The crypto markets are in bloodbath mode today. Bitcoin is down 14%, plunging below $5,000 to new yearly lows. Bitcoin Cash has tumbled 43%(!) allowing Stellar to become the fourth-largest cryptocurrency by market capitalization.
Almost every coin is down by double-digit percentages.
Despite numerous analysts claiming that Bitcoin has “bottomed,” it’s clear this bear market is not over.
Some of you will have been here before. After 2013’s bitcoin high of $1,100, we struggled through a long, two-year decline before bottoming out at $220.
But if you’re starting to panic, here are nine possible strategies to navigating this crypto massacre.
Note: Neither Block Explorer nor the author provides financial or investment advice and this article should not be construed as such.
1. Don’t Try to Time the Market
Whatever you do, don’t try to time the market. Don’t believe anyone that tells you that bitcoin has bottomed. The truth is: no-one knows where the bottom is. Really.
John Bogle, the grandfather of index funds once said: “Sure, it’d be great to get out of stocks at the high and jump back in at the low… [but] in 55 years in the business, I not only have never met anybody who knew how to do it, I’ve never met anybody who had met anybody who knew how to do it.”
If professional investors can’t time the stock market (with its hundred-year patterns and history), you certainly can’t predict the crypto market.
One of the strategies we’ll cover is buying more crypto during the crash, but don’t convince yourself this is the bottom, and be wary of trying to “catch the falling knife.”
As we go through these strategies, always keep this number one rule in mind.
2. Do Nothing (Hodl!)
Hodl is the rallying cry of all bitcoiners who are in the red. The term came from a drunk BitcoinTalk forum user who adamantly claimed he was “hodling” (misspelling the word “holding”) his funds during the 2013 market crash.
Five years later, that strategy would have paid off. Holding on through the darkest moments and riding out the dips is a classic investment strategy.
However, we are not in a classic market like stocks or commodities. There’s no long-term historical precedent to assume bitcoin will recover. We should also remember that stocks are tied to companies that sell real things to real people. Even in a crash, they carry on business and bring in money. That’s not (always) the case with crypto.
Bitcoin has recovered from price crashes before and hodlers have been rewarded. But beware there is no guarantee Bitcoin will recover to its former glory this time around.
3. Cut Your Losses
Sometimes the stress and panic of watching the value of your investments plunge simply isn’t worth it. Every investor takes losses – it’s part of the game and it’s an important learning curve.
I once threw my phone at a wall after cutting a particularly big loss in the forex markets a few years ago. It’s frustrating, but sometimes cutting the loss is the best thing for your mind!
You should never invest more in crypto than you’re willing to lose, so cutting your losses shouldn’t be too painful. If it is, it’s a sign that you’ve put too much money into the market.
Bear in mind that this bear market almost certainly isn’t over yet. Things may get worse before they get better and the losses may accumulate further.
4. Buy More?
As the old saying goes, “buy when there’s blood in the streets.”
Every investor is taught to buy when there’s fear in the market and sell when there’s hype. You don’t need me to tell you there’s plenty of fear going around right now.
Traditional investors like Warren Buffet made their fortune by purchasing assets when everyone else was offloading. It takes a high risk appetite to buy into the market when everyone is selling, but it can pay off.
Again, beware that crypto is an entirely new asset class and there’s no guarantee its price will recover.
5. Rebalance Your Portfolio
A market crash is a good time to re-evaluate your portfolio. You suddenly see which coins and projects are the most vulnerable and volatile.
As the hype dies down around crypto, this is when the true winners will emerge. It’s a good time to assess the market in the cold light of day.
6. Look for Strong Opportunities
If you are reassessing the market, what should you look for? Well, the same thing as always in crypto investing:
The team, the product, and the market they are serving.
The coins and projects that will survive this crash will have a few things in common. They’ll have a dedicated, passionate, experienced team. Look at who’s running the project and the community around them.
Next, look at the product they are creating. Does the coin or project have some type of usability or utility? Does it solve a problem or create a new opportunity?
Finally, who’s the market for this project and is it a viable one? For example, Ripple’s market is the banks, Ethereum’s is developers, Stellar’s is the unbanked.
The crypto hype is over. Only those with real value will survive, so look for that value and future market opportunity.
7. Dollar Cost Averaging
I’ve already warned against trying to time the market. So instead of waiting for the bottom, some investors may choose to “average down” by purchasing a fixed dollar amount of crypto at regular timely intervals – once a week or once a month, for example.
If you buy $100 of crypto every month, for example, you’ll average out the cost of buying. When prices are low, you end up buying more crypto (because $100 buys more coins).
You might not time it perfectly to buy in at the bottom, but you will get a more even average cost rather than purchasing in one lump sum.
It’s an age-old investment strategy that requires discipline. We should also point out that this strategy does not guarantee you won’t lose money (no strategy can do).
Watching any investment go down is difficult. However, you learn a whole lot more when things go down than when they go up!
You learn more about the market, a project’s viability and the strength of its team. You also learn more about yourself – your discipline, your appetite for risk, your mistakes and your successes.
Make sure you take something away from this market crash and apply it to the future.
9. Don’t Panic
This is easier said than done, but the most important thing is not to panic. Now is the time for fierce discipline and due diligence. Before you make your next decision, take the time to research as much as possible. Try to act with a clear head.
Despite repeated attempts to call the “bottom,” bitcoin continues to find new yearly lows. This is still a relatively new and volatile market and all strategies should take that into account.
To reiterate: Neither Block Explorer nor the author provides financial or investment advice and this article should not be construed as such.