In the relatively short period of time since they’ve been around, cryptocurrencies have become one of the hottest investment trends to exist. And while the crypto market remains small compared to other established markets since it’s based on a new financial instrument that has only just entered the mainstream, one thing they all have in common is that they’re bound to experience cycles of growth and decline.
So, it’s important for anyone investing in crypto to know how to manage their portfolio during trying times, especially since digital currencies are known to be a lot more volatile than traditional asset classes. Crypto price fluctuations are driven by a series of factors, such as supply and demand, competition, government regulations, or public sentiment. This volatility can be both good, resulting in greater returns for investors, and bad when massive price swings lead to rapid and large losses.
Since market dips are a given, the only thing you can do is learn how to ride the tide and protect your portfolio. Fortunately, there are certain strategies that can keep you safe during periods of decline and even help you build wealth, so here are the things you should focus on.
Leave emotions out of the equation
Since things move fast in the crypto sphere, it’s extremely important to keep up to date with the latest developments in the industry and stay on top of the trends, whether that means listening to expert predictions on Bitcoin price or any other crypto that you may be interested in.
However, there’s also a downside to the continuous flow of information you receive from the cryptocurrency space. Reading every piece of news that you can get your hands on and constantly looking for updates on all things crypto can send you on a downward spiral of negative thoughts and greatly influence your decisions to buy or sell.
FOMO or fear of missing out is a feeling that many crypto investors experience during a market decline, as they worry they’re not making the most of price fluctuations. FUD, which stands for fear, uncertainty, and doubt, is a phenomenon that refers to the negative rumors and information spread about a certain cryptocurrency. Investment decisions based on feelings of fear, confusion, or sudden excitement usually led to unfortunate consequences. So, it’s best not to let emotions or the things you read in the media get the best of you and cloud your judgment. Use your critical thinking, check your sources, and take everything with a grain of salt.
Diversify
One of the golden rules of investing says that you should never put all your eggs in one basket. That’s a sound strategy because if you concentrate all your investments in one area and a market dip causes you significant losses, that can be the end of your investing journey. But if you spread your wealth across multiple types of assets, if one of them goes down, at least you’ll have the rest of them to keep you afloat.
In a crypto dip, it can be tempting to put all your money into buying a certain cryptocurrency in hopes you’re going to increase your returns in a shorter period of time. But instead of focusing all your resources on digital assets and risk losing everything in one go, you should try to expand your portfolio and explore traditional investment options as well.
Invest within reasonable limits
Crypto investment is a highly speculative practice, so no matter how much time and effort you put into getting informed and educated, there’s no guarantee that you’re going to come out as a winner. That’s why you should never dive in without considering the consequences, and only invest as much as you can afford to lose.
It makes sense to buy crypto on the dip, thinking that you’re going to reap the rewards as soon as the market bounces back, as it always does after a downturn. But unlike stocks or other assets, crypto swings tend to be more dramatic and less predictable, so there’s no telling when and how the market will get back on track. By the time the prices go up again, you may have suffered more losses than expected. That doesn’t mean you shouldn’t buy the dip. If after careful consideration you come to the conclusion that it’s a good move, you can act on it. However, make sure you don’t put all your resources into a project that may never come to fruition.
HODL
HODL is a slang term that most crypto enthusiasts are familiar with, which is often said to mean holding on for dear life. It basically refers to a strategy where investors hold on to their digital assets despite price volatility, even after a significant drop in crypto price.
Just because you’ve lost some money in the crypto dip doesn’t mean you should abandon the boat and immediately sell all your assets. If there’s something we can learn from cryptos’ short history is that cryptocurrencies tend to recover even after long periods of decline. That’s a good enough reason to be patient and refrain from making any rash decisions based on momentary panic. Sometimes, when crypto volatility increases and you’re not sure which way to go, the best thing you can do is wait patiently for the storm to calm down.
Keep on learning
Crypto dips can be daunting as they bring even more uncertainty to an already fast-changing market, but you can also use this opportunity to expand your knowledge in the field and learn more about the factors that influence the market. You can dive deeper into crypto and learn how to perform technical analysis and decipher each stage of the crypto cycle.
It’s often said that experience is the greatest teacher, so if you’ve never been caught in a crypto dip before, this is your chance to test your investing skills and apply all the things you’ve learned so far.
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