Bitcoin was riding high in 2017 with the cryptocurrency rising more than 1,400% last year. However, 2018 has not been kind to Bitcoin as it is down to start the year and in the last month has declined by more than 35%. From a valuation of almost US$20,000, the currency was barely over US$11,000 by the close of Tuesday.
Bitcoin has seen tremendous hype in the past year, but concerns of crackdowns have weighed on investors as South Korea and other countries look to regulate cryptocurrency trading.
Cannabis investors should look to Bitcoin as a potential foreshadowing of what could happen with pot stocks. While cannabis stocks are already facing regulations and restrictions, the point is that Bitcoin has come crashing down on news that wasn’t as awful as the drop in price would have had you believe.
The problem with speculation is that stocks and commodities can be fickle and easily overreact to even the slightest news.
A stock like Aurora Cannabis Inc (TSX:ACB), which has quadrupled in price in just one year, could be due for a correction. However, the industry as a whole has high valuations, with Canopy Growth Corp (TSX:WEED) and Aphria Inc (TSX:APH) seeing their values triple in the past year as well.
However, one way that investors can arm themselves against the risk of a big sell-off is to put stop-losses in place to minimize potential losses. Cannabis stocks have proven to be highly volatile and investors should be careful not to assume that just because the share prices have gone up in the past year, that the trend will continue in 2018.
