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In the dynamic world of crypto investment, market volatility keeps experienced investors and newbies on their toes. The recent crypto market crash has once again proved the unpredictable nature of digital assets. But it’s not that cryptos have not benefitted investors and traders with their volatile nature. It’s true that this digital asset market has its share of ups and downs.
And, when the once-booming market takes a nosedive, it’s common for panic and uncertainty to settle in. However, a well-informed and strategic approach can make all the difference during these challenging moments.
In this blog, we will explore seven actionable steps investors and traders can take when facing a crypto market crash head-on. By arming yourself with these strategies, you’ll be better equipped to weather the storm and potentially uncover new avenues for financial resilience.
What factors can cause a crypto market to crash?
Significant events, like the fall of big crypto exchanges or coin crashes, can substantially influence crypto prices. Moreover, these prices can dip in response to increased interest rates, surging inflation, and other macroeconomic dynamics that shape individuals’ confidence when considering investments in high-risk alternative assets.
Regulatory shifts and legal actions from financial governing bodies, like that of the SEC, also potentially impact the crypto market significantly. Furthermore, when prices experience rapid declines, this compounds the market’s pressure as investors are compelled to liquidate assets to fulfill other financial commitments.
The collapse of the crypto exchange FTX in 2022 had a massive impact on the whole crypto industry. This event didn’t only affect FTX but also the cryptos in which FTX had invested heavily (such as Solana), as well as companies engaged in transactions with FTX.
Now, let’s quickly check these necessary things you need to know in case of a crypto market crash.
7 Things you can do during a crypto market crash
#1 Keep calm:
You may decide to panic-sell your crypto once the market starts going down, or you may see the dip as an opportunity to buy more of a particular crypto. Whatever you do, you first need to keep calm so you can decide rationally.
Making decisions solely driven by emotions – especially when the market is volatile – may result in extreme losses. Instead of rushing into the market out of sheer panic and making a rash move, you may want to remember your trading/ investment goals and strategies and make a decision based on them.
#2 Evaluate the market situation:
When the market dips, a different factor may drive the change aside from trader emotions or false rumors spread online. For instance, in 2017, China banned crypto exchanges operating in the country, and in 2021 again, China forbade financial organizations from facilitating any crypto-related services. Both these events caused significant drops in crypto prices across the globe.
In 2022, TerraUSD also plummeted because several investors feared its peg to the dollar wasn’t backed by the required amount of LUNA. Unfortunately, this sentiment rapidly spread to the wider market before the price crashes could be controlled.
So, it’s advisable that before making any decisions in a hurry, take time to evaluate the market situation.
#3 Don’t forget about the volatile nature of the crypto markets:
Since crypto generates no cash flow, traders rely on changes in market sentiments to propel the prices in the first place. This volatility is the biggest factor that draws most traders and investors to crypto, so you must not let the ups and downs in prices drive you into a state of panic.
#4 Consider potential future developments:
Most cryptos are used as stores of value so far instead of a replacement for fiat currency. However, some countries like El Salvador have made crypto legal tender, and some countries are considering how to regulate their respective crypto markets best.
Still, there are some nations that are still not sure about the potential that crypto space holds. So it’s important that you take the future of crypto into consideration and re-evaluate your risk appetite when you’re in a tough spot with your investments.
#5 Determine your course of action:
After calmly assessing the current market situation, you can use the dip as an opportunity to invest more in an asset, or you may decide to exit the market to avoid any further risks.
If you give the whole thing a little more time, you can even try selling some of your possessions while keeping the rest of your investment as is.
#6 Make sure to invest only what you can stand to lose:
This is one of the fundamentals of investing in crypto – since it’s a risky asset class, only invest funds you can afford to lose. This way, any losses will only be disappointing, and you can wait for the prices to recover again.
#7 Keep an emergency fund for unexpected disasters:
Another thing that goes without saying is you must have a solid emergency fund before investing. This is true not only for cryptos but every investment instrument. This way, you can keep calm and make knowledgeable decisions when your investment is at risk.
