For anyone involved somehow in the crypto market, it is clear that it is completely volatile. Cryptocurrency prices can go up and down as quickly, while rumors, sentiment and important developments are factored into the market.
In November 2021 Bitcoin reached a price of $68,000. By the time of writing (16.06.22), the price of BTC is $21,925. At the same time, the price of Ethereum also fell by more than 30 percent. Obviously, the whole crypto market has been sinking for the last few months.
Of course, the volatility has two sides. For investors, looking to make money, it seems really attractive. Anyway, for those trying to get started, it can also be nerve-wracking.
The times are hard for crypto investors. Cryptocurrencies are, and probably always will be, volatile, so what should investors do to manage the risk?
Here are five things to do, when the crypto world seems to be falling apart
Fear is definitely not a good advisor. Doesn’t matter if you want to sell your cryptocurrency or use the opportunity to buy more, you have to act with a cool head. Do not make any emotional decisions, as they rarely result in something good.
Don’t rush into the market panicking. Just take a moment and think:
Do you want to invest in crypto because you believe in the long-term opportunity?
Do you want to make some quick profit in the short-term?
Give yourself a proper answer to these questions, so you can make the right decision, according to your goals.
Evaluate the situation
What is driving the prices of Bitcoin and other cryptocurrencies at the moment? Is there some fundamental news, or is their price action and rumor driving sentiment?
If we look back in 2021, we can see that China’s move to ban financial institutions from providing crypto-related services was a clampdown.
In May 2022, TerraUSD plummeted because of traders’ fear that they didn’t have the crypto assets to back its peg to the dollar.
These are a few examples of moves that have been significant blows to the market.
Cryptocurrencies are volatile
This is their nature. As crypto generates no cash flow, traders rely on changes in sentiment to drive the price. That is why the market swings between optimism and pessimism.
Volatility is what draws professional traders, using high-powered algorithms to make sophisticated trades. And of course, volatility is exactly what helps traders to make money.
What’s the future?
While it is impossible to know what the future holds, you can analyze the situation and how it could pay out for crypto. Will governments get tougher on it, or are they going to encourage wider adoption of it? What else could happen to drive the market?
It is not a secret that cryptocurrencies can face real threats in the form of regulation, that could even put them out of business.
After you are calm enough and have evaluated the situation and the future possibilities, you need to consider how to act.
Is the risk likely to persist, or could it grow even worse?
Is the situation too unclear?
Think it through and create an action plan, reflecting your view on the potential risks and opportunities.
Of course, when investing in cryptocurrencies, you should never invest more than you are ready to lose. We can always make predictions about the future, but we can never be sure of the actual outcome.
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