Although 2023 has been a fairly good year for the crypto market, coin prices are still significantly lower than their all-time highs throughout the 2021 bull run. There’s currently much uncertainty within the cryptocurrency space, causing traders to make reckless decisions, give into FOMO, and neglect their goals.
If you’re a trader who’s unsure how to react as crypto prices plummet, then you’ve come to the right place! Join us as we discuss the best things to do during a downward swing in the cryptocurrency market. Following this guide, you’ll be able to withstand the pressures of investing in this highly volatile asset and make the most of your crypto trading endeavours. So, let’s dive in!
Why Is Crypto Going Down?
The current price drop in cryptocurrency can be traced back to 2022 after the fall of FTX, the third-largest crypto exchange by volume. When this exchange went bankrupt, a mass of investors proceeded to sell their assets. There was a significant level of distrust and scepticism within the industry, which is still prevalent today.
Despite this, crypto prices did rise throughout the beginning of 2023, and some experts believe that the worst is truly over. However, since cryptocurrency is a highly volatile asset, crypto crashes are to be expected throughout the year. As of August 2023, crypto is experiencing a significant selloff once again. But why?
The Current Crypto Crash
Some theorise that the current selloff, particularly for Bitcoin, has been caused by Elon Musk’s SpaceX. The company had reportedly sold millions of pounds worth of digital currency holdings, disrupting the prices of Bitcoin and other popular coins. Furthermore, growing concerns over China’s economy are said to have a direct impact on crypto prices worldwide.
There’s an abundance of other macroeconomic factors that can affect the prices of crypto. For example, rising inflation often leads to a fall in price for cryptocurrencies such as Bitcoin. When consumer prices are high, many people will have less disposable income to dedicate to investments. Some may even decide to sell their holdings to pay for goods and services. Even natural disasters can have an undesirable impact on crypto market performance.
Overall, there is no simple answer to why crypto prices are currently crashing. A drop in price can be a result of a combination of factors. There can also be a snowball effect that prolongs or even intensifies a crash. Investors may see dropping prices and, out of fear, will decide to sell their assets. As a trader, it’s important to stay composed and calmly decide how you will proceed in a crypto market crash.
What To Do When Cryptocurrency Prices Go Down?
Unsure what to do when crypto market prices are going down? Check out our top tips for managing risk and making the most of market fluctuations in 2023!
1) Assess the Situation
First of all, you should investigate and assess the current situation. This is best done by checking out reputable news sources that cover the latest updates in the financial markets. This will help inform you of current trends and allow you to prepare yourself for a potential crypto market crash.
You can also check out a popular crypto exchange like Gemini or an online marketplace such as CoinMarketCap to see the current prices of coins. You’ll also be able to gain valuable insight into the attributes of popular crypto assets, such as their market cap, 24-hour/7-day change, volume, and circulating supply.
Of course, you won’t be able to pinpoint exactly when or why a crash will happen. But you’ll still be able to gain an idea of the crypto and stock market direction and make adjustments to your portfolio if necessary.
2) Manage Your Emotions
The key to successfully riding the volatile crypto wave is remaining calm and learning how to manage your emotions. It’s common for traders to panic as prices begin to drop, leading to them making irrational and costly decisions.
Some traders, especially beginners experiencing their first market crash, will suddenly sell all their assets. Although this might feel like the safest decision, you may regret it after prices begin to stabilise. If you’re tempted to do this, then take some time to reflect on why you started investing in the first place.
Additionally, some traders end up giving in to the fear of missing out. Known as FOMO, this is the feeling of anxiety you get when you believe you’re passing up a potentially profitable investment. Traders are especially susceptible to this feeling during market crashes, as they may hear of other investors who are still managing to experience a profit.
To mitigate FOMO anxieties, you must remember to focus on your own goals and progress as a trader. Plus, you should remember that not everything you read or hear is true. It’s possible that other crypto investors are exaggerating or fabricating their gains.
Overall, you should strive to always act in accordance with your goals, regardless of the current state of the cryptocurrency market.
3) Review Your Strategy
Now that you’re in a calm state of mind, you can decide on your next step. More often than not, a change in market conditions will call for investors to review and alter their trading strategy. Doing this will help you to make sure you’re still on track to reach your goals and even give you a chance to look back on the progress you’ve made so far.
To begin with, you can consider your short and long-term goals. Our trading goals can change as our financial situation and personal life does. If you now have debts to pay off or are saving up for a big purchase, your investment goals may differ from what they were months or even weeks ago. If this is the case, you may decide that you want to adjust and rebalance your portfolio.
Furthermore, as the dynamic markets shift, your risk tolerance may also change. In this instance, you’ll need to make sure your investment strategy is aligned accordingly. This is an important step you should never miss when trading cryptocurrency and other digital assets, regardless of whether prices are dropping or not.
4) Make a Plan
After you’ve established your current goals and investment strategy, it’s time to determine how to act. It’s vital to have an action plan in place to see if you can mitigate the risks from the downfall of cryptocurrency market prices. You may decide that these risks are just opportunities in disguise, and you’ll continue holding your position or even buying more assets.
On the other hand, if you have a lower risk tolerance, you may choose to sell a portion of your assets and wait for the crypto winter to end. Regardless of your decision, you should set a clear and realistic plan beforehand and never invest more money than you’re willing to lose.
5) Seek Professional Advice
There’s absolutely no shame in seeking help when you need it. In fact, traders of all experiences often turn towards a professional for personalised guidance and investment advice, especially during market crashes. A trading expert can help you make rational decisions as you navigate the crypto space when prices are falling.
If you’re interested in receiving professional help, you can choose to sign up for a crypto brokerage. Crypto brokers have a range of tools at hand that you can use to your advantage. Typically, these tools will allow you to practise trading, build confidence, and gain invaluable experience in a low-risk environment.
Although it’s possible to find a suitable broker alone, we suggest joining a crypto platform such as immediate-connect.app to be swiftly matched with one. This way, you’ll be sure you’re connecting with a well-rounded broker who can best assist you when trading crypto during uncertain market conditions.
Final Thoughts – Should I Still Invest in Crypto?
There is no definitive answer to this question, as we’re all different. Even in times of turmoil where crypto prices are falling, you can still potentially make a profit. However, traders should proceed with caution and ensure to carefully assess their own financial situation before making any investment decisions.
If you’re still unsure whether you should invest in crypto or not, then consider the following questions:
- Do I understand what cryptocurrency is?
- Have I considered the complexity of the crypto markets?
- Am I aware of the risks of trading?
- Am I willing to dedicate my time?
- Can I handle the emotional stress?
- Do I have a trading strategy?
- Am I in a stable financial situation?
If you can answer ‘yes’ to these questions, it’s safe to say that you’re ready to embark on your investment journey within the crypto market! If you’re a complete beginner, then we recommend starting by investing small amounts and slowly building up your portfolio.
Finally, since crypto prices are currently low, you should keep in mind that their recovery could take months. It’s also possible that market conditions will get worse before they get better. So, be sure to refer to our list above when trading crypto assets in these turbulent times. Good luck!
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