So, your crypto numbers are down. First time? Most crypto users are accustomed to frequent and drastic price swings…
However, the recent crypto crash has been an unfamiliar experience for many newcomers.
This natural cycle is a first for many but this article will guide you and help you handle it like a pro.
#1 – Do Not Panic Sell
If every investor followed this key step instead of listening to our gambling brain, drastic price crashes wouldn’t happen. Asset values often drop and rise due to new forks, code changes, news, announcement, etc., but in the case of crypto, prices often drop simply due to panic.
A scary headline starts circling the web and many fall victim to fear, uncertainty, and doubt (FUD). This creates a chain reaction, which jump-starts a selling epidemic. Most people give in to the pressure and start to panic sell.
Due to the overwhelmingly unbalanced ratio of supply and demand, the price simply crumbles. Thus, creating a self-fulfilling prophecy.
In a perfect world, you would buy the dip and sell the top. In reality, though, the opposite often happens. People buy into the hype and sell in the panic. Resulting in nothing but lost money.
The truth simply is, you’re going to get caught in the rapidly plummeting position at some point and it is your job and best interest to be prepared for it.
If you’re not planning on HODLing be ready to ride out the dip in the least, as most panic sell-offs rebound eventually and rather quickly.
#2 – Don’t Fall Prey To Poor Reddit/Internet Advice (FOMO)
It is crucial to stay up to date with the latest news and trends in the cryptocurrency world. However, too much information can definitely be detrimental.
Read more about Crypto FUD, FOMO, HODL here: https://www.smallcapasia.com/what-is-fud-hodl-or-fomo-in-cryptocurrency-lingo-find-out-more-here/
Our fear of missing out often leads us down a deep rabbit hole of internet searching. Many online message boards like Reddit, Quora, etc., are a popular place for cryptocurrency enthusiasts but also cryptocurrency fanatics.
During market downturns, it’s all too easy to be overcome by instincts and make some poorly timed trades. This is the worst time to be present on said message boards where unqualified users promise to triple your money if you just “buy the dip now!”
While internet advice is oftentimes valuable, in a hectic market it’s best to avoid biased opinions.
It’s important to remember that no person can predict the future, which means that no single person’s advice is better than doing your own research (DYOR) and coming up with your own conclusion.
No matter how many internet users or influencers pressure you into buying their coin, always make sure to draw your own conclusion.
#3 – Crypto Winter is Temporary; Think Long Term & HODL
Even if the saying “it isn’t a loss unless you sell” is only partially true, it has some merit. Unrealized losses are losses that have occurred after your assets have gone down in value since you bought them.
Until you’ve actually sold your position, you haven’t made any profit or losses. This is why many people in the crypto community decide to “hold on for dear life” (HODL).
On a long-term basis, Bitcoin has consistently trended upward over the years. No one holding Bitcoin for more than four years has statistically lost money on the investment.
Even if prices are declining because of a temporary market correction or a longer bear market, history has shown that prices will eventually rise because of economic drivers like scarcity.
The limited availability of cryptocurrencies like Bitcoin is expected to drive up the price over time. When investing over years instead of weeks or months, you can view negative price movements as temporary.
Long-term holdings have proven to be a successful crypto investment strategy, with Bitcoin emerging as the largest asset of our decade.
The holding of cryptocurrencies for longer periods of time can also prove beneficial in terms of taxation in countries such as the United States.
In some cases, holding for one year or longer may be a better option than selling in the short term, depending on your jurisdiction.
#4 – Diversify Your Portfolio
Even if you could have all of the information available, a sudden hack, black swan event, or tweet from a high-profile individual can cause prices to crash.
Thus, it’s vital to take steps to minimize your losses if a sudden crash happens. Most savvy investors choose to hold a number of different kinds of assets long-term to diversify their portfolios from altcoins to various yield farms.
Holding only one or two assets is simply too dangerous and it is in your best interest to diversify your portfolio. Many online exchanges offer decent annual percentage yields (APY) on a number of cryptocurrencies including stablecoins.
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Consider converting a portion of your funds into stable coins in general. Stablecoins like USDT maintain a fixed value, which will lower your exposure to price changes while the markets are in a disarray.
#5 – Shorting or DCA Crypto
Even in a bear market, you can find a plethora of opportunities. Crypto winter may be cold for most, but for keen investors, it’s a hot opportunity.
Shorting crypto, for example, is even easier than with stocks. For those who are unfamiliar, shorting is betting that an asset’s value will decrease instead of increase.
This is done by borrowing the asset and selling it back at any price. If the asset’s value decreases then of course you’d make a profit!
Since in a bear market prices are going down, you’re much more likely to perform a well-timed short trade and thus gain profit. However, shorting is significantly riskier as the potential loss is unlimited.
A less risky and more popular strategy is to simply buy the dip. Now is the time to look for an entry point for your favorite asset.
The keyword here though is “look” and not just blindly add to your position. As discussed in point #2, it is crucial you don’t invest out of fear of missing out!
Additionally, investors could use fixed strategies like dollar-cost averaging (buying and selling at regular intervals) to avoid trading with their emotions or just staring at charts constantly.
Besides portfolio investing the crypto space is always moving and ever-changing. New projects are developing every day and with them new opportunities.
Airdrops, staking, or mining are all viable and safe options that can support a down-trending portfolio.
This article is contributed by Martin Sevon.
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