It’s been a bumpy ride for cryptocurrency investors for a number of weeks, and now, some of the popular and widely used digital coins like Bitcoin and Ethereum are substantially down from where they were just a month prior.
Volatility is a part of the cryptocurrency market and a lot of seasoned investors have gone through it. For example, the stock market has had its fair share of ups and downs throughout the years, and the cryptocurrency market, even more so.
But the question is if the latest crypto crash should lead to a change in the strategy or one should stick to their course as a cryptocurrency investor.
Just as stocks have the tendency to crash when negative news come out, same is the case with cryptocurrency values that experience a downfall whenever there is a slight bit of negative press. Last week, China’s central bank furthered its crackdown on cryptocurrency mining, which sent the value of digital coins on a downward spiral, to the point where Bitcoin had actually wiped out its 2021 gains.
But while a cryptocurrency crash can be worrying the same way a stock market crash can be, it is not a first-time occurrence. Cryptocurrency crashes happen very often and digital coins have regained their position many times over, just as stocks have recovered in their own right.
As such, you don’t necessarily need to change your investing strategy unless you come to the realization that digital currencies are too volatile given your personal risk tolerance (and to be clear, there’s nothing wrong with acknowledging that you don’t have the stomach for them). But what you should do is take steps to make sure a short-term cryptocurrency crash doesn’t hurt you.
For the most part, this really means having a safe amount of cash reserves handy for emergencies. If you make a point to stock away three to six months’ worth of living expenses in the bank, you’ll put yourself in a much better position to ride out future cryptocurrency crashes. That way, if you end up needing money in a pinch, you won’t have to sell the cryptocurrencies you hold – potentially at a loss – to get it.
With that being said, a new cryptocurrency investor should know that digital coins can be way more volatile that stocks and for that reason, it is advisable to invest a small portion of assets in the market while starting out. A good way to go about this is to assume that one will lose all of their money.
Obviously, no one wants that, and that may not happen at all. But just adopting that mindset will keep one on the right track and help in making more informed choices. It will also keep one prepared to deal with stress, in case of a massive crypto crash.
If you arm yourself with enough money in the bank, a crypto crash like the one that happened this past week shouldn’t be something to lose sleep over.