Introduction
Investing in cryptocurrencies has become a popular financial habit to millions of people around the world. From it being a niche investment to becoming among the most powerful financial tools in today's time, it only shows how investing in crypto can be a great opportunity. However, it's not always smooth sailing, during the process you can encounter challenges which include market crashes. And as with other forms of investments, this is totally inevitable and those who can handle the risks are able to survive.
In this guide, we will help you explore the proper approach in responding to such circumstances which can all make the difference in protecting your financial future. Here, we will walk you through the essential dos and don'ts during a crypto market crash and guide you in navigating this turbulent times with confidence and well-informed decisions.
What is a crypto market crash
A market crash basically refers to the volatility of a cryptocurrency which is the asset's nature. Furthermore, this pertains to the rapid and dramatic drop of a crypto's value which greatly impacts the investment. A market crash occurs for several reasons which mainly includes unexpected circumstances, demand, economic changes, and regulatory adjustments. This occurrence affects all types of investors, including the seasons and newcomers in the landscape. However, before the investment, if you've done a thorough research, this shouldn't be as surprising as it seems because this is information consistently disclosed to potential investors. Thus, with all the right knowledge, you should always prepare an approach that will help you navigate with such uncertainty.
The do's during a market crash
Here's a breakdown of what you should be doing if ever you encounter a market crash on your preferred crypto for investment:
Keep updated
Always be aware and stay informed with the current updates about the market crash. To do so, make sure to follow reliable sources and trusted crypto news outlets so you can keep up with the latest news and equipped with the newest information that can be valuable on the next steps you're planning to take. Along with that, study the current market trends and other fundamentals as it will help you make smarter decisions, instead of impulsive ones.
Opt for a long-term approach
Before even putting up a single dime for a crypto investment, you should be well-equipped with the right knowledge and approach to help you survive in the landscape, regardless of whatever challenges may occur.
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Be clear with your goals, be aware of how much risk you can take, and develop a plan instead of just going with the flow.
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Second, it's also very smart to diversify your portfolio. This means, don't only invest in a single crypto, if possible, look for altcoins that's ideal for investment, allowing you to reduce the risks when one of your assets encounters a market crash.
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Lastly, include a portion of your investment to stablecoins as it has lower volatility rates, excluding them during a market crash.
Apply effective risk management
There are several risk management strategies when it comes to crypto investments, one of the best is stop-loss orders. This method involves setting a predetermined price to where you want to automatically sell your assets, this will help you reduce potential losses when opting to do it manually. Another tip is to always save for an emergency fund which you can use whenever an asset is sold at a very low price during a market crash.
Learn from the process
Investing in crypto is an unending process of learning, each time you get to try new experiences that can either be good or bad. Regardless, it will help you grow to become a wiser and better investor. Thus, if you have experienced a market crash, learn from and educate yourself to have a better understanding on how markets recover. This will allow you to earn more knowledge that you can turn into strategies if you ever encounter a crypto market crash again. Aside from self-study, you can also rely on community discussions. Join forums, read, and review insights from other investors and use it as your practical tips and caution as you move forward.
The don'ts during a market crash
Now, here's a list of what you definitely shouldn't do during the very instance of a crypto market crash:
Avoid impulsive selling
A crypto market crash can really be frustrating. Sometimes it may take a toll on you emotionally, leading you to execute impulsive decisions such as panic selling. Instead of making a solution, you're only adding to a possible loss when the market runs smoothly again. And knowing what you lost, triggers stress even more. Thus, in these situations, always choose to stay calm and stick with your goals and risk management method. Also, don't always be in a rush and immediately plan an exit during a market crash. Remember, volatility isn't always a bad thing, it can also lead to drastic profits when the market goes upwards.
Only invest what you can afford
While the golden rule in investing crypto has always been only afford what you can afford to lose, it's also important to keep in mind that only invest what you can afford in the first place. Never even think of borrowing funds for your investment because when the market crashes, instead of gaining profits, paying back what you owe can be a problem. Second, only stick with investments that align with your risk tolerance, it doesn't mean that you can afford it, you should immediately go for it.
Don't invest based on hype
Cryptocurrencies are being hyped in numerous ways on different platforms. Thus, whenever you encounter a hyped project on your feed or other channels, do your research about it, instead of just instantly finalizing decisions based on the trend. Usually, these trends are promoted with too good to be true claims, thus, don't ever spend with an investment without analysis.
Prioritize security
During market crashes, cyberattacks increase, thus always ensuring you implement enhanced security methods in your accounts and crypto wallets. Use strong and unique passwords as well as 2FA for more protection from online threats. Additionally, always be smarter than a scammer during these chaotic situations. Most of the time, scammers are very active during market crashes where they offer promising deals that turn out to be just a part of their fraud scheme. So, always be mindful and stay away from deals that are too good to be true. For more tips on safe investment practices, consider reading our article on Key Principles for Cryptocurrency Investment.
Conclusion
Crypto market crashes can really be a frustrating circumstance in the world of cryptocurrency, but it will always be a part of it. Thus, it's very important to understand the basics, the market, and other essential information about cryptos before making an investment. Furthermore, despite all the downside of a market crash, there's always a proper approach towards it and by following this guide, you can prepare yourself in facing the risks of a market crash with confidence.
