com Arena in a $700 million deal.
"We will see even more crypto companies going public in 2022 than we saw in 2021 and several of them will have valuations of more than $5 billion," blockchain analytics firm Arcane Research predicted in a research note.
Arcane also seems more crypto ETFs on the horizon, offering investors a way to test the waters while limiting the downside.
Don't look down
Still, investing in digital currency "is not for the faint of heart," warned Firth, who personally invests in crypto while advising his clients to put no more than 5% of their portfolio in such a volatile asset. Some days an investor will see tremendous gains, but "you still have to prepare for that sudden drop of more than 50% in a matter of a week or so," he said.
Andrea Hardison, a project manager for a technology consulting firm in Nashville, said she expects huge price swings in crypto in 2022 just like last year. But Hardison, who started buying crypto last April, still plans to continue pouring more money into hex, bitcoin, solana and ethereum, noting that some of her bets have already doubled in value.
Robert White III, a workforce development case worker in St. Louis, is similarly unfazed by the rollercoaster crypto market. White, a bitcoin owner, said he plans to have a portion of his paychecks taken out directly to purchase cryptocurrencies.
"My approach will be consistent and steady," said White, who bought his first bitcoin in 2017 when it sold for $1,100. "I'm hoping for three times growth of what I've invested, but crypto is so volatile that it can go so many different ways within a day."