5 ways to deal with crypto’s downfall
Since the induction of Bitcoin in 2009, the cryptocurrency market has seen many cycles of rise and fall, even within the greater long-term bull and bear market tendencies. Even though the crypto market has seen happy days with significant recovery followed by a period of growth, it can be very stressful for both amature as well as experienced traders to navigate the dangerous waters of the crypto world during a downturn.
Here is what you should do to keep your portfolio’s worth, prevent emotional trading, and lose less sleep when the crypto market is bearish.
Don’t be swayed by FOMO or FUD:
It’s good that you keep yourself updated with the latest trending news on the social platform about crypto. But too much of the news feed can be bad. There is a saying “too much analysis leads to paralysis,” especially when the market has taken a hit, and your emotions go haywire.
Fear of missing out (FOMO) or Fear, uncertainty and doubts (FUD), common terms used within the crypto community when there is a sudden trend of buying and selling off the cryptos. FUD is generally experienced by the traders when the crypto market is bearish. With the addition of rumors, it creates a chaotic situation triggering a frenzy sell off of cryptos.
It is to be understood that crypto markets are as predictable as the change in weather within the next five minutes. In other words it is difficult to predict the price movement in the crypto market. At times influencers and developers have the vested interest triggering FUD within the crypto communities. It is advisable to carry out your own research from multiple sources before relying on someone else.
Set clear objectives, diversify your portfolio, and only trade within your means:
You should always invest what you can afford to lose. Never invest more in any crypto as per your gut feelings. There might be a downturn in the market giving you a heartache until the market has some positive news.
Most smart investors apply the same rule to the crypto market as they apply for the stock market. They diversify their portfolio as they invest.
Crypto never sleeps, and that is true. The crypto market is very volatile and crypto investors should plan their trading tactics ahead of time, as well as their entry and exit positions if possible.
It is important to plan ahead as the crypto market is frequently attacked by a black swan event, or a hack, or even a tweet from a celebrity causing the market to fall.
Fixed strategies like dollar-cost averaging (the process of purchasing or selling modest sums at regular intervals) could allow a crypto buyer to avoid trading with their emotions or having to stare at the charts 24 hours a day, seven days a week.
When it comes to volatile assets like cryptocurrencies, it’s easy to get carried away. Trading is a high-risk activity, particularly in a down market, and investors should create goals that balance potential losses by maximizing potential gains.
Thinking for long term and holding on to your assets:
If the value of your assets has decreased since you purchased them, this is known as unrealized loss, and it is only realized when you sell them for less than you paid for them.
No matter how low the price of Bitcoin falls, it will always recover and rise due to the scarcity in the market. Holding on to your crypto assets for a long time can be advantageous as Bitcoin is very volatile and can easily undergo a rise after a fall. In the recent decade, it has also been viewed as a successful key asset.
In some countries, such as the United States, holding cryptocurrencies for extended periods of time might help save money on taxes. Holding for a year or more, for example, may be preferable to sell in the short term.
Always be prepared to brave out the downturn or make a profit:
Converting some of your volatile crypto holdings for more stable assets is one of the safest ways to minimize crypto volatility and protect yourself during a market downturn. In a cryptocurrency bull market, this can assist an investor ‘lock-in’ their balance, reduce their risk and curtail the need to actively manage their portfolio and stress levels.
Switching a portion of your portfolio to stable-value assets decreases your exposure to price volatility when markets are quiet, as stablecoins like USDC try to maintain their worth at a predetermined price.
Keep in mind, though, that selling everything at once, a practice known as capitulation, can easily result in crypto holders losing money if the market recovers suddenly. This is why, before you’re forced to make a decision under stress, you should develop a preliminary estimate of how much profit and loss you’re willing to accept.
Portfolios can gradually grow as many investors opt to move in and out of solid assets as part of a bigger withdrawal and buy-back plan, if their timing is right. However it all boils down to timing of exiting and entering the market which even the seasoned investors fail to achieve. Thus dollar-cost averaging can be a good way of avoiding timing the market.
Be on the lookout for opportunities:
You can make most of it even in a downturn market, if you know where and what to look for. Keen investors are just waiting for such an opportunity to buy their crypto at a discounted price and make profit once the market goes green.
There are many investors who just want to see the crypto market drop only to buy their favorite crypto and then sell it at the appropriate time to maximize their profits.
Even those who trade during downturn or with a slight market fluctuation are investors who brush up on their technical analysis to turn it into a profit.
Short selling, or betting on an asset’s value falling, can be a profitable strategy during market downturns.
Even in a bear market or downturn, activities like staking and DeFi yield farming can help level out returns and give support to ensure your actual crypto balance is always growing.
Dollar-cost averaging works whether markets are up or down if you believe an asset will eventually be worth more. During downturns, you actually receive more bitcoin for your dollar.
These activities (with the probable exception of DCA) are not for the faint of heart, and they may result in huge losses — or, at the very least, a significant increase in the amount of time you spend staring at worried price charts in front of a screen.