Recently, we saw the crypto market on fire in the news. The crash of the stablecoin Terra/USD wreaked havoc among investors, and other crypto assets felt the blow. It’s up to you to decide whether you would like to keep your funds online or cash them out, but there are still a few ways how you can use your bitcoins for payment. If you were also caught in the middle of this winter, don’t worry. Here’s how you can protect yourself.
Cryptocurrencies have undergone a few periods of price adjustment during their short history. We’ve seen bitcoins rising from worthlessness to dozens of thousands of dollars per unit. We’ve seen so-called stablecoins collapse out of the blue. The periods of prolonged declines, known as the “bear market”, are testing times for investors.
Bear market periods are those when prices drop below 30% from the highest mark. During these periods, panic selling is always risky, which can extend the winter even further. 2022 has been a particularly challenging year, with Bitcoins freefalling and stablecoins failing to live up to their “stable” promise.
Anyway, the Wind Blows
Cryptocurrencies are arguably the most volatile assets out there. 12years ago, no one took it seriously, and a now-famous user bought two pizzas for BTC 10,000. What seemed like a joke back then is now worth a real fortune: over USD 230 million. Still, Bitcoin’s value today is less than half what it was in its best moment.
After reaching USD 60,000 per unit, now it’s valued at about USD 23,000. It goes to say how volatile and erratic this market can be.
How long will this upward trend last? No one knows, and that’s why you should keep an eye on market fluctuations, which can happen daily. Here’s what you need to bear in mind if you don’t want to get caught in the middle of a blizzard.
Go With the Flow
We’ve seen cryptos collapsing before, and we’ll surely see it again. Not only cryptos can collapse, but also the platforms that support them. Many crypto exchange companies worldwide went bankrupt or are struggling to stay afloat after the last storm. If you want to invest in this market, you should follow these events closely. That’s the only way to educate your choices and still have a chance to escape from a crash.
No Panic Selling
Panic selling is the harbinger of financial chaos. We’ve seen that happening on Wall Street in 1929 and its consequences. Investors, worried about the low price of their assets, begin to liquidate them, to avoid further losses. It seems reasonable, but when many investors do the same, it disbalances the supply-demand ratio, plunging prices even lower. Resist the panic.
Don’t Risk More That You Can Lose
Here’s the same advice that was often given to gamblers: don’t risk money for essentials in this business. Doing so can have dire consequences. In fact, many financial advisors say that it’s better to create an emergency fund or to repay a debt before entering this market. The bottom line is that you should be financially healthy and invest in this market from a stable position.
Variety Is Gold
Let’s pretend for a moment that you put all your life savings into terraUSD, the coin that collapsed last May. How would you be right now? That’s why investing in a portfolio of cryptos is advisable instead of investing in only one. This way, it’s also possible to manage your investments more efficiently and allocate resources where they’re more profitable.
Is It Time to Start?
It seems like a good moment to buy devalued assets now that prices are low. Investors doing so are betting that this market will recover, turning cheap investments into sizable profits. However, there’s no way to tell when or even if this market will actually heal. So, it’s important to tread lightly.
Popular crypto exchanges, like FTX, Coinbase, and Binance, offer an easy way into this market, especially for those buying cryptos with American dollars. It’s also possible to resort to some famous payment apps, such as PayPal, Venmo, or Cash App. However, these apps usually have much higher fees and also request proof of ID, defeating the anonymity of crypto transactions.
Still, it’s not advisable to invest only in cryptos. According to Anjali Jariwala, a financial planner from Fit Advisors, cryptos should make no more than 3% of your portfolio of investments.
A Spring Awakening?
The crypto market has shown the first signs of recovery in the last few weeks. At least, it seems like the worst part of the storm is gone. Last month, the crypto market registered USD 1 trillion in capitalizations. It’s a good sign of recovery, but it’s still USD 2 trillion short from last November. So, it’s still too soon to say that this market is already out of the woods.
According to Cesare Fracassi from the Blockchain Initiative, it can take decades to understand how a particular asset plays in a portfolio. It’s only possible to compare the returns on stocks and bonds, for instance, because there is about 100 years’ worth of data on the subject.
Cryptocurrencies have been around for less than 15 years. Crypto assets have gone through such extremes during this period that it’s almost impossible to predict their behavior in the long term.