Cryptocurrencies are controversial investment options because of their volatility. While some people can make a fortune from the occasional bull run in the market, others see their investments dwindle to nothing overnight. Cryptocurrencies are not regulated by any central financial institution, so they can fluctuate based on market sentiment and regulatory pressure. When the cryptocurrency market crashes, you must keep your wits about you and protect your capital accordingly. Here is what you should do when the cryptocurrency market crashes:
Stay Calm and Collect Your Losses
When the cryptocurrency market crashes, you should stay calm and collect your losses. Don’t panic, don’t sell any of your cryptos at a loss, and don’t sell out of FOMO. Panic selling causes more harm than good and can lead to more losses than gains.
After a crash, you may see many cryptocurrencies lose 50% or more of their value in a day. If your cryptocurrency holdings are worth $5,000 at the start of the crash, by the end, they may be only $2,500. Despite the market’s volatility, you don’t have to cash out your holdings and just let the money slip through your fingers.
Instead, follow these steps to protect your capital and reduce the risk of panic selling: Collect all your investment data and keep track of significant events such as new partnerships, announcements, and developments.
Diversify Your Portfolio
If you have a single cryptocurrency in your portfolio, you are more exposed to that one asset than you are if you have a diverse portfolio. A diverse portfolio of six to 10 cryptocurrencies reduces your risk of losing all your money when the cryptocurrency market crashes.
Diversification does not mean you have to invest in a dozen different assets at once. You can invest a little bit in three or four different assets. One way to diversify your portfolio is to invest in more than one cryptocurrency. If a single cryptocurrency crashes, it doesn’t mean you have to lose all your money. If another cryptocurrency in your portfolio increases in value, you can use the extra money to offset some of your losses.
HODL (and Hodl)
Holding cryptocurrency during a market crash is a controversial topic. Some believe it keeps the value of your assets high. Others believe it is a foolish strategy that will result in catastrophic losses. HODL (or Hold On for Dear Life) is a popular meme that people use to refer to holding cryptocurrency during market downturns.
This is not a strategy to protect your capital during a crash, it is a strategy that reflects the confidence of the cryptocurrency community. If you own any cryptocurrency, you should HODL. It’s better to hold your coins rather than sell them during a crash because it keeps the value of your portfolio high.
Cryptocurrencies are highly speculative investments that can experience significant price volatility. When the market crashes, it’s essential that you keep your wits about you and protect your capital accordingly. When the cryptocurrency market crashes, you should stay calm and collect your losses.
Don’t panic, don’t sell any of your cryptos at a loss, and don’t sell out of FOMO. Panic selling causes more harm than good and can lead to more losses than gains. When the cryptocurrency market crashes, you should diversify your portfolio, and hold on to your investments.