7 Things To Do When The Crypto Market Crashes

The crypto economy across the world peaked in the post-Covid-19 times, reaching several all-time highs in 2021. However, many cryptocurrencies, including Bitcoin, have been facing particularly brutal price drops as of mid-2022. Many saw the seemingly reliable stablecoin TerraUSD jump into a death spiral, along with its underlying crypto LUNA. Even Bitcoin, which hit an all-time high of almost $69,000 back in November of 2021, has plummeted below $30,000 as of the beginning of June 2022. 

While the bearish sentiments spreading through the crypto markets may be disheartening, it’s important to remember that it’s in the nature of cryptocurrencies to be highly volatile, and this is not the first time Bitcoin (or any other crypto for that matter) is witnessing such fluctuations. Indeed, dramatic gains and losses like this have been seen before, such as the time when Bitcoin reached the high of $20,000 in December 2017, only to plummet to around $3,500 within a year. 

For new investors, the current crypto market situation can be scary. But it’s imperative that you keep a level head if you’re here to play the long game. To help you reorient yourself in a shifting market, we bring you a list of seven basic things to do as an investor when the crypto market crashes: 

• Keep Your Cool: You may decide to sell your cryptocurrency once the market starts going down, or you may see the dip as an opportunity to buy more of a crypto. Whatever you do, you first need to keep calm so you can make a decision rationally. 

Making decisions solely driven by emotions- especially when the market is volatile- may result in extreme losses. Instead of rushing into the market out of sheer panic and making a rash move, you may want to remember your trading goals and strategies and make a decision based on them.  

• Evaluate the Market Situation: When the market dips, there may be a different factor behind it driving the change aside from trader emotions or false rumors spread through the internet. For instance, in 2017, China banned crypto exchanges operating in the country, and in 2021 again, China forbade financial organizations from facilitating any crypto-related services. Both these events caused significant drops in crypto prices across the globe. 

Very recently, TerraUSD also plummeted- as mentioned before, because a number of investors feared its peg to the dollar wasn’t backed by the required amount of LUNA. Unfortunately, this sentiment rapidly spread to the wider market before the price crashes could be controlled.  

• Remember that the Crypto Markets are Volatile by Nature:  Since cryptocurrency generates no cash flow, traders rely on changes in market sentiments to propel the prices in the first place. This volatility is actually the biggest factor that draws most traders to crypto, so you must not let ups and downs in prices drive you into a state of panic.  

• Consider Potential Future Developments: Most cryptocurrencies are used as stores of value so far instead of a replacement for fiat currency. Some countries like El Salvador, however, have made crypto legal tender, and countries like the USA are considering how to best regulate their respective crypto markets. 

Still, there are also nations like China that have imposed outright bans on crypto or are considering doing so. So it’s important that you take the future of crypto into consideration and re-evaluate your risk appetite when you’re in a tough spot with your investments. 

• Determine Your Course of Action: Once you have assessed the entire situation cool-headedly, you may decide to use the dip as an opportunity to invest more in an asset, or you may decide to exit the market to avoid any further risks. If you’d like to give the whole thing a little more time, you can even try selling some of your positions while keeping the rest of your investment as is. 

• Make Sure You Have Invested Only What You Can Stand to Lose: This is one of the fundamentals of investing in crypto: since it’s a pretty risky asset class, only invest funds you can afford to lose. This way, any losses will only be disappointing, and you can wait for the prices to recover again.

• Keep an Emergency Fund for Unexpected Disasters: Another thing that goes without saying: you must make sure to have a solid emergency fund before investing. This way, you can keep your cool and make knowledgeable decisions in times when your investment is at risk. 

So these were seven very basic things you can do to deal with a crypto market crash. We wish you good luck in your future crypto trades!

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