A crypto market crash is the most dreaded circumstance that can occur in any investment cycle. Investment tools such as crypto, where the market is extremely volatile, cause investors to become nervous and concerned when things don’t work the way they wish them to be.
To top it up, the risks and challenges brought along by a crypto market crash tend to be on a much higher scale. Undeniably, the crypto bear market and crypto winter are the terms that are now out in the open, sneaking past our rational side and influencing our decisions.
For those of you who are new investors, it may all seem overwhelming. To give you a much-needed brief, the crypto bear market can be best defined as a prolonged drop in asset prices that causes your portfolio to shed value. Crypto winter, on the other hand, is a prolonged bearish period in which asset prices continue to fall for several months.
Though for some it may feel like the end of the world, it’s also true that there are several ways to not just survive but also benefit from the crypto bear market. Also, it is a great time to add some strong crypto to your portfolio for a small amount.
While we witness the possible consequences of another crypto winter with the most popular coins painted red, it’s time we strategize certainly do’s and don’ts to make level-headed decisions.
5 Do’s to survive Crypto Market Crash
The crypto bear market is looming on the horizon, and the first signs of it are almost visible in bitcoin’s price movement. Other cryptocurrencies are also crashing and falling behind it as far as we can see.
And this observation makes a large chunk of investors offload loss-making assets from their portfolio fearing further price drops. Even many have started panic selling without having a long-term outlook.
To avoid such impulse instincts, traders should create an investment plan and keep the following pointers in their minds before a crypto market crash gets the better of them.
1. Invest Judiciously
Being aware of your risk appetite is important before you start investing your hard-earned money in any asset class. The main reason why people get anxious during a crypto market crash is the amount of capital that they put in.
Investing all of your life’s savings, or putting in a huge chunk of your money in the crypto market is bound to make you panic during a bear market. That’s why we suggest you limit your investments only to as much as you are willing to lose.
In fact, it’s a good idea to invest wisely to pass unscratched from the crypto crash where the market moves unfavorably. This way, it won’t burn a hole in your pocket or drain your savings since you have invested leftover, idle money.
2. Diversify your Portfolio
Diversification is the key factor to surviving the crypto market crash and fighting volatility. A wise investor must spread his or her portfolio among several crypto assets to avoid potential negative impacts.
Though the goals and conditions of every investor are different, a proper asset allocation strategy can make a mix of winners and losers during a bear run. Over time, crypto-assets can appreciate or depreciate and it can happen more rapidly than your bond or cash holdings.
Consider selling a part of assets and investing the money in cash equivalents or investing in some promising assets after doing proper research. The crypto market crash often provides good investment opportunities to investors.
When crypto bear markets are fully in progress, the prices of assets usually plunge but not necessarily in the same amount. Needless to say, putting all your eggs in one basket is not a good idea. The takeaway is that a diverse range of assets in the portfolio reduces total losses to the barest minimum.
3. Dollar-cost averaging (DCA)
Dollar-cost averaging is one of the best strategies that is proven to have worked exceedingly well even during the toughest crypto market crash. The DCA strategy is long-term planning where you continue to accumulate small portions of an asset over a period of time regardless of the price.
For example, under the DCA schedule, you have to invest $50 on bitcoin every week rather than investing $200 at once. Investors can make changes to their DCA schedule from time to time to meet their changing requirements.
To reduce the impact of volatility on the overall purchase, you can take advantage of dollar-cost averaging. This strategy ultimately helps the investors to average down their cost leaving them with a better overall entry for the crypto assets.
4. Have a long-term outlook
Although short-term investment strategies are often appealing and allow you to reap benefits faster, it’s sensible to approach the crypto bear market with a long-term outlook. The reason is simple, the chances of suffering a loss are far lower when you consider long-term aspects.
Furthermore, you can also eliminate the need to constantly gaze at the screen to track the performance of your portfolio. This will prevent you from going into panic mode every time the market doesn’t move your way.
At some point, the crypto market crash always recovers from unfavorable patterns. A crypto crash does not last forever. As a result, owning crypto assets for the long term allows you to ride through the bear market without incurring any losses.
To boost your morale, you must remember the fact that in a matter of ten years the price of bitcoin went from a couple of cents to $67,000. The returns are almost unbelievable but they took a decade to achieve. Every savvy investor keeps their eye on the long-term perspective rather than clinging to temporary benefits.
