Have you ever experienced a crypto market drop? How did you deal with it?
Despite the recent boom in the cryptocurrency space, we should not forget that the market is volatile and that the price of digital assets fluctuates – it is not stable. For instance, on March 12th, 2020—during the initial phases of the COVID-19 pandemic—Bitcoin’s price dropped from $9000 price levels to around $4,700 in a matter of hours. But at the time of writing, the best-performing crypto is trading at $57,157.
Sudden price crashes can easily take investors/traders by surprise. Hence, it is crucial to be ready to handle a crypto market drop when it takes place. In this article, we will share some tips on how to profit during a crypto market drop.
7 Tips to handle a Crypto Market Drop
- Take Time To Understand the Crypto Market
The crypto space does not entertain ignorance. The first tool needed to thrive in the industry is knowledge; about the market, market influencers, and nature of assets. Understand that the crypto market drop is not permanent, but it is bound to happen. Always take time to reassess your investment portfolio as often as possible. You could also learn more about the past performance of an asset. And to help you predict prices, take time to study key price metrics to gain insight into the movement pattern of cryptocurrencies.
- Think about buying the Dip
This is something that many crypto traders do not consider. Buying the Dip can help you to generate significant returns. But employing this strategy successfully would require the investor to time the market, which several industry experts have termed quite challenging.
According to popular consensus, buying the dip works better only in a general bull market. And If the global trend reverses, buying the dip could prove useless. So do the necessary research and consult a few industry experts before buying a crypto market dip.
- Identify Solid Opportunities
Many investors fail to understand that the crypto market does not revolve around one cryptocurrency. If a broader digital asset market crashes, some other cryptocurrencies could perform well. Find virtual currencies that have solid foundations and formidable business models and then hodl.
Besides that, know when to cash out. Many crypto traders suggest cashing digital assets to Fiat currencies when crypto markets crash. This strategy requires you to time the market – know when to exit and re-enter to profit from the move.
- Short your holdings
Shorting works by borrowing an asset—such as Bitcoin— selling it at its current price, then purchasing the Bitcoin to pay back the person or company you borrowed them from. In other words, shorting is the act of selling a cryptocurrency in the hope that it falls in value and you can buy it back at a lower price. If done correctly, traders and investors can generate returns by shorting Bitcoin or other digital currencies.
However, it is risky. We advise investors to research further before shorting their digital assets.
Diversification is another good investment strategy, especially for newbies. For example, it is not financially advisable to put all your funds in Bitcoin because it is a popular asset. There are more than a hundred coins to choose from. So learn to spread your investment around. It will help you handle crypto market drop anytime. Simply put, have a well-diversified portfolio.
High volatility is a known fact in the crypto industry. But with the five tips mentioned above, you can comfortably handle a crypto market drop. Remember that a crypto market drop does not last forever. As much as it crashes, it can also bounce back.