How to Manage Volatility as Bitcoin and Ethereum Fluctuate Wildly

On this Jan. 12 edition of “The Crypto Show” on Backstage Pass, Fool.com contributors Chris MacDonald and Jon Quast discuss volatility in the crypto world, and how to handle this volatility with cryptocurrencies such as Bitcoin (CRYPTO:BTC) and Ethereum (CRYPTO:ETH).

Jon Quast: Let’s kick it off here at the very beginning and let’s talk about what’s been going on, crypto movements. It’s been volatile, Chris.

Chris MacDonald: Yeah. Interestingly, declines in Ethereum have been following the same pattern over recent weeks and we’ve seen there’s a little bit of a recovery in the market today. It’s interesting.

We’re going to get to some of the inflation data later, but the market is interpreting seven percent inflation as a good thing today. That’s interesting. What we’re seeing is a recovery across-the-board. Bitcoin has been a little bit less volatile than the other tokens, and I think probably being viewed more as a store of value. We’re seeing Bitcoin’s volatility, it’s up five percent today but down five percent for the week, and Ethereum, it’s been a little bit more volatile lately, so we’re seeing a bigger increase today and a bigger decrease over the past week, and that’s what we’ve seen in some of the Altcoins, and a lot of the more higher momentum meme tokens and other interesting ones that are grabbing a lot of investors’ attention right now.

Jon Quast: It’s incredible when you think about it. Bitcoin, I don’t know what the exact market cap is right now, but roughly a trillion dollar market capitalization. You look at Ethereum, I believe last I checked somewhere in the ballpark of 500 billion market cap.

Moves like this — up 10 percent, down 10 percent. It’s very, very surprising to me at this stage of the game. We didn’t have this in the notes, but I just want to ask, how much sleep are you personally losing over the daily fluctuations of crypto? I’m asking a little bit facetiously.

Chris MacDonald: Well, for me, personally, I’ve got a small percentage of my portfolio in the crypto in general. For me, the volatility is somewhat expected. I think a lot of people that follow the crypto space or have followed it for a little while know about how volatile these tokens are and expected. I think that’s the expectation you have to have going into it that with the returns that these tokens have provided, alongside that comes a lot of volatility.

Over the short-term, these moves are expected, and that goes to the thesis too of, will these ever be true currencies because do you want to get paid in something that goes up double-digit percentage every week or down. You want something a little bit more stable, so we’re going to talk about some stablecoins today too. I think that’s a little bit of a segue there, but that is an interesting aspect of the crypto world. I think viewers on here have to expect that volatility a little bit.

Jon Quast: Yeah, and definitely, when you are dialed into long-term investing, you really have to lay some of those day-to-day gyrations. You have to lay them to rest, put them out of your mind. Personally, I haven’t even checked my cryptocurrency portfolio value in 2022. Because frankly, I know that it’s been volatile. I don’t want to do that to my own psychology and I’m still hanging on for the long term. The reasons that I invested still apply today, so I don’t need to check it personally for my own psychology.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.