The year 2021 had cryptocurrencies like Bitcoin reaching their all-time highs, attracting many new investors, small and large, into the market.
However, as the spot price of Bitcoin, the most popular currency, exceeded $65,000 in April, the bubble suddenly burst: its value had plunged by roughly 50% by early June. Many of those new cryptocurrency investors are likely to have experienced whiplash.
So, what should you do if your digital assets, such as bitcoin, crash?
1. Don’t Panic
Whether you opt to sell your cryptocurrencies or perceive a drop as a chance to buy more, you must keep a level head. Making emotional judgments, especially while trading, rarely leads to a positive outcome. So before you make a hasty decision, consider why you’re trading cryptocurrency in the first place.
Do you invest because you see a long-term opportunity? Or are you just looking to earn a fast buck through short-term trading?
The answers to these questions can help you make the best decision. In any situation, you should behave in line with your objectives. In other words, if you believe in the long-term opportunity, you should think accordingly. If you’re here for a quick buck, also keep that in mind.
2. Assess What’s Causing the Selloff
Worldwide government stances and legislations can significantly stir up crypto pessimism and ultimately cause a meltdown.
As public interest in cryptocurrencies has expanded, policymakers are grappling with the implications of the technology for monetary policy, security and the environment.
China, in particular, has been very aggressive. Prices fell on September 24, 2021, for example, after the Chinese government deemed cryptocurrency transactions unlawful and stated that international exchanges are not permitted to conduct business with Chinese citizens.
Developments like what happened in China warn that Bitcoin is still a relatively young technology whose full impact on the global economy is unknown. Cryptocurrency values are volatile, and unforeseen occurrences might cause prices to fall.
3. Don’t Forget That Cryptos are Volatile By Nature
Dramatic profits and losses are nothing new for people who have been trading in cryptocurrency for years. For example, Bitcoin reached a record high of over $20,000 in December 2017 but traded around $3,500 by December 2018.
This volatility is precisely what attracts professional traders, who employ high-powered algorithms to conduct sophisticated transactions, which “mom and pop” traders often do not have access to. Volatility appeals to traders because it provides an opportunity to profit – after all, that is the game of Wall Street.
4. Move Gradually to Stable Coins
If you’re incredibly concerned about a market downturn, you might start converting your cryptocurrencies to fiat currencies or stable coins to protect yourself from volatility.
5. Consider Dollar-Cost Averaging
This implies you can keep buying bitcoin bits and bobs now, tomorrow, next week, and forever. You don’t care about the current price; you purchase regularly and forget about timing the market. It’s an over simplistic tactic, but it works well if the market you’re dollar-cost averaging in is going up in the long run.
Cryptocurrency is not for everyone, and it is best suited to individuals with higher risk tolerance. When investing in bitcoin, volatility is unavoidable. However, if you believe in its potential and are ready to keep your assets for years, if not decades, it may pay off in the long run.
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