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5 Things To Do When Cryptocurrencies Plummet
Bitcoin and crypto prices have been plummeting recently, the market can quickly panic. Here are five things to do when cryptocurrency values plummet.
The Bitcoin⚡️ Energy Standard
October 31, 2022
Table Of Content
Content
Introduction
Conclusion
FAQ
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Bitcoin and other cryptocurrencies are best summed up by the term "volatile," which also happens to be their name. The values of cryptocurrencies skyrocket, and then they seem to plummet nearly as rapidly, all while the market swiftly factors in rumors, moods, and fundamental changes. Bitcoin's price dropped from $30,500 to about $23,500 in the span of only four days at the beginning of June, representing a drop of roughly 23 percent. During the same time period, Ethereum fell by more than 31%, and it appears that the entire cryptocurrency market has been declining in 2018.
This volatility is nerve-wracking, particularly for novice investors seeking to get their feet wet, but it also attracts traders hoping to profit from it. And investors can anticipate much more of this volatility in the years to come because new cryptocurrencies will continue to emerge while others will go away.
What risk management strategies should investors use, given that the bitcoin market is highly volatile?
5 Things to Do When Cryptocurrencies Plummet
Are you frightened by the idea of a drop, or are you excited by the possibility of getting in at a lower price? In any case, the following is a list of the five things that you should do when the prices of cryptocurrencies fall.
1. Stay calm
Acting with a level head is essential, regardless of whether you intend to liquidate your cryptocurrency holdings or perceive a price decline as a chance to acquire more of the asset. Making judgments based on your emotions, particularly in the context of trading, almost never leads to favorable outcomes. Therefore, before you panic and rush into the market, you should take some time to think about why you are trading cryptocurrency in the first place.
Are you investing because you have faith in the potential for growth over the long term?
Or do you want to use the short-term trading platform to earn a fast buck?
Knowing the answers to these questions will make it easier for you to make the right choice. In either scenario, you need to take actions that are in line with the objectives that you have set for yourself. To put it another way, if you think there is potential in the long run, you should think in terms of that potential. If you're looking to make a speedy deal, you should consider that in mind.
2. Evaluate the situation
Is there any news that might be pushing the price of trading Bitcoin and other cryptocurrencies higher? It's possible that important news has changed how the market feels, and it's likely that price action and rumors aren't the only things that affect sentiment.
In 2021, genuine developments harmed prices. A further crackdown was implemented by China when it made the decision to prohibit financial institutions from providing crypto-related services. Although the country had already banned cryptocurrency exchanges in 2017, China had not prohibited individuals from owning cryptocurrencies prior to this decision. The Federal Reserve then decided to reduce the amount of liquidity in the financial system before the end of 2021, resulting in a significant drop for many cryptocurrencies that lasted well into 2022.
In May 2022, the stablecoin TerraUSD saw a precipitous decline as traders carried out a classic "bank run." They were concerned that the company did not have sufficient crypto assets to support its dollar-pegged valuation. This news spread to other cryptocurrency exchanges, causing traders to worry that selling might lead to even more selling in other markets.
These actions have thus been additional substantial blows to the developing market, which had seen considerable capital inflows before these events.
3. Remember that volatility is the name of the game
By their very design, cryptocurrency markets are quite unstable. Because crypto assets generate no cash flow, dealers have to depend on shifts in investor sentiment to determine price movement. This indicates that the market may go from being very optimistic, as it was at the beginning of 2021, to being extremely depressed and despondent, as it was a few months later. The commotion surrounding the first public offering of Coinbase in 2021 generated a favorable attitude towards cryptocurrencies, while the decline in monetary stimulus at the end of 2021 and the beginning of 2022 fueled pessimism.
Therefore, when you have an asset that is driven by sentiment, the market is propelled forward by the feelings of traders. This is also the case with stocks, but in addition, there is the possibility that the issuing firm will generate a genuine stream of expanding cash flows, which will propel the stock price upward.
This volatility is precisely what attracts professional traders, who employ high-powered algorithms to execute complex trades, something that "mom and pop" traders often do not have the benefit of utilizing in their trading. Traders like volatile markets because it affords them the opportunity to earn a profit, which is the name of the game on Wall Street.
4. Evaluate the future
Conduct an analysis to see how crypto's underlying situation may evolve in light of recent developments. Will governments adopt a more stringent stance? Will they work to promote its use in a more widespread capacity? Will the introduction of new laws really help or hurt the bitcoin market? What other factors may be driving the market?
Is the decision to outlaw cryptocurrencies in China a sign of things to come in other parts of the world? Maybe. The government of India has been considering the possibility of outlawing cryptocurrencies, and the Russian central bank has also expressed its disapproval of the practice. However, some nations, notably the United States, are investigating the possibility of regulating cryptocurrencies rather than outright banning them. [Citizens of the United States] There are even a few nations, such as El Salvador and the Central African Republic, that have adopted it as their official currency.
