The crypto crash of 2022 has seen significant digital assets give back the gains they experienced during the previous historic bull run. One of the major causes of the crash was the tightening of the money supply and the rise in interest rates. While these changes aim to curb the increase in inflation, one of the side effects is the devaluation of risky assets like Bitcoin.
The decline in crypto prices puts a lot of hassle on individual and institutional buyers who made purchases when the market price was at the top. It is interesting to know that every time the Bitcoin price goes up, it gains all the hype, and people get excited about it, but not knowing some people, the last person to make a purchase is a person who buys the price at the top. And that person will be the one to panic when Bitcoin crashes below the buy price.
What would you do if cryptocurrency fell below your purchase price? Remember that the mechanics and factors that drive Bitcoin crashes are different, and it may help you to know that there are also laid-out guides like this one, to follow to avoid being affected whenever Bitcoin crashes.
Why Does Crypto Crash?
The cryptocurrency price can be affected by factors such as inflation, interest rates, market speculation, or other microeconomic factors hindering buyers' confidence. The rise of interest rates makes savings accounts more attractive to some people, who feel that putting their money there will give them predictable returns.
When the price of Bitcoin falls rapidly, as it did in 2022, this can put undue pressure on the market by forcing buyers to sell to meet other obligations. Another factor that can cause a Bitcoin crash is buyers' pessimism due to government actions by regulators worldwide.
How To Survive The Crypto Crash
Since the Bitcoin market is very volatile, the market can bleed more than 50% in a matter of months and reverse growth. Since the end of the bull market, the market has become more bearish in recent months. It is healthy to remind buyers that Bitcoin prices can move up and down without any notice; buyers should be ready for anything. There are different ways to protect yourself from crypto crashes and practices you can adopt to prepare for a sudden crash. Here are four of them:
Always Have an Emergency Fund
In crypto, emergency savings are like a life jacket that pops open when you are about to drown. A solid emergency fund can relieve some of the stress of a market crash. It gives you the reassurance that you can still meet your financial goals. Have a well-stocked emergency fund to prevent total loss of funds during a Bitcoin crash.
Buy What You Can Afford To Lose
The first rule of cryptocurrency purchase is to only invest money you can afford to lose in the long run. Stories about people who made over 2000% in a year can get you carried away in the hope that you will make similar gains. Only a handful of assets in crypto can produce such returns.
With the current economic environment, there is no guarantee that any coin will achieve such a return in 2022. You will not be disappointed if you buy crypto with the money you can afford to lose when the market crashes. And most importantly, you will not be forced to sell your assets at a loss; instead, you can hold on and wait for the prices of your assets to recover.
Your Cryptocurrency Should Only Represent a Small Percentage of Your Storage Portfolio
As we said earlier, Bitcoin is a volatile and high-risk, and your purchases portfolio should only contain a small percentage of cryptocurrency. There are ways you can calculate how much you can allocate depending on the risk, your knowledge, and the extent to which you believe crypto could outperform the stock market. To avoid overexposure to risk, you can diversify your assets so that when BTC crashes, you can handle the loss by relying on other purchases.
Beware Of Herd Mentality
Online crypto communities are places you can learn about and discuss about the dynamics of crypto and Bitcoin, but that doesn't mean that you should take any advice you come across in those communities and forums. These forums and communities are filled with lobbyists whose interests don't align with yours, and they are not affected if you lose your funds to the market crash. Stay focused on your personal goals and risk tolerance when purchasing cryptocurrencies.
Purchase Cryptocurrencies with Long Term Potential
There are several attitudes when it comes to buying in cryptocurrencies. Most people see it as an excellent short-term speculative buy, while others want to get in early and ride the wave to profits. Thinking long-term is a great way to protect against panic selling when the market crashes.
If you plan to hold on to a crypto asset for the next five years, you are more likely to do thorough research before you make the purchase. If you are thinking about buying crypto for the long term, it is easier to see a market crash as part of crypto's volatility.
Making up your mind about cryptocurrencies with long-term potential is not easy. So many projects did not survive the bear market in 2018. Experts say 90% of current cryptocurrencies would not survive a prolonged crash like in 2018.
The crypto market has been down and keeps going down, and we don't know when it will pick up again or when the next bull run will start. The recent crash has already been dubbed "crypto-winter" by some. One significant factor that can reduce the excess crashes is the increase in regulation, which could substantially impact Bitcoin prices in the long term.
As a buyer or prospective buyer, the best way to brace up for a market crash is to think long-term and diversify some assets into real estate, cash holdings, and even stocks. Bitcoinis an exciting asset to hold on to, but it should not be the only asset you hold on to. We do hope that this article will serve as a guide to help you navigate through a BTC crash.