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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 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 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.
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.
What Is The Meaning Of Crypto?
A cryptocurrency is a digital currency that is secured by the process of cryptography, making counterfeiting and double-spending almost impossible to happen. Blockchain technology is used to produce cryptocurrencies ( a distributed ledger enforced by a distributed network of computers). Cryptocurrencies are distinct in that a centralized authority does not issue them.
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.
Is crypto legal?
Crypto is legal in most countries, including India. While nations like the U.S. and many in Europe have regulatory frameworks, others like China have strict bans.
Is Cryptocurrency Safe To Invest In?
Cryptocurrency investments are subject to market risks, but if sufficient security measures are not taken, trading accounts can be maliciously accessed. Investments come with risks and uncertainties, and we cannot claim that any digital currency investment is risk-free. Buying and selling cryptocurrencies can be risky even if the trader is knowledgeable about the market and treats their coins carefully.
Is Cryptocurrency Legal In India?
In India, cryptocurrencies are legal; anyone can purchase, sell, and trade cryptocurrencies. They are currently unregulated; India does not have a regulatory framework in place to regulate its functioning. According to the Ministry of Corporate Affairs (MCA), companies must now declare their crypto trading/investments during the financial year, according to the Ministry of Corporate Affairs (MCA). Cryptocurrency transactions have been taxable in India when people receiving such gains are Indian tax residents or where the crypto is considered to be domiciled in India
How Safe Are Cryptocurrencies?
Cryptocurrencies can be safe, but your crypto wallets can be hacked if proper security steps are not performed.There are also dangers and uncertainties associated with investments, and we cannot declare any virtual currency investment risk-free. Buying and selling cryptocurrencies does not have to be dangerous if the trader is well-versed in the market and treats his coins with care.
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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