Bitcoin Slips Below $100,000. Here's What It Means for Investors

Bitcoin (CRYPTO: BTC) just dropped below $100,000 for the first time in about six months. According to CoinGecko data, it slipped to $99,076 on the afternoon of Nov. 4. That's a drop of more than 20% on the lead crypto's all-time high of $126,198 on Oct. 6.

More widely, the total cryptocurrency market cap fell almost 5% in 24 hours to $3.42 trillion. Ethereum shed 11% and Solana sank by 9% in the same time period.

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What's causing Bitcoin and the crypto market to pull back?

One of the difficulties of cryptocurrency investing is that market sentiment can have an outsized impact on prices. Right now, the Crypto Fear and Greed Index, which uses a mix of indicators to take the pulse of investors, is showing "Extreme Fear."

Here are two big factors weighing on the crypto market today.

1. December rate cuts may not come

Rate cuts are often good news for crypto investors and optimism about rate cuts was a major driver in Bitcoin's recent high. Rate cuts make it cheaper to borrow money and can also reduce the yield on safer investments. Both can push investors toward riskier assets.

The Federal Reserve did go ahead with a rate cut in October. However, Fed Chair Jerome Powell warned that another rate cut -- which was widely expected -- was not a "forgone conclusion."

The stock market also dropped on Nov. 4 as negative headlines stoked investor concerns. A growing risk-off sentiment is affecting crypto, tech stocks, and other retail investor favorites.

2. Investors are still reeling from crypto's Black Friday

Oct. 10 will go down in crypto history after more than $19 billion of crypto was wiped out in a single day. A surprise tariff-related social media post from President Donald Trump caused prices to fall when many were betting on a continued rally. Thin liquidity and high amounts of leverage transformed what might have been a slight drop into a dramatic cascade of liquidations.

Some say the liquidations "reset" the risk by clearing out the excessive leverage. That may be so, but high levels of margin and leverage in what is already a high-risk market don't exactly offer solid foundations for long-term growth. Moreover, the flash crash raises doubts about Bitcoin's role as a safe asset in times of turmoil.

What Bitcoin's drop means for investors

Most crypto investors know that cryptocurrencies are risky investments. Unfortunately, there's a big difference between knowing something in theory and living it in reality. When the value of your assets drops by 20% in a month, it can be unnerving. Here are some ways to cope.

1. Hold on to your hats... and your investment thesis

Investment decisions made out of panic rarely pan out well. If you bought Bitcoin with a plan to hold it for the long term, remind yourself why you bought it and how it fits within your wider portfolio.

Bitcoin has attracted swaths of institutional investors this year, partly because of its potential as a form of digital gold. It could also take a portion of the international remittance market and act as a currency in developing countries.

It's also worth remembering that Bitcoin is still up more than 50% year over year. For comparison, the S&P 500 is up about 19%. Not only that, but almost every time Bitcoin hits a new high, it drops dramatically in the months after. It has also always recovered, rewarding investors who hold for the long term.

2. Consider dollar-cost averaging

Dollar-cost averaging (DCA) involves spreading an investment out over time by buying a set amount at fixed intervals. For example, you might buy $100 of Bitcoin on the first of every month. Making regular purchases reduces the risk of trying to time the market and takes some of the emotion out of the process.

It can also help to even out any volatility. If you buy Bitcoin just before the price falls, you will pick up more at a lower cost next month. If prices start to rally, you may benefit from the upswing. Almost 85% of investors surveyed by crypto trading platform Kraken last year used DCA.

3. Make sure cryptocurrency is part of a balanced portfolio

One of the best ways to manage cryptocurrency's volatility is to think about how much of your portfolio you want to allocate to riskier assets. That depends on your investment horizon, strategies, and personality. If crypto makes up 5% of your portfolio -- alongside a mix of stocks, bonds, real estate, and even gold -- even the most dramatic price swings will be more manageable.

Bitcoin only dipped below $100,000 briefly yesterday before recovering to about $104,000 today. If it can hold above that key psychological mark, confidence may return to the market. However, that may not happen. Prices could fall further. But if you're in it for the long term and have mitigated the risk, you can wait out whatever comes.

Emma Newbery has positions in Ethereum and Solana. The Motley Fool has positions in and recommends Bitcoin, Ethereum, and Solana. The Motley Fool has a disclosure policy.