Bitcoin Slips Below $35,000 Again. Should You Buy or Sell?

Don't rush into any investment decisions.

The crypto market fell again this week as Russian forces attacked Ukraine. President Biden said, "President Putin has chosen a premeditated war that will bring a catastrophic loss of life and human suffering." The world's biggest crypto, Bitcoin (BTC), dropped below $35,000 for the first time since the end of January.

Cryptocurrency prices have been struggling for several months. Bitcoin is now down almost 50% from its November high. The initial drop was caused by the Federal Reserve's decision to pull back some of its economic stimulus measures. More recently, the Russia-Ukraine crisis has added to global market uncertainty. All in all, investors are pulling out of risky asset classes like cryptocurrency.

How to handle latest crypto crash

One of the only things that's predictable about cryptocurrency is that these price changes will spark extreme commentary on both sides. Long-term crypto enthusiasts urge investors to buy the dip, while crypto critics declare the price will go to zero.

Neither extreme is helpful for the majority of crypto investors. If you're trying to work out whether to buy or sell, the most important thing is to take a moment to think about what's right for you. Don't make any rash decisions -- panic buying or selling rarely work out well.

Should you sell?

It can be terrifying to watch the value of your crypto portfolio fall, and it's understandable if you're considering cutting your losses. However, bear in mind that if you sell your Bitcoin now, you'll lock in your losses and won't benefit from any future gains. Think about why you bought Bitcoin in the first place, and ask yourself whether that reasoning still stands.

Perhaps you bought Bitcoin because you think it could change the future of money, or because you hope it might perform well in the long term. The Russia-Ukraine crisis doesn't change this thesis. If you no longer have confidence in Bitcoin's long-term potential, that's a different story. But even then, if you want to exit the market, you need to think about how to do so with minimal losses.

It's also a good idea to zoom out and look at Bitcoin's historical performance. Volatility is part of cryptocurrency investing, and so far the price has always recovered. There are no guarantees and those dire predictions about Bitcoin could come true. But for every analyst that believes Bitcoin will fail, there are others who believe it could go to $100,000 or more. The most important thing is to keep your eyes focused on the long-term horizon and consider what will help you build long-term wealth.

Should you buy?

Social media has been full of talk of buying the dip for several months now. For some people, this can be a sound decision. But it depends on your financial situation and investment goals. If you're considering buying Bitcoin today, ask yourself the following questions:

Do you have money to spare?

The golden rule of cryptocurrency investing is to only invest money you can afford to lose. That way if the market crashes even further, it will be disappointing but not financially devastating. As we're seeing at the moment, the price of Bitcoin can fall dramatically in a short amount of time. Don't use money you need in the short term to buy Bitcoin.

Are you on top of other financial goals?

Cryptocurrency investing is a relatively new and untested market, and there are still many things we don't know. So make sure Bitcoin is part of a diversified portfolio and you're up to date with other financial goals. Don't buy more Bitcoin if your emergency fund won't cover three to six months of living expenses, or your retirement savings aren't on track.

Does your original investment thesis hold true?

It may feel like a bargain to buy crypto at a 50% discount. But just like a sale in the grocery store, it's only a bargain if it's something you were going to buy anyway. Think carefully about why you're buying Bitcoin and how it fits into your other investment goals. If you're buying it just because it seems cheap, think a little more.

READ MORE: Best Cryptocurrency Apps

Are you comfortable with further price drops?

Don't assume a monthly low means Bitcoin can't fall further. Conflict in Europe, stricter crypto regulation, and further economic tightening from the Federal Reserve could all push the price down more. Some analysts are talking about potential lows of $30,000 or less. Only buy Bitcoin on the dip if you're OK with a bigger price drop.

Bottom line

Investing with a long-term perspective makes it easier to keep price fluctuations in perspective. It's never fun to see the value of your investments halve. But extreme volatility is part of the price crypto investors pay in exchange for the potential of high rewards.

Market crashes are also a good reminder of the benefits of maintaining a diversified portfolio. Try to ensure that high-risk assets like crypto only make up a small portion of your overall investments. If you have money in cash, crypto, stocks, real estate, and other asset classes, you won't be as badly affected if one of them fails.