Many cycles of rising and decrease have occurred since Bitcoin’s introduction in 2009, even within wider patterns known as bull and bear markets. It is true that each market downturn has been followed by a comeback and strong increase so far, but for seasoned traders and beginner investors alike, times of decline may be worrisome.
If you want to sleep better at night, prevent sleepless nights, and hang onto the value of your portfolio during a market correction, consider the following five investment techniques.
Look out for FOMO and FUD
Keeping up with the newest cryptocurrency news and trends is important, but having too much knowledge may be detrimental as well. A good rule of thumb is to keep your emotions in check while the market is in a downturn so that you can avoid making any terrible trades.
Our decisions to purchase and sell cryptocurrencies might be influenced by FOMO (fear of missing out), as well as FUD (fear, uncertainty, and doubt), which are frequent phrases in the crypto community.
FUD is the broad term used to describe the negative market mood that may be sparked by rumours or bad news articles. Because of this, the price may decline as traders sell their holdings in anticipation of a further drop in price. As opposed to that, traders who suffer from FOMO tend to lose sight of the fundamentals in their eagerness to board the next spaceship after witnessing favourable price movement or news.
Doing your own research and drawing your own conclusions is the best way to get a handle on the future. When it comes to manipulating the markets, certain influencers and journalists may have a financial incentive to spread FUD or FOMO. It’s usually a good idea to check different sources while learning about the newest developments in the bitcoin industry.
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Trade only what you can afford to lose.
You should never invest more than you can afford to lose, no matter how sure you are about a certain item. The last thing anybody wants is to be thrown into a rollercoaster of emotions as their portfolio’s value steadily declines in anticipation of favourable price movement.
If you want to diversify your investment portfolio, you should own a variety of assets, including cryptocurrencies and stock market index funds.
Cryptocurrency is sometimes referred to as a 24-hour industry. The volatile nature of the cryptocurrency markets necessitates pre-defined trading methods and entry and exit points for investors.
The price of a stock may fall even if you have access to all the information available. In the event of a precipitous collapse, it is imperative that you prepare ahead and take action to minimise your losses.
Consider dollar-cost averaging (the technique of buying or selling little sums at regular intervals) as an option for investors who don’t want to trade based on their emotions or spend all of their time staring at the market.
The long-term trend of Bitcoin’s value has always been upward. Market corrections and bear markets may cause prices to fall temporarily, but economic factors like scarcity have historically caused prices to rise again.
Many feel that the restricted supply of cryptocurrencies like Bitcoin will lead to an increase in their value over time. Negative price movements might be considered transient if you have a longer investment time horizon (years rather than weeks or months). Long-term holding has shown to be a winning approach so far, with Bitcoin emerging as the most successful large asset of the previous decade.
Keeping cryptocurrencies for extended periods of time might reduce your tax burden in places like the United States. It may be better to keep for a year or more than to sell right away.
Investing in cryptocurrencies over a longer length of time might reduce a country’s tax burden, especially for the United States. It may be better to keep for a year or more than to sell right away.
Take profits and watch out for price dips.
Converting a portion of your crypto holdings to more stable assets is one way to prevent crypto volatility and protect yourself during a market slump. In a cryptocurrency bull market, this may assist investors ‘lock-in’ their balance and lower their risk and the need to actively manage their portfolio and stress levels.
Investing in USDC and other stablecoins reduces your portfolio’s vulnerability to price fluctuations when the markets are quiet.
However, it is important to keep in mind that selling all of your crypto assets at once, known as “capitulation,” might result in a loss if the market unexpectedly recovers. In order to avoid making hasty judgments under pressure, it is critical to have a clear picture of what degree of profit and loss is acceptable to you.
When done correctly, a withdrawal and buyback approach may help investors steadily build up their portfolios by allowing them to transfer money in and out of safe investments. That said, even the most seasoned investors sometimes make mistakes in terms of timing their entry and departure points.
Seek out other investments
However, even if the crypto markets plummet, there are still chances. A new chance to buy their favourite assets at an affordable price and make a profit is opening up where others perceive a gloomy and frigid crypto winter.
Traders who believe they have been priced out of prior gains may use the strategy of “buying the dip” to enter the market or expand their existing holdings.
Small rises and falls may be seen even in the midst of a long-term downturn. Traders’ technical analysis abilities may help them profit from these short-term swings, allowing them to buy low and sell high in order to take advantage of these fluctuations.
Taking a wager that an asset’s value will decline is another way to benefit from dips in the market.
Even in a bad market or slump, activities like skating and DeFi yield farming may help level out returns and sustain your real crypto balance.
Dollar-cost averaging is effective in rising and falling markets alike if you are confident in the long-term value of a certain asset. During down cycles, you receive more crypto for your dollar than during up cycles.