It remains to be seen how other large nations will go, but it is abundantly evident that cryptocurrencies face genuine dangers in the form of legislation, especially regulation that has the potential to drive them out of business entirely. As cryptocurrency grows in popularity, there is a greater chance that its own success may undermine it.
Using cryptocurrencies in ransomware campaigns and other illegal activities is not good.
Consequently, it is not completely beyond the idea that the utopian fantasies of crypto purveyors may be simply legislated out of existence. It should go without saying that the political repercussions are just one aspect of their destiny. Mining for cryptocurrencies is a process that comes with a lot of extra costs in terms of money and the environment.
Another concern is that, due to the volatility of many cryptocurrencies, they are mostly useless as a form of cash. Furthermore, as I explained on Cheddar TV, cryptocurrencies are "being offered to individuals who have no intention of utilizing them" as a form of currency. And finally, the IRS's rules about taxes make it hard to use cryptocurrency as a way to pay.
5. Determine how to act
After you have finished calming down, analyzing the issue, and determining what it implies for the future, you should think about what course of action to take next.
Is it possible that opportunities are hiding behind the hazards instead? If you view it that way, you may want to keep holding your position or take advantage of a drop in the price to make more investments.
Is it probable that the hazards will continue to exist, or will they maybe even worsen? If this is the case, you should probably just cut your losses and get out of the game for the foreseeable future.
Is there too much ambiguity in the situation? Suppose it is difficult for you to know what lies ahead. In that case, you may explore one option to "split the difference," which means selling part of your investment today but maintaining some possibility for gain tomorrow.
You will need an action plan that represents your perspective on the potential dangers and possibilities posed by cryptocurrencies, regardless of the path you choose to take. However, it is important to keep in mind that many of the most successful investors in the world do not engage in cryptocurrency trading, and they highly advise you to avoid doing so as well. Charlie Munger, a legendary investor and vice chairman of Berkshire Hathaway, was quoted as saying, "I applaud the Chinese because I believe they made the right choice, which was to just prohibit them."
In addition to this, Munger is on record as having said the following about cryptocurrency: "To me, it's simply dementia. It's like if someone else is exchanging turds and you decide that you just can't be left out of it.
Alternatives to cryptocurrency
Because of the extreme volatility and speculative nature of cryptocurrencies, many investors do not feel confident investing any money in them at all, let alone a significant amount. The good news for investors is that, in addition to bitcoin, there are other investment options available to them that provide strong long-term returns:
Individual shares of stock. If you are prepared to perform the study and continue watching the firm, investing in individual stocks such as Amazon or Apple may provide you with very excellent returns. However, you must be willing to put in the necessary work.
Dividend stocks. You should consider purchasing dividend stocks if you want a portion of your investment to be returned to you in the form of cash. The general volatility of these tends to be lower than that of stocks.
Funds of indexes. An index fund is a smart choice to consider if you want high returns but don't want to put in the effort required to identify specific equities that meet those requirements. An index fund is a kind of mutual fund that invests in stocks or other assets and is meant to replicate the performance of a particular stock index (such as the S&P 500).
REITs. If you are looking for a substantial cash distribution, you may want to consider REITs as an alternative to dividend stocks.REITs have a solid track record of returns over the long term, as well as ownership and management of real estate. You can also buy a fund instead of picking individual REITs.
These are a few of the most promising alternatives to cryptocurrencies currently available.
Conclusion
Even though Bitcoin, for example, has made significant gains after experiencing significant losses in the past, there is no assurance that it will do so in the future. This is especially true if it is facing serious existential questions due to countries banning its use and possibly even the ability to own it. And this is the kind of real risk that can kill an investment or make it more profitable, depending on whether or not what happens is worse than expected.
FAQ
What will lead to the complete failure of crypto?
Why is the crypto market collapsing? The movements of crypto's prices may be influenced by interest rates, inflation, and other macroeconomic issues, all of which have the potential to influence the level of confidence individuals have when putting their money in alternative assets that are high risk.
How can you earn money while the price of cryptocurrency is going down?
Short-selling may also be done during the crypto market collapse via the use of futures markets, trading in binary options, prediction markets, contract for differences (CFD), inverse exchange-traded products, and many other financial instruments. When the price of an asset falls, you earn a profit from short selling, which may be an excellent strategy to make money during a meltdown in the cryptocurrency market.
Will there be a recovery in the cryptocurrency industry in 2022?
Will Cryptocurrency Make a Comeback in 2022? There is a possibility that the near future may not be favorable for the bitcoin industry. The value of Bitcoin and other cryptocurrencies continues its downward trajectory, but at a considerably slower pace than what it was experiencing in the first few months of 2022.
In 2022, how much will Solana be worth?
A number of industry experts forecast that solana will explode in 2022. According to Gov Capital's very bullish forecast, the price of bitcoin will reach $65.50 by the end of 2022.
That's all for today, see ya tomorrow! If you want more, be sure to follow our Twitter (@croxroadnews)
DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.
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