Cryptocurrencies have a history of volatility. Just look at the price of Bitcoin since its inception. You’ll see huge swings over a short period. The volatility is influenced by many of the same factors as other markets, including supply and demand, news developments, government regulations, and public sentiment.
As they gain more mainstream acceptance and large corporations and institutional investors enter the crypto market, cryptocurrency could trend towards less volatility, experiencing ups and downs more akin to the stock market.
As this asset class continues to develop, it is essential to learn to deal with downswings and bear markets. Here are five ways to stay calm when the market gets volatile.
Invest only what you can afford to lose
We’re starting with the most essential way to stay calm: only invest what you can afford to lose. It may be tempting to look at the stories of overnight millionaires and go all-in on crypto, but you should be disciplined, strategic, and realistic. Examine your investment portfolio and allocate your assets across several investments.
Start small if you want to get into the crypto market but don’t have a large sum to invest. Invest what you can afford. Use your gains to reinvest and diversify your portfolio.
Volatility is a reality of cryptocurrency. That volatility drives gains, but it also contributes to significant losses. Public sentiment is a massive driver of those price swings. This sentiment means that emotion plays a role in the market and your portfolio.
As an investor, you are not in control of public sentiment. This lack of control is why examining your risk tolerance is so crucial. Everyone’s tolerance is different. If you feel anxious about the money you could lose, you may want to go with a less volatile investment.
Stay calm and put your phone down
Losing 20% of your investment in a single day is a stressful event. There is no doubt about that. But investments are a long-term proposition. Constantly checking the value of your cryptocurrencies is unproductive.
One tip is to set an alert on your phone. If the price of a cryptocurrency you’reinvested in drops below a certain threshold, it triggers an alert, and you can decide at that time. This will help you avoid looking at every slight dip and avoid some undue stress.
Avoid making emotional decisions. Do not panic. Ask yourself if you believe in the long-term opportunity? If yes, you need to adopt a long-term mindset.
Think big picture. If you believe that cryptocurrency is the future, you need to think long-term. Bitcoin and Ethereum have grown in value overtime. If you sold on a 20% drop in 2017, you’d have missed out on long-term gains.
Focus on your long-term goals. Are you investing for retirement, education costs, or just to be involved in an exciting, cutting-edge technology? These goals will guide you and what type of losses you can take. If you are young and saving for retirement, you are bound to experience peaks and valleys over the long term. But you have a long runway, so there is plenty of time to bounce back.
If you see a downturn in your portfolio, step back. Do your research and find out what influenced the price drop. Ask if it is a minor blip or a significant development that impacts your investment’s long-term viability.
Be rational and logical, and avoid the emotional investing trap. In fact, a measured approach may be beneficial. When the market takes a downswing, it maybe an opportunity. Buy low, sell high is the axiom for a reason. When the price dips, that is the time to buy.
On the flip side, avoid the FOMO that comes with a massive gain that you missed out on. Don’t react emotionally and buy up as much as you can. Again, step back. Ask yourself why you are purchasing. Do the research and decide with a cool, calm, and collected mind.
If you are looking for access to liquid capital from your portfolio and need it on short notice, cryptocurrency may not be the best investment. Furthermore, if the ups and downs cause too much stress, it is important to question if crypto is the right asset for you.
Diversify your portfolio
Be sure to diversify your portfolio so that all your eggs are not in one basket. As an investor, putting all your equity in one asset is a risky proposition. There are thousands of cryptocurrencies to choose from. Do not invest in a single coin. You never know what the market could throw at that coin.
You want assets that do not have a correlating value. That means that they don’t move up and down together. You may consider some assets that are not crypto to ensure that you are truly diversified. Equities, bonds, and property are all options. Some will lose value, and some will gain, but you should see more gains over time than simply leaving your money in a savings account.
Ready to invest in crypto?
Now that you have the skills to stay calm in the face of a crash, you’re ready to invest. Get started with digital currency quickly and easily on Canada’s most secure exchange platform. In only three steps, you’ll be able to buy and sell crypto. Create your account, add funds, and start investing. It is that easy.