The value of digital assets goes through extreme ups and downs. While the cryptocurrency space has been booming over the past decade, it is essential to remember that the industry is still in its infancy and can be quite volatile.
For instance, on March 12th, 2020, during the initial phases of the COVID-19 pandemic, one of the most severe crashes hit the cryptocurrency markets. Bitcoin's price dropped from $9000 price levels to around $4,700 in a matter of hours. At the time of writing, however, the flagship crypto is trading at $57,157.
Sudden price crashes can easily take investors by surprise. Hence, it is crucial to be ready to handle a crypto market price crash when it takes place. Fortunately, should the markets drop, there are several ways in which investors can profit. Depending on their risk tolerance and their belief about where the markets are heading, investors can make their move accordingly.
So how do you deal with a crypto market drop? Here are a few pro tips that will help you handle and even profit from the crash.
7 Pro Tips to Deal with a Crypto Market Drop
1. Take Time To Understand the Crypto Market
Understand and remember that the crypto market crashes are not permanent. Take time to reassess your investment portfolio and keep checking the performance of the coin in which you have entrusted your money.
Learn more about the past performance of an asset or study key price metrics to gain insights into the movement patterns of cryptocurrencies. In turn, this could help you predict future price movements and wait out the market drop.
2. Consider Buying the Dip
Buying the dip can help you generate significant returns. It is worth noting that pulling this off may be easier said than done. Employing this strategy successfully would require the investor to time the market, which several industry experts have called quite challenging.
According to popular consensus, buying the dip works well only in a general bull market. If the global trend reverses, buying the dip could prove useless. Do the necessary research and consult a few industry experts before buying a crypto market dip.
3. Pinpoint Solid Opportunities
Investors must keep in mind that even if the broader digital asset market crashes, some cryptocurrencies could perform well, rising in prices.
It's crucial to find cryptocurrencies and teams that you can trust to "weather the storm" and then hold. Investors are advised to look for virtual currencies that have a solid foundation and unparalleled business model before investing.
4. HODL Your Assets
One way to manage a crypto market drop is to Hold On For Dear Life (HODL). Essentially, this means buying digital assets and holding on to them for an extended period of time, regardless of how much the assets oscillate in value.
Hodling is a popular strategy used by crypto investors. Petar Zivkovski, COO of Whaleclub, says that while hodling is undoubtedly a viable strategy, investors who practice it should stick to holding the top five cryptocurrencies by market cap.
5. Cash Out
Many crypto traders suggest cashing digital assets to fiat currencies when crypto markets crash. This strategy also requires investors to time the market, both when you exit and re-enter, to profit from the move.
Remember that it is wise to allocate only the money you can afford to put at risk while investing in volatile assets.
6. Short Your Holdings
If done correctly, traders and investors can generate compelling returns by shorting Bitcoin or other digital assets. Notably, many popular exchanges such as Bitfinex, Poloniex, and Kraken all offer this service.
Shorting can be risky and is a strategy often used by sophisticated investors. Before using any strategy to profit from a market crash, investors are advised to perform their due diligence.
Diversification is a key to any good investment strategy, and it holds true to cryptocurrencies as well. For instance, it is not a good idea to put all of your funds in Bitcoin just because it's a popular asset. There are thousands of coins to choose from, and it is ideal to spread your investment around to various currencies.
During a market drop, if you choose to invest, make sure to have a well-diversified portfolio.
Crypto markets can be very volatile, but with all the above-mentioned points in mind, you will learn how to deal with a crypto market drop easily. Remember that these crashes are short-lived in most cases and are likely to bounce back shortly.
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Virtual currencies are highly volatile. Your capital is at risk.