Volatile is the word that best describes both bitcoin and cryptocurrency. It means their prices can suddenly rise and fall. For instance, bitcoin fell from $30,500 to about $23,500 within four days this month. Subsequently, it still went down to $20000. In that same period, Ethereum’s price plunged by 31 per cent. The whole crypto market has been sinking this year.
Unlike the prediction that this is the year of bitcoin and crypto. With some of them expected to explode.
However, most investors are usually aware that crypto and bitcoins are volatile. But they prefer to only think of them in terms of profit-making. Which is usually not the case. Like every other investment, you can make profits as well as incur severe losses. But there are things you can do to manage risk when prices crash. They include:
The first thing to do when prices crash is to be calm. This will determine your next line of action. For example, when crypto or Bitcoin falls and you see the dip as an opportunity to buy more. If you don’t assess the situation before buying, you will be served the proverbial “breakfast”. One of the things that can happen is that the prices might continue to fall until you lose the entire investment.
Thus, don’t make decisions emotionally when you are dealing with crypto or bitcoin. If you have already made this mistake. Then you just have to either pull your investment or hope it rises back.
Assess the situation
Several situations can affect the rise and fall of prices. For instance, price actions, policies, government regulations and rumour-driving statements. In February 2021, the central bank of Nigeria barred banks from enabling crypto transactions. Likewise, China’s financial institutions don’t provide crypto-related services since 2021. All this and more has also affected prices and caused the decline this year. Again, when other coins decline, it can cause others to follow suit. Knowing what triggered the fall in prices can help analyze when prices can fall or rise.
Remember Crypto is volatile
Cryptocurrency is volatile by nature. And it does not generate any cash flow. Thus, traders and investors have to rely on changes in sentiment to drive the price. To further explain, the crypto market is driven by sentiment. Such that when people begin to hype a coin, the price will increase. Most experts like its volatility since it allows them to make more money.
Analyze the future
When crypto prices fall, you should be able to understand what caused it and what it means for crypto. For example, if it is government regulation. You must make sense of how the situation could play out for crypto, given new developments. Some of the questions to ask are will more governments get tougher on it?
Not only will this help you know how to navigate the volatility, but it will also keep you abreast of what could happen. As well as help minimize losses.
Determine what to do
At this point, You are done panicking and have analyzed the situation and what it means for the future. You can now decide what to do.
The fact that prices crashed doesn’t mean that they won’t rise again. It’s understandable if you feel rattled. But don’t lose hope entirely. It’s an opportunity to assess why you invested in crypto. And also to familiarize yourself with the opportunities and risks it presents.Featured Image Source: The Economic Times
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