We are now experiencing something called bear market, or market crash, not only in the cryptocurrency field, but also on stocks and bonds and commodities and almost everywhere. So here are the possible reasons of this fall and some tips from pro traders how to deal with it.
Why are the markets crashing?
There are at least five possible reasons why the markets are bleeding so much lately.
- Global macroeconomic uncertainty. Global economies are struggling with historically high inflation due to the pandemic and before they were able to recover, there started a war in Ukraine, which is also not having a positive impact on all the markets.
- American FED and other central banks are tightening their monetary policies, which could eventually lead in stagflation, where investors are fleeing what is still viewed as high risk assets.
- Correlation of Bitcoin and technological assets is now higher with institutional investors from the technical field having higher shares in Bitcoin. And as usually, if Bitcoin drops, altcoins follow.
- Sharp sell-offs by whales and institutional investors, which resulted in large inflows of cryptocurrencies into the exchanges. Such a situation usually suggests that whales are leaving the market and can be interpreted as a preparation for longer declines.
- Drop of the markets leads to FUD of smaller and new investors, who are now selling in panic and increasing the drop.
What to do now?
Set up your goals and priorities in an investment plan, if you haven’t done so yet and what is the most important, stick to your plan. If you change your intentions from day to day, you will entangle yourself in this ever-changing environment and will likely end up with loosing much more in the end.
- Protection against inflation: Is your plan to protect your money from inflation over the long term with cryptocurrencies, and possibly even appreciate in value? You can focus on staking.
- Freedom from conventional banking system: Focus on a mix of long term staking and active use of digital currencies, where ever it is possible. Learn how to use all the advantages before you decide to exit the conventional system.
- Highest profitability possible: Do not bet all on one token and do not bet more than you can afford to loose. Stories about getting rich by buying cryptocurrencies ALL-IN style are nice, but you don’t hear about the messed up lives of people who didn’t make it.
What to keep on mind at all times:
It is important to remain calm, not get swept up in the FUD and possibly use the downturn to replenish portfolios.
FUD, i.e. Fear, Uncertainty, Doubt, is also shown by the so-called fear and greed index, which tracks the prevailing mood on crypto markets, i.e. whether investors are more positive or negative about the price development. The value of this index is now at numbers showing extreme fear, and even reached 10 this week, the lowest number in a long time.
Golden rule of investing
Crypto market veterans advise to remain calm at this time, not to get swept away by the downward curves and to hold on. It’s also a good time to remember the golden rule of trading, never invest more than you can afford to lose.
Buy the dip
Conversely, professionals take advantage of these downturns to buy at bargain prices. So consider the price drop more like a sale and an opportunity to buy well.