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2022 has ended with a high inflation rate, a highly volatile Crypto market, and a GDP in the red. We are hanging by a thread for recession. Various industry experts have been sharing their views on the bear market, but let’s check out the following 5 Crypto investment tips you can follow during a global recession.
Before we head toward the investment tips, let’s first understand what happens during a recession.
What happens during a recession?
A weak capital market is one of the early indications of an impending recession. The GDP declines sharply. Production is down, unemployment is up, and inflation is high. In other words, everything becomes more expensive as people’s incomes decline.
The valuation of corporations declines as a result. People sell off their assets and keep cash on hand. Share prices drop more quickly as a result of persistent selling.
During times like this, the crypto market is in a bloodbath. Everywhere you turn, there is red. As a result, even top-performing businesses suffer, and the value of cryptos decreases.
We have listed down a few tips you can follow to have your Crypto investments in place. Let’s check them out.
#1 Stay in cash
Everyone needs to take the required steps to safeguard their wealth in cash or stablecoins, given the high rate of inflation. When bullish trend returns, you will have enough resources available to make significant allocations. However, it is crucial to save money during a recession so that it can be used for both immediate needs and everyday expenses. There are still many ways to make yield across crypto markets as far as you trust the protocol you’re using. Diversifying into well-positioned investments to survive a recession is a superior tactic.
#2 Believe in the Dollar-Cost Averaging method
With dollar-cost averaging, you buy a specified amount of an investment on a routine basis, regardless of the current price. However, it is likely to go in your favor if you have a long enough time horizon. Additionally, handy automated bots exist today that can perform the task for you. Dollar-cost averaging works well during recessions because it allows you to buy shares when the price declines. To achieve the same result, you can either use dollar cost averaging with fresh money or configure your dividends to reinvest in the asset automatically.
#3 Find Crypto assets that have the potential to outperform
Some crypto assets maintain their value even after a major market collapse. This is because these coins and tokens are connected to market sectors that are expanding quickly. For instance, cryptos employed in the online gambling and video game industries have done well despite market downswings.
During bear markets, some crypto assets may perform better than others. Finding them takes time, and holding long positions during a downtrend is risky. As a result, caution should be taken when employing this strategy. Investors who are proficient in technical analysis may use specific indicators to identify when an asset has reached its lowest point.
#4 Use derivatives
With the help of sophisticated financial tools like derivatives, investors can lower risk while still profiting even during periods of declining market prices. Numerous strategies using derivatives and combinations of contracts are available to guarantee a profit in downtrend and sideways markets. For instance, by using options to establish a “bear put spread,” you can profit when an asset decline by securing a favorable selling price at a reduced rate.
The challenging element is managing them and assessing your position rather than really putting these strategies into practice; online resources make it simple to do so. These kinds of trades can succeed or fail depending on management and position sizes. In a bear market, they can be profitable, but they should only be used cautiously.
#5 Keep calm!
It is evident that slowing economic development will not protect crypto assets. They are typically the ones who suffer the most. When recession fears emerge, it is not unusual for crypto assets to drop three-quarters of their value. Well-known crypto assets like Bitcoin and Ethereum have fallen by about 70% from their record highs as a result of investors avoiding risky investments when interest rates rose. But even in these difficult circumstances, there is a bright spot. Let’s say the recession is close; no one is certain how much it will impact the crypto market or how long it will endure. When the macroeconomic environment improves, we can anticipate a recovery in crypto assets.
Remember to take care of your mental health since recessions are difficult. If you are preoccupied with your portfolio or are continuously checking the pricing, you are making yourself less productive and decreasing your chances of making wise judgments when the time comes. So leave the computer behind, head outside, and have some fun. Additionally, keep in mind these tips when making a secure Crypto investment in this circumstance.
Create a life for yourself outside of trading and investment. Where will you go after you succeed if you don’t do that?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.