WHAT TO DO WHEN THEY’RE CRASHING and BITCOIN AND CRYPTO
If there is one word that describes Bitcoin and the cryptocurrency, it is volatile. Cryptocurrency prices spike and then seem to crash almost as quickly, while rumours, sentiment and fundamental developments quickly feed into the market. Even the seemingly trustworthy stablecoin TerraUSD has tumbled as concerns about its solvency quickly developed, and the Treasury Department is citing the risks that cryptocurrencies could cause to the broader economy, and calls for tighter regulation of BITCOIN AND CRYPTO. .
For example, Bitcoin skyrocketed in November 2021, reaching an all-time high of almost $69,000. But less than three months later, the cryptocurrency had lost nearly half its value, plummeting to around $35,000.
That volatility appeals to traders looking to make a profit, but it’s stressful, especially for new investors looking to get started. And traders can expect much more of this volatility in the future, as new cryptocurrencies emerge and others fall by the wayside.
5 things to do when cryptocurrencies plummet
Scared of a plunge or excited at the prospect of buying cheaper? Either way, here are five things to do when cryptocurrency prices crash.
1. Keep calm
Whether you decide to sell your BITCOIN AND CRYPTO or see a dip as an opportunity to buy more, you need to act with a cool head. Making emotional decisions, especially when trading, rarely results in anything good happening. So before you rush into the market in a panic, you’ll want to reflect on why you’re trading crypto in the first place.
Are you investing because you believe in the long-term opportunity?
Or are you here to make quick money with short term trades?
The answer to these questions can help you make the right decision. In any case, you will want to act according to your own goals. In other words, if you believe in long-term opportunity, think with that mindset. If you’re here for a quick trade, think with that mindset.
2. Assess the situation
Is there news that drives the trading price of Bitcoin and other cryptocurrencies? There may be fundamental news that has changed market sentiment and it is not just price action or sentiment that is driving the rumor.
BITCOIN AND CRYPTO
In 2021, real developments hurt prices. China’s decision to ban financial institutions from providing cryptocurrency-related services was a more drastic move, as the country had already banned BITCOIN AND CRYPTO exchanges in 2017, although it had not banned people from owning cryptocurrencies. Then, in late 2021, the Federal Reserve decided to reduce liquidity in the financial system, and many cryptos have had a significant downturn in 2022.
In May 2022, the TerraUSD stablecoin crashed as traders engaged in an old-fashioned “bank run” as they feared it did not have the crypto assets to back its dollar peg. This news spread to other crypto markets as traders worried that the sale would lead to more sales.
Therefore, these moves have been another significant blow to the burgeoning market, which had been enjoying significant capital inflows.
3. Remember that volatility is the name of the game
Cryptocurrency is volatile by nature. Because cryptocurrencies do not generate cash flow, traders must rely on changes in sentiment to drive the price. That means the market can swing between rabid optimism, as it did in early 2021, and pessimistic despair, as it did a few months later. The furore around Coinbase’s 2021 IPO helped generate positive sentiment towards cryptocurrencies, while the tapering off of monetary stimulus fueled pessimism in late 2021 and early 2022.
So when you have a sentiment driven asset, the traders emotions drive the market. That’s also true of stocks, but they can also have an actual stream of growing cash flows from their issuing company to accelerate them further.
This volatility is exactly what attracts professional traders, who use high-powered algorithms to make sophisticated trades, something that “mom and pop” traders don’t normally have the advantage of using. Traders like volatility because it gives them the opportunity to make money – that’s the Wall Street game.
4. Evaluate the future
Discuss how it might develop