Markets simply can’t go up without interruptions, and so price down terms are expected, healthy parts of any asset—crypto tokens are no exception. Despite this, many investors struggle to cope with downtrends and often forget the real reasons why they invested in the first place. In this article, we’ll try to help by providing a basic framework that anyone can follow when crypto prices are dropping, as well as tips on how to stay resilient to panic selling by focusing on the right things.
The first question many ask is why are crypto prices down in the first place. To answer that, we have to zoom out a bit and take a look at the entire global economy, not just the crypto market.
Some aspects behind Bitcoin’s price drop could include record-high energy prices thanks to the Russian-Ukrainian war, weakened post-COVID economies, and the synergy of all the above. In the upcoming section, we’ll explore the economic effects and motions in detail.
Record-high inflation rates almost certainly have an effect on all digital asset markets, cryptocurrencies, thus Bitcoin included. The really unfortunate aspect of the situation in mid 2022 is that inflation is high despite the fiat currency regulating bodies, such as the U.S. FED, or the European Central Bank, are hiking interest rates in an attempt to hold back inflation. Higher interest rates mean less money flows into economies, which naturally slows them down. However, with slower economies usually comes lowered inflation, which just has not happened yet. All this causes many investors to be more cautious than they would be otherwise, which could involve them withdrawing parts of their investments. In the end, such sell-off at scale can cause the prices to drop significantly, which might have been the case with crypto assets, too.
It is almost impossible to predict when prices will recover, however, there are certain things that everyone should keep an eye on.
First off, try to follow currency issuers, or the U.S. FED’s reports about inflation. Seeing decreasing, or stagnating, numbers would be a great sign towards recovery.
Secondly, monitor the Russian-Ukrainian war’s status. Every move that de-escalates the situation and calls for peace can be considered a positive step towards price rebound.
Lastly, monitor the crypto market and prices every day, and try to spot potential support lines that assets might be able to get stuck on during their way down.
Note that the following section contains tips that are not suitable for traders with leveraged positions.
When crypto prices are dropping, on top of exercising the above paragraph’s steps, try to stay calm and avoid impulsive decisions at all costs. Remember the real reasons why you bought in, which hopefully include some level of long-term gains instead of hopes about overnight millions. Take a look at past downtrends, and you’ll quickly see that most large-cap assets recovered even from the worst looking situations after a while. Remind yourself that price drops are healthy parts of every market and that impulsive, rushed decisions will often do more harm than good for your portfolio.
Double-digit percentage drops in prices can shake the confidence of even the most seasoned investors out there. Feeling fear is natural, but keeping a cool head and making well thought-through decisions can go a long way. Give the above-mentioned tips a try, and always remember: every winter is ultimately followed by a sunny season.
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