In this blog, we will talk about some of the basic tips that can help one deal with a crypto crash better. The cryptocurrency market is highly volatile and managing your investment can be challenging when the market falls. By keeping certain rules in mind, investors can make better decisions during a crypto crash.
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What to Do When the Crypto Market Crashes?
Cryptocurrencies have become a worldwide hot topic, and everyone is talking about it them. 2021 in particular was quite a successful year for the crypto space as it attracted tons of mainstream investors along with some hefty institutional investments. Many experts are calling it the future of finance, and everyone wants to be a part of this crypto revolution.
However, unlike the stock market, the cryptocurrency market is not for the faint of heart. Cryptocurrencies are highly volatile and can make a dramatic move in either direction. A cryptocurrency project losing half its value in a matter of 24 hours is common. When the market goes down some cryptocurrencies might now lose more than 5% but others can lose 50% to 60% of their value. That is why cryptocurrency markets are tricky to navigate and one needs to be cautious with their investment.
Let’s take a look at some important tips that will help you manage a crypto crash better:
Understand the Risks
If you want to manage your assets better during an event of a crash then you must understand the risks first before investing. When the market is crashing, people who have not had the chance to buy in the past become eager to invest.
It could be tempting to invest in a cryptocurrency when it is falling but before you do that you need to keep the risks in mind too. It is generally advised by the crypto experts that you only invest an amount that you are willing to lose. If you are investing smartly, you would not be able to lose all your assets but that is not the point. You need to go in with the mindset that even if you end up losing all your investment it would not make you lose your sleep.
It is also advised that you invest in a cryptocurrency for which you have a good reason to invest. Not knowing what you are investing in and what is driving the price up or down is one of the biggest mistakes made by crypto investors.
Find out the Reason for Crash
Before you take any action during a crypto crash it is crucial that you find out the reason behind it. There are several factors that can trigger a sell-off in the market. Sometimes it happens when the market sentiment gets pessimistic and sometimes it happens because of the government crackdowns.
Cryptocurrencies are now operating at a larger scale and governments cannot ignore them. Each country is consistently coming up with new rules and regulations to ensure that cryptocurrencies are operated under some laws.
Sometimes when some news about China cracking down on cryptocurrency or USA introducing new regulations comes out, people start panic selling driving the price downward.
Knowing what is driving the price downwards can help you make better decisions during the crash. A lot of these crashes are temporary and if you have invested wisely you might end up recovering well from it.
Set Your Goals and Diversify
When cryptocurrencies are crashing it could be seen as a nice time to enter the market. However, before you make any investment it is vital that you set your goals and diversify your portfolio.
Once you have entered a position you should have a clear goal when you want to come out of it. You must also use stop losses to minimize your losses. Unlike the stock market, the cryptocurrency market never sleeps. It gives a lot of advantages to investors as they can move in and out of a position any time they want.
It is also advised that you diversify your investment portfolio. Putting all your eggs in one basket can be dangerous. Having invested in multiple different cryptocurrencies ensure that even if one takes significant losses, you would not be losing your whole investment.
Keep in mind, while diversifying the portfolio you should still go for the cryptocurrencies that you understand and have confidence in.
One of the major reasons people lose money in the crypto market is that they panic sell. When the price is dropping it makes inexperienced investors nervous and they start selling in loss to salvage whatever they can. It is advised that if you are investing in a project and are not taking profits at significant climbs then you should think long-term.
When you are invested in a project that you believe in then there is no need to panic sell. HODLING can get you through the crash and you will eventually be able to recover if the project is solid. A good example of this can be taken from the likes of Bitcoin and Ethereum. They have seen some red weeks and even months but those who held with patience in that times are bearing the fruits now.
That is why it is repeatedly recommended that you invest in a project that adds something of utility to the crypto space and has a bright future ahead.
Crypto crashes are not easy to deal with especially when you are new to the space. When the market starts crashing it is common for investors to panic sell. That is why every investor must have a plan in their pocket that can help them deal with the crash better. Using take-profit and stop-losses if your assets are stored in an exchange wallet can also help you minimize your losses in an event of a crash. The better you plan your investment the more effectively you would be able to deal with a crash.
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