5. Navigate the current state of the market
As an investor, there is nothing you can do to prevent an unfavorable market condition or the economy at large. Nevertheless, contemplating how to make potentially great moves to protect your investments can help you survive a crypto market crash.
For instance, we can see the bearish trend has prompted a big chunk of new investors to sell their crypto amid fear, uncertainty, and doubt (FUD). Their withdrawal from the market at this point could further stabilize crypto prices. Similarly, you have to analyze the crypto market to reduce your chances of falling prey to crypto bears.
The bottom line is that it is important to stay updated and have situational awareness about the current crypto market pattern. This way you can position yourself accordingly to minimize the losses posed by the crypto market crash.
5 Don’ts to survive Crypto Market Crash
A crypto market crash can be brutal, and more often can catch you off guard. While most of us are well aware of what not to do, we may not always make the right decision at the right time. This is because you cannot predict market movements, and fail to think over what are the preventive measures or don’ts to keep in mind.
Dwelling too much on your decision or even wasting your time in indecisiveness can turn extremely counterproductive. Since the crypto market crash can lead to a messy emotional state, it becomes much better off leaving things the way it is meant to be.
Don’t let yourself stir up feelings of regret, depression, or anxiety, and rather focus on preventive measures to make objective investment decisions for the future.
1. Looking at your portfolio all the time
During the crypto market crash, assets tend to be volatile and can show dramatic swings in prices. Constantly monitoring your portfolio at such a time would only lead you to ruin your emotional state and in the worst case, can push you to make irrational investment decisions.
A great way to save yourself from such scenarios is to, refrain from looking at your investment portfolio too frequently. If you already are prepared with your investment strategy, then you must stop checking your portfolio all the time. Let your strategy do what it is supposed to do until things calm down for a bit.
However, you can check your portfolio periodically, on a weekly basis to check if you need to make any adjustments or rebalance your portfolio.
2. Consuming too much News
Though it is advised to keep track of what’s happening during the crypto market crash, many investors obsess over news snippets in anticipation of trading tips. When there are 24/7 news platforms dedicated to covering the crypto market, it becomes hard not to scroll through new developments.
Even the constant pop-ups in this digital era make it more challenging to resist the temptation. While it’s fair to be updated, spending too much time watching or reading the news during the crypto bear market only serves to disturb you further.
3. Trying to predict the bottom
Nobody can accurately predict the bottom. You could study technical and fundamental analysis all you want or pay heed to the experts, but ultimately you may still have to rely on your gut feeling.
Unfortunately during the crypto market crash, gut feelings aren’t much of a guide when it comes to navigating a crypto bear market, or even worse, a crypto winter. You may invest at what appears to be the bottom at a given time. However, the price could further drop.
If it does drop at a given time, you will have to sell it again to have your next shot and such risky investing tactics can shrink your wallet.
4. Dwelling on action (or inactions)
The crypto market is notorious for being extremely volatile, the best way to tackle this is to accept it. During the crypto market crash, people lose thousands of dollars in a couple of hours. It’s quite natural to go through these dramatic changes and you better be prepared for it.
You have to sit through some market dips, and know that it will recover. Pondering on your past actions or inactions can only lead you to spiral down further. If you’re focused on the long-term perspective and have used the capital that you don’t rely on, the crypto market crash can hardly affect you.
5. Freaking Out
All investment assets continue to climb up or rise in value despite economic issues, natural calamities, or other such factors. Always make your investment decisions wisely such that you are not emotionally tied to them.
Always try to keep your emotions separate from investment decisions so it doesn’t cloud your rational judgment. It is said that during bear markets, the bulls stand no chance against the bears, which brings us to our next point. Don’t make any sudden moves and stay calm to save yourself from being crumpled down under the weight of a bear.
Till now, you have read and researched about long-term prospects of the asset so you must understand the importance of HODLing. Moreover, if you have your fundamentals clear about certain crypto assets, you will get through the phase.
Frequently Asked Questions (FAQs)
- What is the crypto bear market?
A crypto bear market is when the price of a digital asset or asset class declines over a prolonged period which then causes your portfolio to shed value.
- What is crypto winter, is it real?
Crypto winter is a prolonged bearish period during which prices of most digital assets continue to dip over several months. Ofcourse yes, it is real.
- Why does the crypto market crash?
The reason for the crypto market crash appears to be a massive sell-off by investors amid heightened inflation concern and pausing of withdrawal by crypto lending services.
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