This week has presented landslide losses across the crypto industry, with the entire market valuation dropping over 20% in just a week. As cryptocurrencies bleed money, where does this leave investors? We explore why the market is crashing, and what you can do to protect yourself over these turbulent market conditions.
What Caused The Market Crash?
The recent market crashes are believed to be a knee-jerk reaction to official data being released that indicated imminent rising inflation rates. Last week, the US Federal Reserve announced plans to raise interest rates by 0.75%, the largest single hike in the last three decades. Analysts fear that this could be the catalyst for a recession.
Following this news, investors were quick to liquidate their cryptocurrencies, causing a massive $260 billion to exit the market over the course of a weekend.
It wasn’t only the crypto market that was affected. Stock markets suffered a similar fate, with the S&P 500 falling 4%, the Dow Jones -2.8% and Nasdaq dropping 4.7%, reaching new lows for the year. As the US stock market officially entered bear territory, this had ripple effects across the rest of the global stock markets.
Following the weekend’s news, Bitcoin dropped to $23,000, lows not witnessed since December 2020. As investors pulled their money from riskier assets (tech stocks included), the markets took a wild tumble.
What Lies Ahead?
Before we touch on survival tools, let’s first look ahead to what will happen next. Analysts are predicting that we’re likely in for a few more weeks of volatility as the markets recover from the mass sell-off and incur probable further losses. Long term, however, insiders are predicting much bigger highs, as has been evident in trading history.
Due to the cyclical nature in which most asset markets move, trading goes through periods of expansion, peaks, recession, and recovery. As we move through the recession period, while fear is the dominant emotion, hope should be dished out too as recovery is on the horizon.
How To Survive The Recent Market Crash
As the crypto Fear and Greed index points to “extreme fear”, investors are quick to follow suit and sell their digital assets, often incurring great losses. Here are 5 tips on how to survive the current market crash:
- Hold tight. Crypto markets are notoriously volatile, and sitting through a crypto winter is a right of passage of sorts. Leave your assets in a secure location (look out for the incoming Tap’s Earn program where you can earn interest on your cryptocurrencies that you are not actively using). Try not to get too caught up in the recent crypto losses. This too shall pass.
- Educate yourself. Take the “downtime” to learn more about new coins, allowing yourself the time to deep dive into the projects and the leadership behind them. Look to communities of like-minded traders to find new insights. Broaden your crypto understandings.
- Look to cryptocurrencies that are making gains. While most of the markets are in the red, some coins are doing well. Seek to understand why some coins are thriving and what about them is making them resilient to the otherwise dire market conditions.
- Evaluate your trading strategies. Think you could have made better decisions prior to or during this market crash? Observe and evaluate your current trading strategies and make adjustments based on your most recent experiences. It will never be as fresh in your memory as it is now.
- Lurk at the dip. With prices down to the lows of 2020, seasoned investors are taking the opportunity to accumulate these crypto assets at low prices. However, it must be said: never invest more than you’re willing to lose.
Ride Out The Crypto Winter
As the famous American investor and mutual fund manager, Peter Lynch said: "In the stock market, the most important organ is the stomach. It's not the brain." If you have not liquidated your cryptocurrencies, the losses you see on the screen are not yet realised. Keep hodling.
Hold tight, grit your teeth and push through the chilly crypto winter, the markets will eventually recover as they always do.
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