The bitcoin market is known for its extreme volatility. This can result in more than 50% price cuts in a few months and abrupt price increases.
It's uncertain if this is the start of a wider crypto market implosion. However, it is a timely reminder that cryptocurrency prices can fall, and investors must be prepared.
Here Are Four Important Ways To Prepare For The Forthcoming Crypto Meltdown
A crypto investor might prepare for a market fall in several ways. The following are examples:
1. Only put money into the market that you can incur
When trading in a volatile asset category like cryptocurrencies, the golden rule is to only put money into it that you can easily lose; when you hear about cryptos that have increased over 5,000 percent in a year, it's too easy to get swept up and hope to see comparable increases.
Last year, though, those profits were only achieved by a small number of cryptocurrencies. With over 17,500 cryptocurrencies available, predicting which ones will climb requires a lot of luck. Given the shifting market environment, no coin is guaranteed to provide identical returns in 2022.
Once you extend your budget — or borrow money — to acquire a cryptocurrency and the market drops, you may not be able to afford basic expenses such as groceries and lodging.
However, if you only acquire cryptocurrency with money you can easily lose, a decline will be frustrating but not disastrous. You will not be forced to sell at a loss; instead, you will have the opportunity to carry on and expect the market to rebound.
2. Trade-in cryptocurrencies with the potential to appreciate over time
There are numerous viewpoints on Bitcoin investing. Some see it as a good short-term speculative investment, while others want to get in early on what might be a game-changing technology. Keeping a long-term view will help you avoid panic selling when prices decline.
You're more likely to complete your homework before buying if you plan to keep the property for the following five to 10 years. Dismissing a market meltdown as a normal crypto volatility element is easy.
It's not easy to find cryptocurrencies with long-term promises. Many promising projects were sunk during the crypto crisis of 2018. According to some analysts, Ninety percent of cryptos would not survive a prolonged downturn. Cryptos with the best long-term survival chances can be identified through research.
Furthermore, trading on crypto platforms such as Kraken, Binance, and Bitcoin Loophole can help traders invest correctly and connect with reliable and competitive brokers. Users can also buy and sell cr\yptocurrencies with other traders.
Here are some things to keep an eye out for:
A. Is it a well-known cryptocurrency?
Smaller cryptocurrencies do have a better possibility of generating big returns. They do, however, come with a higher level of risk. On the other hand, better-known cryptos with bigger trading volumes, such as Bitcoin (BTC) and Ethereum (ETH), have a better chance of surviving a major fall.
B. Is there a reason for it?
Address the implications the cryptocurrency proposes to tackle and the number of people who will benefit from the solution. Examine what its competitors are up to and how it stacks up. If the market falls, coins with no purpose are more prone to failure.
C. Is it led by someone knowledgeable and trustworthy?
When it comes to navigating a project through challenging times, management is crucial. On the other hand, anonymity among a project's leaders is a major red flag.
D. Is there a vibrant developer community?
It will likely fail if a project does not have many developers working on it.
3. Ensure you have a backup plan in place
Emergency savings are similar to a financial airbag in that they pop up and protect you from unforeseen events. Preserve three to six months' equivalent of living expenditures and simple access to a savings account.
It may seem to be a substantial number, but it will assist you in surviving if you lose your work or face another financial catastrophe. Adequately stocked emergency savings might help relieve some of the stress of a crypto market collapse by ensuring that you'll still be able to meet your financial goals. If you don't already have an emergency fund, consider putting money aside every month until you do.
4. Ensure that crypto is only a small portion of your overall investment strategy
Cryptocurrency and other high-risk investments should only make up a modest part of your overall portfolio. There are several methods for assessing how much you wish to allocate, depending on your risk tolerance, cryptocurrency awareness, and belief that cryptocurrencies will outperform equities.
The important thing is to diversify. You'll be able to cope if one asset class, such as cryptocurrency, fails if you don't overexpose yourself to it.
We don't know whether crypto will recover in the coming months or if this is the beginning of a long decline. Some are already predicting a crypto winter, but it's far too early to make such a prediction. Increased regulation is one major reason that could substantially impact cryptocurrency values shortly.
Looking long-term, diversifying, and ensuring you have money in various commodities is the best way to be prepared as a crypto investor. These include cash, property investment, equities, and other assets. Cryptocurrency is a fascinating asset, but it should never be the sole source of income.