How to avoid becoming a fool during crypto crash:10-point guide

Crypto markets witnessed a massive crash recently and it is yet to recover. Millions of dollars worth of investors’ money was wiped out within days in what appeared like a market bloodbath, literally. In fact, those who had invested in Terra (Luna) found the value of their holdings turn to almost zero!

Such has been the impact of the market crash that crypto investors are still not willing to return to the markets, experts have told FE Online on many occasions since the start of the crash.

Even as people are aware of the extreme volatility that crypto markets encounter almost regularly, they have been investing in crypto for last many years, hoping for quick returns or thinking this is the future.

Yet on many occasions, when markets crash or gets hit by some scam, crypto investors find themselves ending up as a fool. But are there ways through which one can prevent this, even during a crashing or falling crypto market? Crypto experts believe there are such ways.

Make an informed decision

“Informed decisions separate a good investor from a bad one. As with any asset class, investors should act based a sound assessment, and not get influenced by peer pressure or social media. The golden rule of any investment is: Only invest what you can afford to lose. The same applies to Crypto assets, ”Ashish Singhal, co-founder and CEO of crypto investment app CoinSwitch told FE Online.

ALSO READ | How not to be a crypto fool: 5-point guide

Experts say that one should never invest his / her everything in crypto. It is important to first give priority to immediate financial goals.

“Cryptocurrencies might outperform other asset classes in the long run, but one should prioritize other financial goals like an emergency fund, repayment of debt and their long term savings,” said Srivar Harlalka, co-founder of Flippy, a social discovery and investment platform. for digital assets including cryptos.

This may not be the end

Cryptocurrencies are known to be notoriously volatile, with daily price movements as high as 10 to 15%. Bitcoin saw an all time high of $ 69,000 in November of 2021, but was trading at $ 28,500 just last week.

“What retail investors need to know about the recent volatility in crypto is that it’s not an outlier event. The industry has survived several such ‘bear runs’ and yet gone on to make new highs, ”said Harlalka.

After understanding the risks, if you yet decide to invest in crypto, you should follow all the fundamentals of investing.

“All investors who are willing to explore the crypto market or have already made investments should be smart and creative about their investment strategy. To avoid losses during such a market crash there is a need to strengthen the fundamentals of investing. Like any other asset class, crypto investments also require sound understanding of the market fundamentals and alignment with the risk appetite of each individual, ”said Anuj Yadav, co-founder and CTO of Kassio, a crypto management platform.

10 Tips Keep You Sane During Crypto Crash from Experts

Following are the 10 most important points crypto investors, or those planning to invest, should always keep in mind to remain sane, and not a fool, even during a falling market, according to experts:

1. Make a diversified portfolio

Like the old saying goes, ‘never put your eggs in one basket‘. Since most projects are in early stages, it is a good strategy to invest in multiple tokens working on similar technology rather than just a single token. For instance, diversifying across multiple DeFi projects is better than investing in a single DeFi token,

2. Understand the four year cycle

“Every four years, the bitcoin network cuts mining reward in half. Throughout the short crypto history, every halving event has triggered a bull run. While there is no guarantee that this will repeat, it is an event of significance within the crypto ecosystem as seen in 2013, 2017 and 2021, ”said Harlalka.

ALSO READ | Will Bitcoin rise again fast in 2022?

2. Invest for the long term

Experts say that crypto as technology is still nascent, and crypto projects can take a good 5 to 10 years to reach their potential. While some projects have grown massively in a span of a few months, such a phenomenon is rare and not repeatable for every project.

4. Do not try to time the market

Timing the market is neither a feasible nor a scalable investment strategy. The best practice is to make small investments at regular intervals to take advantage of rupee cost averaging. This way, you average out your buy price over time and hedge your market entry against volatility.

5. Educate yourself on crypto investing

Making investment decisions in the crypto market solely based on recommendations from influencers and friends will not serve the purpose. You should invest time in understanding how trading works and what indicators you can use to assess the overall trend of the underlying token.

“For detailed oriented users, one can learn the technical analysis but for the common users it is very useful to familiarize with basic terms like order book, market depth, etc. This education will allow users to make more sense of what is happening and what corrective actions can be taken, ”said Yadav.

6. Always stay away from panic buy / sell and FOMO

Humans are emotional beings and we often tend to make emotional decisions while investing. Always make sure to make investment decisions rationally. Do not buy or sell under the influence of FOMO (fear of missing out) and never react blindly to positive or negative price actions.

ALSO READ | Why cryptos fell again on 2nd June

7. Start small

You should do your own assessment and allocate an amount you are comfortable investing in cryptos. You should take into consideration your monthly expenses and other responsibilities while deciding your budget. A segregated budget for investing will ensure that in case of unforeseen events such as a Terra Luna crash, your losses will not impact your daily life. For early investors, you should start with a small amount and use it to learn trading by placing orders and then validating your assumptions.

8. Observe and relate the impact of macro factors on crypto market

Experts say that you should follow good news sources on cryptos and the global market so that you know what is happening around the world as crypto market is operating 24 * 7. As the crypto market is continuously evolving it is imperative that you are well informed especially about your selected tokens.

Prior to making any investment, always set your investment goal and do your research to understand the market dynamics and impact of macroeconomics factors (like inflation, rate hikes from central banks, comments from prominent regulators etc.). Crypto investors should realize that with time the crypto market has started to have an impact based on what happens on the equities or bond market. With continued participation from institutional investors, the crypto market will get more and more closely linked to the global economy and market, ”said Yadav.

9. Do your own research on each token / project you invest:

Always do your own research before investing in any token or project. For eg do not make investment decisions based on the market cap of the coin. Invest some time to understand how the token works, read the underlying whitepaper and who controls the supply and the type of endorsement it has from leaders in the crypto space. For eg one of the biggest lessons we can take from the Luna crash is that not all stablecoins are the same and therefore it is important to understand the different stablecoins, their economics and auditing process.

10. Practice dollar-cost averaging

Experts said that instead of investing a big amount in a single order, always prefer to systematically invest desired amounts over the regular intervals. This strategy will help in riding over the volatility by averaging out the markets’ ups and downs. This will also allow you to consolidate the required quantity of the preferred token at a better optimal price.

(Cryptos and other virtual digital assets are unregulated in India. They are considered extremely risky for investment. Please consult your financial advisor before making any investment decision).


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