Cryptocurrency prices have tumbled in recent weeks, with Bitcoin the lead coin losing over half of its value since its Nov. 10 high. If there’s one word that describes Bitcoin and cryptocurrency, it’s volatile. If you’re new to cryptocurrency, then brace up for a rollercoaster of emotions caused by these highly volatile assets. As the value of the assets in your crypto portfolio falls, investors are advised on some practical ways to manage crypto bear run, understand the downtrend, and how navigate through it.
In this article, strategies that you might want to follow during a market dip to hold on to the value in your portfolio, avoid emotional trading, and lose less sleep are discussed. Below are ways to manage crypto bear run, understand the downtrend, and how to navigate through it.
WAYS TO MANAGE CRYPTO BEAR RUN
1. Don’t panic-sell
2. Understand why the market is falling
3. Your crypto portfolio should not be your life’s savings
4. Set clear targets and diversify your investment portfolio
5. Have a long-term plan
6. Determine how to act
Don’t panic-sell
The value of cryptocurrency is susceptible to volatility and as such will see the price rise and fall as it cumulatively moves in a bullish (uptrend) or bearish (downtrend) direction in the long run.
While the saying that “it’s not a loss until you sell” is only partially true, it does carry some weight. If the value of your assets has gone down since you bought them they are only realized once they’re sold for less than your purchase price. Let’s say you see the price of Bitcoin fall by 30% and sell your holdings. What happens if the price suddenly rises back to its original value? That means you’ve lost 30% of your investment and losing such an amount of your investment may have a toll on your overall investment portfolio.
Through the years, Bitcoin has consistently trended upwards over the long term. Even if prices are falling due to a temporary market correction or a longer bear market, history shows that prices are likely to recover eventually due to economic drivers like scarcity, positive fundamental news, and likewise general adoption by international bodies. If your investing timeframe is on the longer side (years instead of weeks or months) negative price movement can be viewed as being temporary so there is no need to sell.
Understand why the market is falling
It’s a good idea to understand why prices are falling in other to proffer solutions on ways to manage crypto bear run, in case it impacts your original investment ideas. If your reason for investing still holds water, then the points I made above all stand. But if something has drastically changed — perhaps there’s been a security breach, and you no longer trust in a specific project — it is a different story.
In the case of the recent crash, there are a couple of reasons for the market-wide tumble. One is fear over the new omicron COVID variant, which caused investors to pull away from riskier assets. Plus, the Fed warned it may raise interest rates, and there are still rumblings about stricter regulation.
Crackdown on cryptocurrency investors in the world’s largest economies like China also contributes to the fall in the value of these assets.
Your crypto portfolio should not be your life’s savings
The sudden dips in price are a good reminder that cryptocurrency investing is extremely risky. When prices are going up, it can feel easy to make money. But any type of investment takes time and effort. Prices don’t always go up, there will be times when the market may fall or retrace in other to prepare for the longer uptrend.
It is wise to mitigate the risk by only investing a small percentage of your overall portfolio in crypto. There are plenty of other safer investment options, so try to balance your exposure to risk by keeping a good proportion in things like stocks, ETFs, and real estate. That way, if the current dip is the beginning of a larger crash, it won’t lead to financial ruin.
It is financially advisable to invest the amount of money one can afford to lose in the long run in cases of wide-range volatility.
Set clear targets and diversify your investment portfolio
In as much as one is very confident in a particular market, you should never invest more than you can afford to lose. By this singular act, you are on the right track on one of the ways to manage crypto bear run. Set clear targets that are achievable when trading cryptocurrencies and diversify your investment portfolio: rather than having all your investment on one commodity, it is advisable to invest in different types of markets which include: stock market, forex, bonds, ETF, etc. The last thing anyone wants is to be caught in an emotional rollercoaster waiting for positive price action as the price of their portfolio slowly drops.
Cryptocurrency markets are well known for their volatility and to counter this, crypto investors should predefine their trading strategies by having a set target point that once the asset reaches profit will be taken.
It’s very easy to get carried away while holding volatile assets like cryptocurrencies. Trading can be a very high-risk activity, especially in a bear market, and investors should aim to set goals that balance minimizing potential losses with achieving potential gains.
Have a long-term plan
If you look at the chart of Bitcoin from 2009 to 2021, we’ve already seen several significant price dips. After each dip, bitcoin prices eventually increased and went on to reach new highs. Holding for long periods has been a proven strategy, with a clear example such as Bitcoin emerging as the most successful major asset of the last decade.
Through the years, Bitcoin has consistently trended upwards over the long term. Even if prices are falling due to a temporary market correction or a longer bear market, history shows that prices are likely to recover eventually due to economic drivers like scarcity.
New investors in cryptocurrency should ultimately have a long-term perspective when investing in any coin of their interest. this alone minimizes the emotional rollercoaster that one goes through as the prices of coins fluctuate as the day goes by.
Determine how to act
After you’re done accessing and analyzing the market situation and what it means for the future, you’ll want to consider how to act.
If you see the risks in investing in cryptocurrency as a situation opportunity, you may want to continue holding your position or use a dip in the price to invest more.
If you see the risks in crypto trading as a situation where the market continues to grow worse, you may want to take your losses now and stay out of the game for the future.
If it’s tough to see the way ahead, you may consider selling some of your position today while still having potential upside tomorrow.
Whichever way you go, you’ll want an action plan that reflects your view on the potential risks and opportunities of cryptocurrencies.
Conclusion
Cryptocurrency price crashes are part and parcel of this type of investment. If this is your first time experiencing a dip, the best advice is to hold for a long term and wait for prices to recover. At some point, you may decide that crypto investing is too stressful for you which is understandable. Do not hesitate to sell your coins for the loss rather think of your investment as a long-term strategy. But don’t make any rash decisions. Give yourself and the market time to breathe before you start selling.