So these were seven very basic things you can follow in case of a crypto market crash. Just remember to stay calm and then make any investment or trading decisions.
Happy Trading!
Give WazirX a visit today to invest in crypto in India!
Frequently Asked Questions
Is Mining Cryptocurrency Legal?
Cryptocurrency mining can be time-consuming, expensive, and sporadically profitable. Mining has an appeal for many cryptocurrency enthusiasts as miners are paid directly with crypto tokens for their efforts. The legality of cryptocurrency mining is dependent on where you live. In India, there is no restriction on crypto mining.
Is Cryptocurrency Banned In India?
No, cryptocurrency is not banned in India. India has seen its ups and downs in the crypto sector concerning its legal status. The Reserve Bank of India (RBI) issued a circular in April 2018 advising all organizations under its jurisdiction not to trade in virtual currencies or provide services to assist anyone in dealing with or settling them. A government committee proposed outlawing all private cryptocurrencies in mid-2019, with up to ten years in prison and severe penalties for anyone dealing in digital currency. The Supreme Court overruled the RBI's circular in March 2020, allowing banks to undertake cryptocurrency transactions from dealers and exchanges.
How To Invest In Cryptocurrency Stocks?
Cryptocurrency can be purchased in two ways: through mining or exchanges. The process of confirming and adding transactions to the blockchain public ledger is known as cryptocurrency mining. Cryptocurrency exchanges are another option. Exchanges make money by charging transaction fees, but there are alternative platforms where you may communicate directly with other cryptocurrency traders.
Can I Invest In Cryptocurrency?
Yes, with exchanges like WazirX, you may invest in cryptocurrency in India. To begin, go to the WazirX website and register. After that, you will receive a verification email. The link received by verification mail will only be available for a few seconds, so make sure you click it as quickly as possible. This will successfully verify your email address. The following step is to set up security, so choose the best solution for you. After you've set up the security, you'll be given the option of continuing with or without completing the KYC process.
How Cryptocurrency Works?
Cryptocurrencies use cryptography technology to keep transactions and their units (tokens) secure. Cryptocurrency works via a technology called the blockchain. A blockchain is a decentralized technology that handles and records transactions across numerous computers. The security of this technology is part of its value.
What Is Crypto?
Crypto or a cryptocurrency is a digital currency protected by cryptography, making counterfeiting and double-spending nearly impossible. Blockchain technology is used to produce cryptocurrencies (a distributed ledger enforced by a distributed network of computers). Cryptocurrencies are distinct in that a government does not issue them. The word "cryptocurrency" refers to the encryption methods employed to keep digital currencies and the network secure.
How To Invest In Cryptocurrency?
There are two ways of investing in cryptocurrency, mining and via exchanges. Cryptocurrency mining is considered the procedure of verifying and adding transactions to the blockchain public ledger. Another option is via cryptocurrency exchanges. Exchanges generate money by collecting transaction fees, but there are alternative websites where you can interact directly with other users who want to trade cryptocurrencies.
What Are The Best Cryptocurrencies To Invest In?
The best cryptocurrencies to invest in would be the ones you study and analyze in detail. Some of the most popular cryptocurrencies include Bitcoin, Ethereum, and many altcoins such as Tron, Ripple, Litecoin, etc.
Is Pi Cryptocurrency Safe?
Pi Network captured the crypto community’s interest even before it officially debuted. Its innovative mobile mining approach and user-friendly design simplify crypto adoption for a broader audience. Some users see this as a chance to get engaged in the crypto from the beginning and profit in the future, similar to how early Bitcoin adopters made huge profits by mining and keeping the coin. Other users have compared Pi to a worthless multi-level marketing (MLM) scheme.
Who Invented Cryptocurrency?
Satoshi Nakamoto invented cryptocurrencies and the technology that makes them function in 2009. The presumed pseudonymous individual or persons who invented Bitcoin used this identity. In addition, Nakamoto created the first blockchain database. Even though many people have claimed to be Satoshi Nakamoto, the person's identity remains unknown.
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.
