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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.
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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!
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Frequently Asked Questions
Is Bitcoin And Cryptocurrency The Same Thing?
Bitcoin is a cryptocurrency that was designed to facilitate cross-border transactions, eliminate government control over transactions, and streamline the entire process without third-party intermediaries. The absence of intermediaries has resulted in a significant reduction in transaction costs. Satoshi Nakamoto, the creator of Bitcoin, created the first cryptocurrency in 2008. It began as open-source software for money transfers. Since then, plenty of cryptocurrencies have emerged, with some focusing on specific fields.
What Is Cryptocurrency?
A cryptocurrency is a digital currency secured by encryption, due to which chances of activities such as counterfeiting and double-spending taking place get close to impossible. Cryptocurrencies get created on blockchain technology ( a distributed ledger enforced by a distributed network of computers). Cryptocurrencies are unique in that they do not get issued by any central authority. The term "cryptocurrency" comes from the encryption techniques used to keep digital currencies and the network safe.
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.
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.
How To Invest In Cryptocurrency In India?
There are two ways of investing in cryptocurrency, mining and via exchanges. Cryptocurrency mining is the process of verifying and adding transactions between users to the blockchain public ledger. Purchasing cryptocurrency in India is a straightforward procedure where investors simply participate by registering with a crypto exchange such as WazirX. After registering for an account, citizens can trade multiple cryptocurrencies, store cryptocurrency in wallets, and more.
What Is Virtual Currency?
Virtual currency is a type of uncontrolled digital currency that can only be used online. It is exclusively stored and transacted using designated software, mobile or computer applications, or unique digital wallets, and all transactions are conducted through secure, dedicated networks. Because digital currency is just currency issued by a bank in digital form, virtual currency is not the same as a digital currency. Virtual currency, unlike ordinary money, is based on a trust structure and cannot be issued by a central bank or other banking regulatory organization.
Are Cryptocurrencies Legal In India?
In India, cryptocurrency is legal, and anyone can buy, sell, and trade it. Because India lacks a regulatory system to regulate its operations, it is presently uncontrolled. According to the Ministry of Corporate Affairs, companies must now document their crypto trading/investments inside the financial year.
Which Cryptocurrency Is Best To Invest In 2021?
Many altcoins are flourishing to invest in. Some cryptocurrencies with great potential are Ether, Ripple, Tron, and more. Investors are trying to diversify their portfolios and are flocking to the leading cryptocurrencies. Many growing businesses are already accepting cryptocurrency as acceptable payment methods.
Is Ethereum Safe To Invest?
The Bitcoin market is unquestionably more volatile than the stock market. This may not be the market for you if you are incredibly risk-averse. Ethereum, on the other hand, may be a terrific investment for you if you're a diamond-handed investor who won't lose sight of short-term losses. Ethereum is a relatively safe investment as it is also based on blockchain.
How Many Cryptocurrencies Are There?
There are over 5000 other digital currencies available on the internet in addition to Bitcoins. The only problem is that they haven't gotten the users' attention. Besides Bitcoins, a few other digital currencies have gained popularity among users. It's been more than ten years since Bitcoins were first released, and now they've achieved new heights thanks to their phenomenal success.
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