The line has halted, and it’s not going to rise anytime soon.
The all-time highs of cryptocurrencies in 2021 now seem like a fading memory, and significant digital assets have lost value following the 2022 crypto crash, which ended their legendary bull run.
So, why is crypto falling? First, it’s crucial to remember that crypto assets are not the only ones in this most recent cycle. Additionally, there has been a downtrend in the stock market.
However, crypto has been impacted particularly hard since investors have been moving away from riskier assets. Additionally, institutions and other major participants in the space that made investments close to the market’s peak are under pressure due to the decrease in cryptocurrency prices.
Investing in crypto has never been for the fearful. Digital assets are highly volatileand such fluctuations have already occurred in the past.
FUD, or fear, uncertainty, and doubt, is a term used by people to represent the negative sentiment that has been spread in the crypto community. Although these emotions might aid in spotting warning signs, it’s crucial to maintain composure and consider how short-term instability can impact your long-term objectives.
What then happens when digital currencies like Bitcoin crash? First, let’s understand how investors can respond to a downturn in the crypto market.
1. Maintain a long-term perspective.
Investments in cryptocurrencies are highly volatile. On the chart for 2021, you can already observe several large price drops. However, cryptocurrency values have risen after each fall and continue to climb high.
Avoid concentrating on the 24-hour charts. Zoom out instead and consider the entire year. All types of market cycles have their ups and downs, but they are more dramatic with a new and somewhat untested investment like crypto. You can expect to wait out the dips if you haven’t made the short-term investment you need.
2. Don’t panic-sell.
It’s natural to want to sell your assets when you watch the price of your crypto investments fall. However, this frequently results in you selling at a low and missing out on any subsequent recovery.
Imagine that you decide to sell your Bitcoin holdings after it drops by 20%. What would happen if the cost suddenly increased to its previous level? Since you lost 20% of your investment, you might be hesitant to buy it back.
You can never really predict how prices will behave in a short period. They could keep falling, but they might also abruptly shoot upwards. Therefore, have faith in your original research and investing concept. Be assured that the price will increase if you think your crypto investment will be valuable in the long run.
3. Consider purchasing the dip.
Although it’s often said that you should purchase at lows and sell at highs, it isn’t easy to time the market in this way.
Significant drops in price, however, can provide you the chance to buy more of your preferred tokens for a discount. For example, you could have some tokens on your watchlist that you’ve been waiting to purchase. Alternatively, if you believe that specific tokens you already possess have excellent long-term potential, you might wish to purchase more of them.
Having said that, avoid the pitfall of panic buying as well. It serves no purpose to purchase an asset you haven’t thoroughly investigated and don’t desire just because it’s on sale. And it’s definitely not a brilliant idea to borrow money (or worse, spend the money you need to fulfill other financial goals) to purchase the dip.
Since there are still a lot of unknowns in the world of cryptocurrency investing, they are still prone to volatility. If you attempt to purchase the dip, prices can decline even further.
4. Analyze the causes of the market’s decline.
Understanding why prices are declining is a good thing in case it affects your initial investment notion.
For instance, suppose you invested in crypto because you believe that the particular blockchain technology would change a specific sector of the economy. However, the price of the technology began to decline o n speculations that the advances in quantum computing have made that technology obsolete. If such rumors are accurate, it could be time to reconsider your investment because your original justification might no longer be valid.
5. Make sure crypto makes up a minimal portion of your overall portfolio.
Finally, these unexpected price drops serve as a helpful reminder that investing in crypto is quite risky. Making money might seem simple when prices are rising. But every form of investment requires time and effort — and prices just don’t go up, always.
You can reduce the risk by just including crypto in a tiny portion of your entire portfolio. Instead, balance your risk exposure by retaining a healthy proportion in items like stocks, ETFs, and real estate, as many other investment alternatives are available. This will prevent financial catastrophe if the present dip signals the start of a bigger crash.
Crashing cryptocurrency prices are unavoidable in this kind of investing. The best piece of advice is to hold on tight and hope for prices to rise if this is your first dip. You could then decide that investing in crypto can be too stressful for you, which is understandable. But avoid making hasty judgments. Before you begin selling, give yourself and the market some room to breathe. Happy trading!
Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn’t represent any investment advice or WazirX’s official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.