Should You Buy In During the Crypto Crash?

Investing in crypto is volatile, meaning it can be extremely profitable while running high, but it can crash hard when the market turns. 

The current crypto crash has many crypto investors feeling anxious and unsure of what they should do next. Do they hold onto assets and hope the market rallies soon? Or should they sell, possibly locking in a loss, to protect their portfolio from further downside?

Understanding market cycles and why crypto is crashing can help ease investor anxiety. In fact, many investors see market crashes as an opportunity. Whatever you decide, it’s best to act based on research and sound insight. A hands-on crypto broker can provide investors with the necessary analysis and knowledge to help better navigate choppier markets.  

What's the Cause of the 2022 Cryptocurrency Crash?

This is not the first time crypto has crashed. However, this crash, like more recent cases, is different from historical crashes. As crypto has largely been disconnected from traditional financial markets and government intervention, most previous crypto crashes were isolated to crypto. Additionally, when compared to other asset classes, cryptocurrency is still in its infancy. It’s expected that a relatively small and new asset class will be erratic and see peaks and crashes independent of established financial markets. However, the current crash is impacting cryptocurrency and traditional markets. 

The pandemic caused markets to crash in 2020 as fears around COVID-19 caused a huge sell-off. Bitcoin tanked, losing half its value from mid-February to mid-March. The S&P 500 took a hit as well, plummeting by nearly 20%. Following the capitulation, markets kicked off an extremely strong bull run. In 2021, Bitcoin reached a $1 trillion market cap for the first time in a record year for crypto, while the S&P 500 registered 70 all-time highs.

However, as traditional and crypto markets surged, so did inflation, off the back of financial stimulation programs rolled out in response to the pandemic's negative economic impact. To fight subsequent inflation, the Federal Reserve decided in March 2022 to carry out the first in a series of rate hikes aimed at slowing consumer spending. Higher rates translate to increased borrowing costs for consumers and businesses, discouraging general economic activity. With this in mind, the economic outlook turned bleak so investors backed out of the market. This has contributed to a decline in the price of equities and crypto and so a bear market emerged. 

Has Crypto Crashed Before?

Like any investment market, the crypto cycles through phases of gains and losses. For example, crypto crashed alongside other markets in 2020 because of pandemic-related fears. In late 2017, Bitcoin, Ethereum, and Binance all experienced volatility going into 2018. Bitcoin also experienced a crash in late 2013 going into 2014 and fell more than 50% in value. These crashes can happen for a variety of reasons, such as the Federal Reserve tightening interest rates in hopes of staving off high inflation.

Should I Worry About Crypto Dips?

It’s nerve-wracking to watch your assets plummet in value. However, it's important investors remember that bear markets are an inevitable part of investing. Without risk, there is no reward. 

The dip in crypto may be driving investors away or testing their resolve. However, many will stay knowing the markets, both crypto and the S&P 500, generally trend upward. This bear market will pass. No one knows how low the market will go or how long the bear period will last but will turn into a bull market, again. 

If you’re concerned about how the dip will affect your portfolio, you can work with a personal crypto broker who will help you to navigate the bear market, protect your portfolio and position yourself for the next bull market. Despite the negative narrative of a bear market, it’s worth recognizing the opportunity for gains in trading crypto.

Is Buying the Dip a Good Strategy?

Buying the dip is a strategy designed to take advantage of a bear market’s low prices. Investors buy assets when the market bottoms out in the hope of making a profit on them once the market rebounds. This can be a good strategy for investors with cash to spare, but it can also be risky. Traders can’t be certain when the market will rally or whether an asset’s value will fall even lower. So, if an investor chooses to buy the dip, they must be ready and able to wait patiently for a market upturn.

Buying the dip is not exclusive to crypto trading. Investors in traditional markets have been buying the dip for years. According to a CNBC article, investors who put $10,000 into the S&P 500 in early 2001, would have turned their investment into $42,231 two decades later. Showing the value of staying invested during market dips. After a bear market, it’s most likely that assets will increase in value, so there’s a good chance you can profit from low-priced assets. But again, there’s no way to tell when they will turn profitable.

5 Strategies When Cryptocurrencies Plummet

Investors have been weathering bear markets for centuries, and crypto traders can, too. Of course, every trader will have a different strategy, and strategies that work for one investor may not work for another. These are five potential ways traders can navigate a crypto crash:

1. Diversify Your Portfolio

Many investment professionals will tell you that diversifying your portfolio is the best way to hedge against risk. For crypto investors, this may include owning holdings in different crypto sectors and individual crypto assets, or expanding into traditional investments. While most crypto assets are impacted by a crypto crash, some assets will likely cope better than others. Historically, Bitcoin and Ethereum have been safe havens in a volatile crypto market. Therefore, diversification is safer than putting all your money into one asset.

2. Buy the Dip

Buying the dip may be a good strategy if you have the capital to spare and are prepared to wait out the market before turning a profit. This practice allows you to take advantage of the low prices and flip the assets when the market returns to a bull state and your positions are showing a healthy profit.  

3. Find Quality Investments

Ensure your portfolio includes quality assets and isn't limited to trendy and volatile meme stocks. Research is key. Look into the team behind the asset, how its supply mechanisms work and what its use case is. Invest in assets that you are confident offer real value and will perform well on the other side of a crash. 

Don’t get sucked into the FOMO (fear of missing out) from the latest coin blowing up on social media. Jumping on the bandwagon isn’t a reliable strategy, and it can be costly if you’re late to it. Do your research, cast your judgment and ignore the noise.   

4. Hold Your Assets

It’s hard to watch your portfolio decrease in value, but sometimes the best way to get through a bear market is to hold on. Keep your assets and don’t sell them off when they fall in value. You’ll lose money if you sell off in a panic at the first sign of a market downturn. The market will almost certainly improve, and your quality assets will likely increase in value again in the future based on previous market cycles.

5. Work with a Hands-On Broker

If the crypto crash has you concerned and you aren’t sure what your next move should be, you can turn to a hands-on crypto broker. Crypto brokers are experts in all things crypto and can lend you their expertise to help guide you through a challenging market, reviewing the best strategies available to pursue. 

Brighter Days are Ahead

A market crash can spook even the most experienced investors. It’s critical to remember that bear markets are a feature of investing in crypto or any other asset class. There’s no way to know for sure when the market will turn bullish again, but the crash won’t last forever.

Every portfolio is different, and it’s up to each investor whether they will sell, buy the dip or hold on for dear life (HODL). Either way, it’s important to stay calm and know there is still the potential to profit in the future.

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