7 Steps to Take If the Crypto Market Crash
Crashing markets are merely a characteristic of investment, markets, and market cycles. All markets eventually have a crash, whether it be in the housing or stock markets.
These crashes occur due to many reasons like price-earnings ratios are higher than long-term norms and there is an extended period of rising crypto coin prices (a bull market).
The fear of not knowing what to do and what a crash signifies can be terrible. Thankfully, the conventional stock market can offer some perspective and assistance when determining what to do with your cryptocurrency assets if the market experiences a collapse.
Now here are some points we are going to discuss which one should keep in mind when a market crashes.
1. Do Nothing
When in doubt, keep yourself cool and do nothing. In the market, fluctuations are common. You'll be more likely to get a return on your investment in the long run if you make wise investments, manage them efficiently, and stick with the market. Therefore, even though a decline is unsettling, you may not need to take any action.
Don't take any decision in a rush. Keep yourself calm down and wait for the right time to execute your trades because taking no trade is better than taking a wrong trade.
2. Don't be panic
It's only normal to want to liquidate your assets when the value of your crypto investments starts to fall. However, doing so frequently results in selling at a loss and missing out on any later recovery.
Suppose you decide to sell your Bitcoin holdings after seeing it drop by 20%. What happens if the price reverts rapidly to its previous level? You may be hesitant to buy it back after losing 20% of your original investment.
Once the market starts to decline, you may elect to sell your cryptocurrency or you may decide to take advantage of the downturn by purchasing more. Whatever you choose to do, you must first maintain your composure in order to think clearly and make a choice.
3. Keep a long term investing approach
Investing in cryptocurrencies is very risky. There have already been a number of substantial price drops, as you can see from the chart for 2021. Cryptocurrency prices eventually rose and proceeded to hit new highs following each fall.
Don't pay attention to the 24-hour charts. Zoom out instead and consider the year as a whole. All market cycles include ups and downs, but they are more pronounced with a new and somewhat untested investment like bitcoin. You can afford to wait out the declines if you haven't invested any funds that you will require immediately.
Understanding why prices are declining is a good thing in case it affects your initial investing idea. So try to understand the cause of the market crash. Keep an eye on the news which affects the market most. One negative news or rumour can decline the price of any stock or cryptocoin.
Proper research and analysis helps us to prevent any loss in the market so try to understand the pattern of previous charts, find out their support and resistance points and prepare yourself for every situation.
Consider how fresh developments may affect the underlying position for cryptocurrency. Governments might become more strict about it. They'll promote its increased adoption, right? Will the market for cryptocurrencies be aided or hampered by new regulations? What other factors could affect the market?
5. Consider buying in the dip
There is a line which is very famous in the investment journey of any person, “buy low, sell high”. So try to find an opportunity in dips because that is the right time to buy the stock or cryptocurrency but avoid the trap of panic buying as well.
It serves no purpose to purchase a product you haven't thoroughly investigated and don't actually want just because it's on sale. And it's certainly not a good idea to borrow money just to buy the dip.
Given the looming threat of increasing regulation, investments in cryptocurrencies are still risky and uncertain. If you attempt to buy the dip, prices can decline even farther.
6. Diversify your portfolio
Never invest a large
amount of money in a single cryptocurrency.
It is smart to invest only a small portion of your overall money in cryptocurrencies in order to reduce the risk. There are many other, safer investing possibilities.
So try to balance your exposure to risk by keeping a healthy amount in things like stocks, ETFs, and real estate. In this manner, financial disaster won't result if the current downturn signals the start of a bigger crash.
We have to understand that cryptomarket is very volatile and the dips in the market are reminders for us that prices don't always go up. So invest your hard earned money in different sectors which reduces the chances of big loss in a market crash.
7. Always keep emergency backup
Another obvious point is that before making any investments, you should make sure you have a sufficient emergency reserve. In situations where your investment is at risk, you will be better able to remain composed and make informed judgments.
Conclusion
Crashing cryptocurrency prices are unavoidable in this kind of investment. The best advice is to hold on tight and wait for prices to rise if this is your first dip. You might then decide that investing in cryptocurrencies is too stressful for you, which is understandable. But avoid making snap judgments. Before you begin selling, give yourself and the market some breathing room.
Never take decisions by heart in the
market because the market is driven by data and facts not by emotions. When the
market crashes many of the traders start selling off their holdings which
create unnecessary selling pressure in the market and it leads to a big fall in
the market.
Volatility is the part of the game. Sometimes the market gives higher returns and sometimes it takes back some money whichever you earned from here. So don't panic, always be positive towards your investing decisions and keep learning with the market.